When I sold my group of companies four years ago and started working as a business coach I realised very quickly how many business owners were struggling with making any or acceptable profits. I continued my research on the subject and determined that profit had become a dirty word but why?
Alarmingly I discovered that;
- Profit was not being talked about enough by owners
- Businesses weren’t making enough of it
- Not enough was being done to improve it
- 90% of start ups fail within five years, 70% within three
- 90% of businesses don’t sell let alone sell at an acceptable profit.
This picture is very real, yes there are businesses who are doing extremely well however there are many who are not.
With this firmly in my mind my passion became to get profit back on the agenda as the number one reason for being in business, and this is what motivated me to write my first book “Profit is not a dirty word.”
So, let’s ask ourselves, why is making profit in business important?
There are many reasons why making profit is important and the following I believe are the most critical;
- To pay yourself decent income and look after your family
- Business profits are the core ingredient in building owner’s wealth
- To repay banks
- Provide funds for growth
- To look after your people
- To pay dividends, shareholder returns
- Profit is the central factor in the valuation of your business.
Profit has many stakeholders, therefore profit or making significant profits must become your focus, ‘the prime reason you are in business’.
I want you to reset your mindset on profit using the following analogy;
People start with sales in terms of what they know, what they get, costs become what they cost them, and if all goes well they make a profit, and if they don’t next year will be better. Sound familiar?
Start with this financial year “I am going to make a significant profit” (make it non-negotiable). Turn your profit and loss upside down and start with profit at the top and determine what your overheads are and this will determine what gross margin you need to generate that profit. You then determine what sales you need to generate the gross margin and determine any sales gaps, and then develop plan to bride those gaps.
This approach I call reverse engineering profit and it will show you what you need to know at the start of the financial year to make the profit you want or need, and in most cases, you will need some help with your sales and marketing.
It is better to know at the start of the financial year your gaps rather than go through another financial year and not get the result you need.
Everyone needs motivation, so I would like you to think what would the benefit to you and your family be if you significantly increased your profitability? Conversely what are the implications if you don’t?
You cannot significantly increase profitability without making change and the first change must be your “mindset.” This involves you being motivated to want to make significantly more profit and being determined to do so, the “YOU factor.”
I’d like to finish by sharing a couple of my favourite quotes, or “Phil osophies” as I call them-
“It is the size of your bottom line that makes you in business, not the size of your top line.”
“You will be remembered in business for what you achieved, not how hard you worked.”
If you would like to make significantly more profit from your business, please attend my next seminar on August 23 5.00pm at Mornington Yacht Club (Bookings Essential – www.sbaprofit-small-businessfestival.eventbrite.com.au)
At this seminar, I will show you how to significantly improve your profits, and guarantee you will come away with one significant learning that will make a significant difference to you and your business.
Hope to see you there.
Phil Coombs “The Profit Coach”