The Building Blocks of Profitability

When looking at a business, regardless of profession, industry, size, etc. there are some basic rules that apply. Which often play a key factor in the success of a business, such as “supply and demand”.

This rule has such a profound effect on businesses of all size that people dedicate their life to studying it. Going for advance degrees in business, marketing, and psychology just to understand what drives a person’s buying decisions.

As a result, large corporations then seek these individuals out, usually offering large compensation packages, in hopes of bringing that high level of expertise to their business and thus increasing their sales.

On top of supply and demand experts’ large corporations will also seek highly skilled operational management executives. With the hope they can help streamline their business processes and increase operational and staff efficiencies.

Why do large corporations do this?

Simply put because the better they understand their customers buying patterns the more they can sell. Which in turn increasing their revenue.

Combine that with reduction in operating expenses, by streamlining their business process and increasing efficiency, and their profits skyrocket.

The combination of increasing revenue and reducing cost is the holy grail formula to increasing a company’s profits.

Small business owners often get stuck

Many small business owners get stuck when it comes to trying to make a Profit in their business.

Too often small business owners do not believe that they have the skills or knowledge to make the same decisions that these bigwig executives are making in order to grow their own profits.

To make matters worse small business owners simply do not have the funds to hire these same experts that the large corporations are hiring, and they simply give up trying. We need to change this mindset because the truth is much simpler.

“Who knew to implement Profit First is as simple as flipping the formula?“

IT’S THE SAME FORMULA!

Think about it, it does not matter how big or small your business is or how many staff members you employee. It doesn’t even matter what degrees you have hanging on your wall. The basic concept is the same for all businesses, Increased revenue and lower costs = greater profits.

What does this mean?

It means that you too can achieve profitability. The only question remaining is what do you do next?

 It’s Not All or Nothing

First, it’s important to remember that this is not an all or nothing game. You can easily start small and achieve great results overtime. Many business owners think how I am going to increase revenue and decrease operating expenses all at the same time when the truth is you don’t have too.

You can work small and targeted making minor adjustments here and there and watch your profit account grow before your eyes.

Just think about what an impact even a slight change to your operating expenses can mean to your profitability. How much profit can you make if you took five, three, or even one, percent of your operating expenses and moved it into your profit account?

Is your business really going to miss 1-5% of its operating budget?

While the greatest profitability results can be achieved by both increasing revenue and decreases operating expenses you can make quite a big difference just focusing on one at a time. You know the adage, slow and steady wins the race. It’s still true.

Flipping the Accounting Formula

Now if you’re like most owners you are probably thinking that this all sounds great, but I have no idea where to begin. That’s where Profit First comes in. profitability is not any more challenging than changing your mindset.

The age-old business formula of revenue – expenses = profit implies that profits are an afterthought. They are not something you plan for they are not something you strive to achieve but instead something that just happens profitability is a byproduct of doing business.

While in theory there is nothing wrong with that formula. It does not, however, consider human nature which causes us to not put a lot of thought or effort into things that come last on our to-do list.

Which is why we must flip this formula around, so that we can start prioritizing and planning to make a profit.

So, what is this new formula?

Revenue – Profit = Expenses

You will notice that this new formula makes your operating expenses the left over or byproduct. So, now you don’t have to decide if you’re going to profit this year or not. Instead you must decide if that expense is really needed or worth it.

Suddenly you are reevaluating operating expenses rather than compromising your profitability.  

Seems Simple Enough but where to Start?

After reading this you are most likely thinking, wow that’s too easy I’m going slice my operating expenses and start making huge profits right now.

Whoa not so fast.

Blindly cutting your expenses can have disastrous effects on your business that you may not even be aware of.

The best course of action is to make changes slowly over time, while regularly analyzing progress and making course corrections to stay on target. Implement Profit First in your business and stop worrying about your profitability.

Why use the Instant Profitability Assessment?

The Instant Profitability Assessment is a great start to implement Profit First in your business. This Assessment calculates your business’s Target Allocation Percentages for you in order to give you a unique implementation road map. As a result, you know exactly how much money to allocate to each of your accounts every month. Together with the detailed startup guide, creating your accounts and setting up a rhythm in your business has never been easier.

The included Progress assessment, taken every 12 weeks, lets you track your advancement toward reaching your profit goals. While creating a Progress road map designed to get you back on track toward your Target Allocation Percentages.

One of the great things about the Profit First Chiro Instant Profitability Assessment is it can be used for both projected and actual revenue. So, not only can you determine the best course of action right now, but you can draft plans and prepare for future outcomes.

All you need to get started is your balance sheet or profit and loss statement for your last 12 months. You can easily get this from your accounting software or with a quick call to your account.

If you don’t have this information handy you can still get close, but you will be making a projection instead of an actual plan, so it is worth taking the time to get your actual numbers.

So, what are you waiting for!

Go take your Instant Profitability Assessment now and find out what small steps you can take to achieve profitability today?