To make a Profit, the business needs to focus, not on breaking even, not on survival, but on business profitability – literally, the ‘ability’ of the business to aim at and produce a specific dollar amount of profit as a percentage of projected gross income. Only when this is the clear business target is it possible to build a business that can deliver profit to the owner year after year. Only then can that business truly become an ongoing, revenue-producing asset for the owner. How is this done? How can a business become a profitable asset? Show me the Money! Most small businesses are inherently profitable. Depending on the business, a reliable profit of 10% to 30% of total annual sales already exists as the potential, ongoing profit return on investment of the company. But where is this Profit? Why is it so hard to see, let alone produce?
As a small business consultant for a major consulting practice, I was continually amazed at the number of small-to-medium sized companies operating with a ledger notebook and aluminum box for cash. I was stunned that the computer was used only for internet email, customer letters and office decoration. The accounting software (QuickBooks or Peachtree) was on the computer for tax purposes used by the accountant at tax time. As a consultant I was able to help the small business owners realize the most effective way to run a profitable business was to plan to be profitable. By getting the owner to understand that expenses and sales should be planned towards a goal and events controlled in such a manner as to yield the profit target. By not monitoring the profit and loss statement, the business events control the owners, and management cannot drive process and procedures toward profits. The accounting software packages were then set up to view each product by profit and loss statements on a monthly and annual basis. This allowed the small business owner the ability to react quickly to any deviations from its budgeted plans (cash falling through the cracks). The organization learns from the feedback it gets by comparing budgeted goals to actual results(revenue decreasing). Communication increased throughout the organization about employee expectations towards profitable goals.
Owners, when was the last time you updated your business plan, which is probably on your bookshelf where you placed it since you initially developed it. Now, don’t get bogged down in the document, just dust it off and use a red pen to ask your self the following questions:
Profit Planning: Budget vs. Business Plan
Has the management team updated the business plan to reflect current/future market industry ‘realities’?
Does my management team understand the ‘market intricacies’ of each product they sell and service in the business unit they oversee?
Does my management team understand the ‘customer’ product needs and wants they sell and service in the business unit they oversee?
Have you developed a profit and loss statement for each product? What are your sales revenue, direct costs, and overhead expenses for each product?
Have you benchmarked your Gross Profit margin against industry standards? Is it high or low?
How are your products sales trending? Quarterly? Is product cost percentage lowering as you sell more volume of products? If not, can workflow be streamlined.
Is my business making money? Do I have a simple profitable business model in place for every product?
Have you identified your bestselling product lines vs. your worst selling products? Select which product will grow your business?
Have your management team created action plans to meet planned product profit specific objectives and goals in target areas?
What is the current morale of the employees? Who will champion the ‘Profit Program’ that they can believe in?
What are the current ‘roadblocks’ to lowering cost and increasing throughput of products? Why?
What are the training needs of my employees to achieve profit goals? How will training improve business or morale?
Do the employees know what’s expected of them? How will they be held accountable for performance?
How will they be rewarded? Plan to give Incentives, increase Profit-Sharing, surprise Bonuses, spontaneous Intangibles?
Have your managers and supervisors set specific production objectives and goals in target areas?
Are my employees cross trained in key (growth products) production areas? Why not?
Do I have financial measurements scorecard posted in work area? Do I have relevant workflow processes posted in work area?
Do we have the best technology solution in place to reach profit goals?
Has my customer base changed?
Has my product/service offering changed?
How often/how many new customers have I obtained in the last year?
What product do my customers need to solve their problem? What services can we offer to provide convenience or can we lower product cost?
Are there any solutions outside the industry that will ‘wow’ the customer? Is the marketing strategy relevant to customer wants?
What is the company reputation to the customer? If low, how can we improve reputation and brand image to the market?
Do I know who my best customers are? What do they really want?
Do I have more/fewer customers? Why did they leave?
Who are the current ‘bad customers/clients’? Money Owed? Should I keep them or sell them?
Do I have new competitors? Who?
Do I have more/fewer competitors? Why?
What are the current competitive threats to my business?
How are my competitors resolving the customer problem? Who?
What industry has the best innovative solution to address my customers need? Why? Applicable?
What technology is a competitive threat to my bestselling product?
Evaluate answers against the strengths and weaknesses of your business capability. Formulate your strategy according to the opportunity available in the marketplace. The game is to make money for the long term, not to see how many widgets you can ‘hide’ at the end of the month or play financial engineering games with the books.
It is never a good idea to cut your price, even in tough economic times. If you do cut your prices, only do it for a limited time encouraging customers to “act now.” This should be a last resort effort.. The temptation to cut your price in tough times is great. Ask your management team ‘If we cut prices, how will you get the prices up when the tough times are over?’ Stay on the message. Your value doesn’t diminish in tough times. Why should your price go down? Businesses should focus more on customer satisfaction. By focusing on delivering more than you promise, you are putting the customer first. It reinforces their decision to buy.
Look for businesses that you can partner with to cross-promote your products and services while sharing the costs. For example, a laundry mat offers free detergent with each washer load and the free detergent is paid for by both the owner of the laundry mat and the supplier of the detergent. The price was not reduced, but there is a unique incentive for the customer with a specific start and end date, which will get the customer to “act now.”
Plan to profit with sales this year. Explore new markets, new prospects and new products and pitches. This year, the three Ps of marketing your business are: prospects, products and pitches. All three may need to change a bit to get you to a profitable year.
You can do it. Surround yourself with mentors who you can talk to plan for success. It’s amazing the difference it makes just talking through your ideas. Think of planning as preparing yourself for success with a clear profit picture in mind.
As you review your business plan, ask yourself where else you can sell your product or service. Go back to those customers who have not bought from you in a while. Have a compelling reason for them to buy from you now, such as improved service, different products or greater customer satisfaction just to name a few. Does it make sense to enter new geographic markets? Have any competitors in that market left or ‘retrenched, waiting for better times’?
Update Your Offerings
After reviewing your business plan is it necessary to change or update your product or service offering? Will product or service changes or additions allow you to sell more to your existing customers? An “update” here could mean a redesign of your web site, starting a blog, joining a social network. Essentially any way you can expand your reach to potential customers. The reason newspapers across the country are closing is due to lack of readership. People are moving to the internet for their news and information… and to find your business!
Improve Your Pitch
Thoroughly understand your product and service and why someone should buy it from you. Use written testimonials from some of your satisfied customers.
• Tell your story in five minutes or less.
• Practice to perfect your pitch “before” the sales call.
• Listen well. Ask questions & really listen to the client’s needs and concerns.
The bottom line is practice makes perfect. Be a dedicated practitioner in client connection. You are the owner. Your time, care and connection in the sales process will bring results. In these times, you can be tenacious & focus on seeking out new opportunities which will pay huge dividends when the economy turns around.
Our nation is experiencing a recession and has been in a prolonged serious economic downturn in the past decade. According to Tom Reilly, MissouriBusiness.Net, “Seventy percent of today’s CEOs have never led a company in or out of a recession and 60 percent of today’s salespeople have never sold in tough times”.
On every championship team, great coaches must receive accurate information in order to adjust their strategy to win the game. To be a truly great small company you must operate from a core value of honesty toward strategy and profitability. Remember the old management adage ‘If it doesn’t get measured, it doesn’t get done’ and ‘Lost Opportunity’ (bad decisions) can close your business. Planning profitability is a proven business method that allows your business to measure whether its succeeding or failing, not smooth talking inexperienced senior executives, presenting the latest management theory of the month to the board.
Remember, Enron, WorldCom, George S. May International, Arthur Anderson and Tyco.