Nothing irks me more than when I hear someone utter that they have no idea if they will make money this year. Or, December comes and they discover that they need to buy something to reduce their tax burden for the year. My question is, why didn’t you know that before?
That’s where the Prophet of Profits comes in. If not weekly, at least monthly, you should know where you are financially and where you are going. Ask yourself these questions:
- What am I billing this week or month?
- What are my receivables?
- What is my backlog of work or orders?
- What bills are due to be paid?
- What payments do I have due and when?
- What other income or expenses am I expecting?
All these questions should be answerable, predictable and manageable. If that’s the case, you should be able to predict your profit for that time period. If you can’t, why not?
- Are you just not paying attention?
- Are you too busy doing what you do and do not have the time?
- Do you not know how to bring it all together?
- Do you have an accountant that you only pay once a month, quarter or year to do this?
The danger in not being able to predict your outcome is a dangerous and risky business proposition. When you start out in business, it’s very easy to toss this aside and know in your gut that you’re doing fine. However, as your company grows, as you take on more accounts, clients of orders, the reality blurs into danger. Your gut instinct becomes diluted and your ability to see the outcome is less accurate. Higher risks are now the norm.
What to do?
- Pay attention to your business status.
- Take the time to run a cash-flow analysis at least weekly, more often if necessary.
- Get help when feasible. A consultant can guide you into the right direction so you can maintain it on your own or get contract help to monitor it.
- Know where you’re going. Know that you’re are aiming for 8% (e.g.) net profits and that you’re current orders, contracts or backlog is getting you there. If not, adjust.
- Pay attention to your help (employees). They are the ones getting you to where you want to go. Treat them fairly and take interest in them. Showing that you care will create a greater loyalty to getting you where you want your business to go.
A business is a mathematical equation. Everything adds up or subtracts out. By paying attention to your business, you make smarter daily decisions knowing how they affect your bottom line. Your business profitability becomes your guiding light and success follows. Plan your success on what you know, not what you don’t know. Become your own prophet of profit.
Leading Edge Business Strategies, LLC is a consulting firm for small businesses. Paul Beaudette is the President and has over 30 years of successful business experience managing companies to sustainable profits and leading employees to productivity and growth.