Business Money Mindset Improvement (Part 1)

Business Money Mindset Improvement (Part 1)

by | Feb 6, 2018 | Coaching

6 QUICK WAYS TO IMPROVE YOUR BUSINESS MONEY MINDSET – Part 1

Business money mindset mastery is a key part of the puzzle when looking to create business success. Getting your mindset right when building wealth relies on you having both your business mindset and commercial mindset ‘in the zone’ and fully focused on the business growth non-negotiable of making profit. That means you need to feel comfortable with money and create an ‘abundance mindset’. It is all too common for many new entrepreneurs to suffer from a ‘scarcity’ or ‘lack’ mindset’ – maybe that’s you right now? In this two part series, we’re going to look at 6 ways that we can become more comfortable around money and the business of making profit – and enjoying it with confidence and ease.

business money mindset

Mindset definition

Let’s start by defining what we mean by ‘mindset’ here:

Carol Dweck (Professor of Psychology at Stanford University), noted that she perceived two categories of mindset that allowed grouping of individuals according to their behaviour, especially in relation to how they handled failure:

  • Fixed Mindset – abilities are believed innate and failure associated with belief that failure is associated with a lack of necessary abilities
  • Growth Mindset – provided an individual invests study or effort, individuals believe that they can acquire any given ability.

Dweck contended that those living and operating with a growth mindset, will tend to live a less stressful and more successful life.

All of our discussion points below in both this blog, and the second part are predicated on a fundamental belief in the necessity to adopt Dweck’s ‘Growth Mindset’ in the entrepreneurial world of the business owner.

Number 1: You and Your Business Money Mindset

This introductory mindset issue is all about you – the 4th #profitlever (You’ll hear more about #profitlevers 1 to 3 shortly). You are the key to success that you are looking for. Sounds obvious doesn’t it?

[ctt template=”11″ link=”1H3N4″ via=”yes” ]You are the key to the success you’re looking for.[/ctt]

When it comes to running a successful business as business owners and entrepreneurs we feel the day to day pressure of feeling that we need to be good at everything. Some business disciplines we feel more confident about – marketing or sales for example, and this may well relate to our past business experience or training. It is not very often however, that we come into business feeling assured about the ‘money’ side of it, the ‘business finance’ piece (that’s why we have an accountant, right?).

Consequently we can tend to feel:

  • Inadequate when it comes to discussing money
  • Stressed about going to see our accountant (often accompanied by a feeling of inferiority)
  • Unsure of what we need to do when it comes to working out how to make more profit
So here’s what we need to help with the mindset shift:
  • A simple to understand framework to help us understand how to make an efficient profit

Imagine how that would ease a large part of our negative mindset about money – actually having a framework to work to! A simple way to understand how to make more money becomes a confidence based mindset shift that you can benefit from quickly.

So let’s get back to those first 3 #profitlevers:

They are the cornerstones of the super simple to understand technique about how to improve profitability in your business that I use – indeed they are the ONLY 3 things that will ever help you grow your bottom line – you can find out about them from the download link below this post (or grab the download here), and get started working on those straight away. The framework has been specifically created in a way to help ‘non-financial’ business owners develop a stronger money mindset whilst encouraging personal growth in a probably unfamiliar financial world.

[ctt template=”11″ link=”5dp8r” via=”yes” ]The framework has been specifically created in a way to help ‘non-financial’ business owners develop a stronger money mindset whilst encouraging personal growth in a probably unfamiliar financial world. [/ctt]

But why are you the ‘4th #profitlever’?

Because the other 3 won’t be effective all on their own – they need you to take action and focus on each one strategically – the profit producing magic won’t happen without you! {No such thing as a free lunch!}

The process for making an efficient profit is simple, but it cannot work without any input or direction from you. Mindset development requires continual (re)affirmation – and it takes inner strength. But I know that you have that inner strength as an entrepreneurial business owner – you wouldn’t be where you are right now if you weren’t.

business money mindset

Believe In Yourself

You have to believe in yourself first and foremost, just like you believe in your business. Your business money mindset is a skill to be developed, just like your business will develop (and just like you have learned and developed other new skills already in your entrepreneurial journey so far):

  • Your business money mindset and business both need pushing – by you
  • Your business money mindset and business both need nurture and care – from you
  • Your business money mindset and business both need regular attention – as they are both part of you.

So you’re the 4th #profitlever – you have to do the work – you know this as an entrepreneur and business owner – you need to take action, because no-one else will do it for you.

Make the personal commitment to yourself now – if you are to create profit with ease, and consequently earn more money – don’t move on until you acknowledge and embrace the idea that your future profitability and financial success all hinges upon you taking action and developing your business money mindset. Strength and belief from within is required.

Take the action now so that you can control and be laser focused about how to make profit in your business in the most efficient way possible.

Based on the actions that you have taken to date, you are exactly where you are meant to be. Now it is time to step it up a level and commit to a new future in your business with a new mindset around money.

Remember though – there is a support network available to meet you half-way, and more than willing to do so when you are committed to your path of growth and change.

But it has to start with YOU!

Number 2: You and Your Business Money Mindset –

“I’m not a numbers person”

This second business money mindset issue is all about the temptation to hide behind the phrase “I’m not a numbers person” as a reason for avoiding our business finances…and yet we still see ourselves as the CEO of our business despite the fact that we are turning a blind eye to one of the most fundamental of business disciplines.

So we need to start with the myth itself – “I’m not a numbers person”:

It manifests itself with thoughts about ‘not being good at maths’, and the internal diversion and excuse of ‘my accountant does that’.

Let’s get this straight – you don’t need to be good at maths. When it come to the business of making profit, you just need to be able to grasp a simple concept and apply it to your business (grab the download here or at the end of this post which will explain it).

What are you looking for in your ‘numbers’?

As a business owner you are looking for a couple for things from your business numbers – insights and impact. That doesn’t mean you need to know ‘how to put them together’. This is business money mindset development in action – understanding that it is not your job to know everything about bookkeeping and accounting technicalities.

[ctt template=”11″ link=”1QN10″ via=”yes” ]As a business owner you are looking for a couple for things from your business numbers – insights and impact. That doesn’t mean you need to know ‘how to put them together’. [/ctt]

Think about it this way:

If you’re in the online entrepreneur space, I bet you’ve managed to work out a bunch of things on social media over the last couple of years (including aspects of the tech) from a standing start – maybe even designed and built your own website along the way.

If you have managed to do that, you can apply that positive mindset to learning what you need to know to take control of profit in your business. Not only that – I can pretty much guarantee that you know more than you actually think you do already – just because you don’t use the same language as your accountant doesn’t mean you don’t know anything. You are just running more on ‘instinct’ at the moment (you’re just missing a reliable framework to help you focus on the right things – check out the download below (or here) for more on that).

So now it’s tough love time:

You may not think of yourself as being a ’numbers person’, but you are a business owner, be that online entrepreneur or brick and mortar based – and the reality is that numbers are going to be an inevitable part of your future, for better or worse. So the key to success is money mindset development (see point 1 above).

Being a CEO

So let me ask you this:

Do you think that the CEO in a corporate is the best sales person, marketer, financial person, people person, production guru or organiser? No – of course they’re not. They may well have a background and a bias towards one core business discipline, and they well be more well versed in the depth of one subject compared to another.

But, here ‘s the thing though for those CEO’s who aren’t ‘numbers people’ first and foremost – they can’t avoid the numbers – they need processes and systems in place to make sure they get the numbers that they do need, and learn to utilise those numbers. That doesn’t mean they need to understand ALL the numbers – they just need to understand the parts that they need to drive profitability in their business.

business money mindset

The myth re-visited

So let’s return to the myth, and I’m going to flip it on myself for you:

Just as you don’t have to be a numbers person first and foremost – likewise, for myself, it doesn’t mean I get to avoid ‘everything marketing’.

Take for example the following:

Do I understand everything about pixels, re-targeting, SEO, video production and copywriting? Of course not – my ‘zone of genius’ lies elsewhere, but I’m not hiding from these things.

Do I have an open mind and a positive mindset when it comes to embracing the overall discipline of marketing in my business? It’s a non-negotiable for me – it is required in order to progress. Have I been and am I spending money on improving my skills – definitely.

Am I prepared to work on mindset development in this area of business. You bet! Because I know it forms part of my future and I can’t afford to ignore it.

It’s just the same for you, but the inverse scenario I suspect between finance and marketing – it is more a question of committing to the mindset shift of being prepared to understand the most important part of running a business – the business non-negotiable of making a profit.

Now you don’t need to know how to do all of the technical accounting and bookkeeping things to know how to make a profit. Your mindset development task here is to commit to understanding the concept behind 2 simple images – neither of which contains a single number! {PS – I bet your accountant has never told you that was possible!}

8 words show you all you need to grasp, and I know that if you’re running your own business, you can definitely handle 8 words that will set the profitability path for you for evermore. Your business success is built on this principle – develop your mindset to let the concept in. Remember that ‘growth mindset’ definition in the introduction? This is the time for it.

You can find the link to those 2 images and the concept behind them in the link below this post or right here.

Like most things in business life, the key is taking action. It is also about taking responsibility. So you can decide to either carry on as you are thinking that you’re not a ‘numbers person’ (‘fixed mindset’) or you can take responsibility as the CEO in your business and open your mind to receiving the knowledge that improving your profitability starts with the simplest of concepts and 8 words (and by the way, one of them is repeated, so it’s only really 7 words…easier already, you see….)

Business money mindset mastery says that insight and impact in your business numbers may come to you in a more comfortable format than you think. It is your job as the CEO in your business to find the number interpretations that make sense to you (you can talk to your bookkeeper or accountant about this, or book a call in with me below if you’d like some help with this) – that may not be a table of data in a spreadsheet – a graph can tell a simple numbers story too…you want to make more money? Develop your business mindset to create space for money mindset development too then.

Business Money Mindset Improvement – Conclusion (Part 1)

 

In part 1 of this business money mindset series we identified three mindset issues that that can hold us back in our search for greater business success and our desire to earn more money. We have seen that this is largely due to not having:

  • perceived depth of experience when it comes to business finance (remember though – you know more than you think already!)
  • a perception that we have to know everything about our numbers (including bookkeeping and accounting technicalities)

We have seen that fundamentally we need to be prepared to adopt more of a ‘growth mindset’ across all business disciplines. We have to start the mindset development work in order to take responsibility more fully for our businesses overall (as CEO’s, that is our job!).

I’d love to know which of the business money mindset issues you feel you identify with the most and why in the comments below:

  • Is it about the need to engage more fully across all business disciplines?
  • Is it about a ‘fear of numbers’ generally?
  • Is it about not having a clear plan for understanding how to make a more efficient profit?

I’m here to support you through that journey, but remember it has to start with you. If you’re prepared to start addressing these things, I’m prepared to meet you more than half-way to help you conquer the issue ?

  • Click here to sign up to make sure you receive future posts about how to make your business more profitable.

In parts 2 and 3 of this business money mindset series, we’ll be looking at:

  • Why the money in your business doesn’t belong to you…yet
  • How ‘Profit Gives You Choices’
  • Why we need to be deliberate about the profit that we (want to) make

Here’s the Download Link –

The #profitlevers system – how to an earn an efficient profit, simply: http://bit.ly/improveprofitabilityweb

 

Related Article:

How To Increase Profit In Your Business In 3 Easy Steps

Here’s to focusing on business money mindset mastery!
Jason

 

Jason A WithersHi there Profit Seeker, I’m Jason!

I help online entrepreneurs and owner managed brick & mortar companies to build profitable businesses through the application of easy to understand business strategies.

I show you how to apply and implement the strategies, take the ‘fear’ out of the numbers and help you to become more confident about the financial aspects of your business that you really need to know about.

That means less stress for you so that you can focus on making the impact that you want to make with your clients and customers, safe in the knowledge that you know how to make your business more profitable for ever more.

You can run a very profitable business with ease and simplicity. I’m here to help you make it happen and keep you accountable to your goals, providing commercial and financial support and advice to help you on your way.

Learn more about the great work we can do together here:

https://jasonawithers.com

Or you can book a call here:

https://jasonawithers.com/schedule-a-call/

Join 'The Profitlevers' Facebook Community here
How To Increase Profit In Your Business In 3 Easy Steps

How To Increase Profit In Your Business In 3 Easy Steps

by | Jan 22, 2018 | Profit

HOW TO INCREASE PROFIT IN YOUR BUSINESS IN 3 EASY STEPS

A profitable business is what we all crave. As entrepreneurs and business owners, enough is never enough. How to increase profit in our businesses becomes a skill that we have to become adept at – fast!

What we do know is this :

We hustle hard to earn profit, when what we actually want is a neat and simple system to help us increase profitability in the most efficient way possible. So that is exactly what we’re going to demonstrate here – how you make your business more profitable by applying 1 simple, universal concept.

We’re going to see that there are only 3 things that will ever influence how to make a business more profitable, and we’re going to see why the system holds true for anyone looking to create a very profitable business.

[ctt template=”11″ link=”956XK” via=”yes” ]There are only 3 things that will ever influence how to make a business more profitable[/ctt]

You might be wondering at this stage:

  1. Will this work for my business?
  2. Will it be difficult to understand?

So let’s answer those two questions now:

This will work for any business, regardless of:

  • Geography – it doesn’t matter where in the world the business is located
  • Size – turnover, staff number or office size (office, ‘factory’ or home based)
  • Whether the business is product or service based

The actual concept around how to make a company profitable is as simple as it gets:

It is essentially based around 2 images that you need to remember (no numbers!)

We’re going to outline how building a profitable business needn’t be as tough as we had come to think. The 3 easy steps will provide you with a ‘skill for life’ that you can take into any business that you ever start or are involved in – it will show you how to create a profitable business, and diagnose where the profit is leaking.

So how can a business increase profit?

We need to start with a basic understanding of how to make profit in business:

At it’s simplest level, a business will make a profit if its revenue is greater than its expenses.

This is normally summarised in a ‘profit and loss account’. Whilst you may ordinarily be used to seeing a whole bunch of numbers on a page as presented to you by your accountant, it can actually be broken down into 8 words…well 7 actually as one of them is repeated – see it’s easier already ?

Let’s take a look at it in image format (no numbers required here, it is the principle that we need to understand):

How to increase profit - the 8 word Profit & Loss Account

The 8 word Profit and Loss Account

Before going any further we need to make sure that we have a clear understanding of the words used in the image above:

  • Sales – Also often referred to as ‘turnover’ or ‘revenue’

This is the amount invoiced to clients for your goods or services

  • Direct Costs – Also often referred to as ‘Cost of Goods Sold’

These are the costs that relate specifically to a sale – this typically can include a ‘direct labour’ element as well as a cost attributed to materials, or production costs

  • Gross Profit – This is a calculation and is expressed as an amount

Sales – Direct Costs = Gross Profit

  • Gross Margin – This is a calculation and is expressed as a percentage

Gross Profit / Sales = Gross Margin {where ‘/’ means divided by}

The Gross Margin expresses the amount of Gross Profit earned as a percentage of Sales. {This allows us to track and compare our gross profitability from month to month / quarter to quarter / year to year etc              on a comparable basis (so that as we grow our businesses we can ensure that we are not becoming less profitable, or less efficient about how we make that profit}

  • Expenses – Also often referred to as ‘overheads’.

These are the ‘everyday’ expenses incurred in the running of the business, that do not relate specifically to a sale. Examples would include rent, utilities, travel, bank charges, stationery etc

  • Net Profit – This is a calculation expressed as an amount

Gross Profit – Overheads = Net Profit

That’s it. All the classic ‘complex accountant speak’, all the ‘but I’m not a numbers person’ commentary – 8 words in a picture. Earning a profit in business is about that image.

But it gets better:

These 8 words are all that we need to tell us what the 3 easy steps are going to be – I call them the 3 #profitlevers:

  1. Sales
  2. Margin
  3. Overhead

That’s right, this is all we need to tell us how to make a business more profitable. Want to see how to increase profit in business with just these 3 words? At the end of the day, we want to make business easy, don’t we?

How to increase profit and run a profitable business

We’re always on the lookout for simple ways to do things, especially when we feel out of our comfort zone (and many business owners and entrepreneurs don’t feel comfortable with ‘the numbers’, so know that you’re not alone if that’s you ?). We want to find the techniques that resonate and are easy to grasp – we need to make business as simple as possible. Running a profitable business is no different…and here’s the proof of just how straightforward it can be…

We take our three #profitlevers and we line them up as follows as outlined in the diagram below:

How To Increase Profit - moving the 3 #profitlevers for increased profitability

The 3 #profitlevers – preferred direction of movement

So if we are looking for ways to improve business profitability, we need to focus on these three areas – sales, margin and overhead. These are the only 3 things that will ever increase profitability. Moreover, each single element can improve profit if we focus on it and taking the right actions appropriate to that #profitlever. We’ll take a look at how to maximise profit in business a little later.

Let’s break down that image above and check through the logic:

  1. If we increase our sales, whilst keeping our direct costs and our overheads at the same level, we will make more profit
  2. If we decrease our direct costs (ie increase our gross margin), whilst keeping both our sales and our overheads at the same level, we will make more profit
  3. If we decrease our overheads whilst keeping our sales and direct costs at the same level, we will make more profit

This is the single image and concept that every business owner and entrepreneur needs to keep at the forefront of their mind when trying to make your business more profitable – it doesn’t get any more complex than that.

This image will become your profitability compass:

When you’re short on profit, or need to proactively generate more profit, this is the go to model. It is the simplest model to understand, and it makes it easy to implement because we can break things down into simple strategies and tactics against each #profitlever which will keep us more focused on the task at hand – which in turn will help us to achieve our business and profit goals!

Let’s see the theory put into practice:

We can see from the example below, that just by changing each #profitlever (Sales, Margin, Overhead) by ‘2 units’ we can improve profit by 20% in this particular business model. A 20% uplift for such a small change is an amazing return.

It also helps us draw three conclusions:

  1. Increasing the profitability of a business can be done using a very simple concept
  2. A small change in the right direction for any one of the #profitlevers can have a dramatically positive effect on our profit, proving the fact that we don’t need to over-complicate things to create a high profit business.
  3. The concept and the maths is so straightforward, anyone who considers themselves to not be a ‘numbers person’ can see that this is not difficult to understand – consequently, there is no reason to hide from it any more!

How to increase profit - increasing profitability with small changes for disproportionately positive profit impact

The disproportionately positive profit effect of small changes to each #profitlever

Here’s how to make your business more profitable

Step 1 – Sales

  • Review your current sales and break them down into sales channels (type of client / customer etc) that you sell to, or into product and service types
  • Consider how you could increase the sales any one of those categories
  • Put your sales plan into action

Step 2 – Direct Costs & Expenses

  • List out all of your expenses into simple categories (I tend to use the following as a guide – admin wages and support, rent & rates, utilities, banking & finance charges, office costs including stationery, postage etc, premises expenses, professional and consultancy fees, travel & subsistence, phone and IT costs, marketing)
  • Now take that list and isolate any costs that are direct costs (ie relate directly to a sale, eg manufacturing or production costs, any labour cost that is dedicated to sales specifically (could be a sales rep, could be an ‘installer’ etc), and marketing costs that are dedicated to a sale (eg Facebook advertising costs as part of a sales funnel that leads directly to a sales page)

Step 3 – Review & Implement

  • Take the overheads listing first and review to see where you could reduce any expenses. Remember your objective here is to recognise the expenditure which is not adding to the effectiveness of running a profitable business – it is likely for example that there are subscriptions being paid for that are not being used (surprisingly common), along with other costs where expenditure has been ‘discretionary’ rather than ‘necessary’.
  • Remember not to discount reviewing any area – remove the costs that are unnecessary – or at least recalibrate them. The cumulative savings will add up. For example, you only need to save $50 on $2,500 of expenditure every month to recognise a 2% decrease – that’s worth $600 of extra profit every year…
  • Now review the direct costs and determine where you could make some savings – could you ask a supplier to reduce their prices by 1%? Could you pay closer attention to your Facebook advertising metrics to see where you might be wasting some money on adverts that aren’t converting? You could save 2% ($0.40) on a $20/day ad spend ($600/month total spend) just by stopping an underperforming ad one day sooner than you normally do, perhaps (ie get closer to the analysis piece sooner and make the decision!)

Steps – Summary & Comment

You can see that the key to all of the steps above is breaking things down into manageable pieces. This makes it easier for us to focus on how to improve net profit, because we can take a series of smaller but more focused actions to create a positive cumulative effect. Unfortunately this does mean that you have some work to do initially, but your bottom line will thank you for it for ever more!

How to maximise profit in business

Following on from what we have already seen above, extending the logic of the concept we can increase profit most effectively when we move all three of the #profitlevers at the same time, ie we will develop and work with each one of the #profitlevers as individual strategies, but we can run all three strategies at the same time so that we can create the following scenario:

Increase sales, decrease direct costs (increases gross margin), decrease overheads

[ctt template=”11″ link=”9dl44″ via=”yes” ]Increase sales, decrease direct costs (increases gross margin) and decrease overheads at the same time = most efficient profit growth[/ctt]

All of these can be happening concurrently. This compounds the positive effect on our overall profitability, so instead of making one change whilst leaving the other two #profitlevers constant, we are working towards moving all three #profitlevers together at the same time, thus multiplying the positive effect on our profitability.

Here’s the truly brilliant part of it:

We find out that we only need to make small changes to each #profitlever to create a relatively huge increase in profit and thus it makes it much more straightforward to see how we can create a very profitable business much more easily than we may have thought.

Action Point

Create an overall strategy for each one of the #profitlevers, and break each one down into a series of smaller tactical actions – then work against each tactic to create the benefit in a simple and manageable way (ie reduce the feeling of overwhelm). Remember that every action you take will help to compound the overall positive effect in creating a more profitable business.

How To Increase Profit In Your Business – Conclusion

We set out to show how to make your business more profitable – and we have also now seen that it only relies on three factors – sales, margin and overhead.

We have also seen why the concept is both simple to understand and universally applicable to all businesses. Every business will have some level of sales, direct costs and expenses – consequently, it has the three variables that we can influence to see how to make a company profitable.

We can also now see and understand why the concept is therefore geography neutral (it doesn’t matter where the business is based (including ‘at home’!), it is size neutral and it doesn’t matter whether it is service or product based.

  • I’d love to know which #profitlever you will be tackling first and why – please tell me below in the comments where you think you can make the most impact in the shortest period of time.

I’ll be cheering you on!

  • Click here to sign up to make sure you receive future posts about how to make your business more profitable.

Future topics will include:

  • Why business owners overcomplicate increasing profit
  • The mindset that you need to adopt in order to become a truly great ‘Profit Maker’
  • Why your accountant may not be the best business advisor for your business
  • Top money and accounting mistakes that entrepreneurs and business owners make
Here’s to focusing on efficient profitability!
Jason

 

Jason A WithersHi there Profit Seeker, I’m Jason!

I help online entrepreneurs and owner managed brick & mortar companies to build profitable businesses through the application of easy to understand business strategies.

I show you how to apply and implement the strategies, take the ‘fear’ out of the numbers and help you to become more confident about the financial aspects of your business that you really need to know about.

That means less stress for you so that you can focus on making the impact that you want to make with your clients and customers, safe in the knowledge that you know how to make your business more profitable for ever more.

You can run a very profitable business with ease and simplicity. I’m here to help you make it happen and keep you accountable to your goals, providing commercial and financial support and advice to help you on your way.

Learn more about the great work we can do together here:

https://jasonawithers.com

Or you can book a call here:

https://jasonawithers.com/schedule-a-call/

Join 'The Profitlevers' Facebook Community here
Prosecco and Jam Doughnuts

Prosecco and Jam Doughnuts

by | Dec 15, 2017 | Coaching

Profit, Prosecco and Jam Doughnuts, and a Plan

Do you prefer using the carrot or the stick? What about if you are the only one in your business – how can you sensibly apply a ‘carrot and stick’ approach to yourself? Either way, you’ve got to set some performance benchmarks for yourself – either as a solo entrepreneur or as a brick and mortar business owner. But how do you hold yourself accountable to those goals? How do you set about rewarding yourself? Do you just ‘carry on’ oblivious to the sense of achievement?

I have found that external input tends to increase accountability to oneself – the fact is, it is just harder to say ‘I didn’t have time’, or ‘xyz excuse’ stopped me from doing this.

I love seeing the sense of achievement in my clients. For those that have truly invested themselves and their teams (if they have one) into growing their business in a sustainable and efficient way, I believe that they should be rewarded. By me.

The First Quarter

We’d initially set the simplest of benchmarks – outperform against the previous year. Historic data was ‘thin’, but we could track some simple metrics – sales, gross profit and net profit. After all, these were essentially the three headline figures that we needed to monitor as the business grew.

So here’s the comparison of performance for the first quarter:

2015-16 (Q1) 2016-17 (Q1) + / – + / – %
Sales 42.1 57.6 + 15.5 + 37%
Gross Profit 23.0 38.1 + 15.1 + 66%
Gross Margin 54.6% 66.1%
Net Profit 5.6 20.4 + 14.8 + 264%
Net Margin 13.3% 35.4%

Now, this is a relatively small company (turnover was around £180k ($250k) in 2015-16) but it demonstrates what is possible when you have a plan and are determined to improve your business. We worked through the sales, margin, overhead model and applied it. What is more remarkable however is the huge increase in efficiency – the increase in revenue is almost exactly the same as the increase in gross profit and net profit – that effectively means that almost every extra dollar of the sale went straight to the bottom line.

Focusing on the only 3 things that will ever improve your profitability was the driver for this. Specific tactical actions and processes created the result.

So Prosecco and jam doughnuts were the rewards for the business owners. It may not seem like much (especially when you find out it was only half a bottle of Prosecco!), but it symbolises the need for celebration for achieving goals and outperforming against benchmarks that were set. The reward came with an explanation and a promise – that it was only half a bottle because performance had only been measured over one quarter – it wasn’t consistent outperformance yet. The promise was that the prosecco would be upgraded in time if the whole year created a consistent proof.

So here’s what happened for the full year:

2015-16 (Q1-4) 2016-17 (Q1-4) + / – + / – %
Sales 181.0 251.9 + 70.9 + 39%
Gross Profit 77.7 142.3 + 64.6 + 83%
Gross Margin 42.9% 56.5%
Net Profit 14.2 57.9 + 43.7 + 307%
Net Margin 7.8% 23.0%

When you see results like this…why would anyone not want to celebrate. Besides it sets everyone up in a positive frame of mind for the meeting ahead, and whatever is next.

For a business that produces (manufactures) an end product and incurs third-party costs in order to make that product, that is a fabulous example of concentrating on making sure that the increase in revenue is profitable revenue – again, almost all of the additional revenue has dropped through to the gross profit level. The increase in net profit, however, hadn’t kept pace with this statistic because of two things which occurred in the second half of the year – the introduction of a general manager role (who also had a sales and business development background – great for the set up for growth in the following year), and an extra member of staff on the production side of the business, plus some additional salary awarded to the business owners at the year end in recognition of their most profitable year ever (and tax deductible for the business!)

The Prosecco was upgraded to Champagne for the business owners, and all of the staff received Prosecco as well…along with more jam doughnuts.

All too often we don’t celebrate. And we should. It’s a bit like saying ‘thank you’ to your staff or team (internal or external) – we should do it more often than we do.

Only 3 Things….

Only 3 Things….

by | Dec 12, 2017 | Profit

Too much hustle, not enough focus

It is a common question – “How do I make more profit?” All too often it is answered by thinking that the answer is to ‘do more’. Clearly, if you aren’t doing anything, then the answer will definitely start with that!

But ‘doing more’ must be the answer, because that’s how to scale a business, right? Doing more may well result in a ‘bigger’ business – bigger turnover (sales), bigger staff, bigger premises (for the brick and mortar businesses), bigger budgets, bigger marketing spend…and so the list goes on…and on…

The only thing is, ‘doing more’ may also add ‘bigger losses’ to the list as well. When ‘doing more’ goes unchecked, or even worse when there are no existing metrics in place to track any of this information through on a quarterly (at least) or monthly (preferably) basis, how can you possibly know that when you ‘do more’ it will result in ‘bigger profits’. And let’s face it, no-one wants to work harder for no extra benefit…

So if ‘doing more’ isn’t the answer, then what is? PS – it may be the case that ‘doing more’ is the right thing, but we need to make sure that we do more of the efficient and effective things when it comes to profit generation.

We need a plan – we need focus. The question “How do I make more profit?” is too big a question in itself to answer sensibly – there are *millions* of ways in which we could make more profit – the secret lies in simplicity and being able to focus on strategy and consequent tactics in such a way that we can break down the question into some bite-sized chunks. Quite apart from anything else, as a business owner/entrepreneur, it’s not like you don’t have anything else to be working on day to day in your business, is it?

So here’s a simple 3 part plan for you – take action, and you will see positive results:

Sales

It is not just about selling more – you need to understand who you are selling what to first. You need to understand your breakdown of clients.

Think about it like this: if all you see on a financial report is:

‘Sales = x’, that doesn’t really help you that much.

Imagine however it looked like this:

‘Sales (domestic) = y’, and

‘Sales (international) = z’

And when added together, these now made up the line: ‘Total Sales = x’

You now have a lot more information about your sales – the relative proportions of your domestic and international clients by their sales levels. Think about what you could now do if you understood that your domestic sales were 1%, 10%, 25%, 50%, 75%, 90% etc of the total – how would that start to guide your thinking? Is it easier or harder / more or less expensive to reach domestic customers? Are you vulnerable in your domestic market for some reason that means you need to focus on international growth perhaps? Is it easy to get your products registered in international territories? Is there a long lead time attached to that? Do international customers place larger orders, but maybe less frequently?

Your ability to think more clearly about the ways in which you may choose to expend energy in the pursuit of profit (‘do more’) is now far more apparent.

Margin

Let’s start with understanding what margin actually is:

Sales – Cost of Goods Sold (Direct Costs) = Gross Profit ($)

Gross Profit / Sales = Gross Margin (%)

So, it is basically what is left once we take away the cost of making the goods that we actually sold (for a product based business). For a service-based business, it is the cost of the labour that actually ‘did the work’.

Simply put, therefore, we need to understand how much gross profit we make (margin) for each of the products that we make (or serve with). Similar to the example with sales, understanding which products/services yield the greatest amount of gross profit will, therefore, help us determine which products/services we want to invest our time in producing and selling – where is the most gross profit to be made? We can then check as we grow what happens to our gross margin overall.

Overheads

Whilst sales and margin are typically things that we feel we need to increase, overheads (expenses) are things that need to be reduced. As businesses grow, they tend to ‘bloat’ from an overhead point of view – because there is ostensibly more ‘money’ available, we tend to think that we have more to spend, but all too often, the spending is not focused and effective. Consequently, costs rise and turnover (along with gross profit) doesn’t necessarily rise as well.

Imagine spending additional money on a certain type of marketing expense when you don’t actually know whether or not that type of marketing produces a return (or specifically can’t be matched to an upturn in sales).

The second issue with overheads is that people tend to look for the ‘extras’, rather than the items where the money is really being spent – consequently, people can spend a huge amount of effort and time trying to cut down a stationery bill, when that may only be a relatively small part of the overall expenditure, whilst simultaneously ignoring their administrative staff cost, or the fuel bill which may be far more material costs to the business – if these are being overspent on because of poor management, then dealing with these issues will help the bottom line far more than changing stationery supplier. You have to be aware of the relativity of each type of expense against the others, and its overall impact on the business first.

So – review your overheads, and for simplicity, break them down into categories – I often find that I will start to review a business based on the following broad categories:

Admin Salaries and associated employment costs

Property Costs and associated expenses (eg rent, rates, utilities)

Premises Costs (repairs & renewals, cleaning etc)

Insurance

Professional, Consulting, HR, Financial & Legal

Bank Charges and Finance Costs

Motor Expenses (including Vehicle Insurance, Fuel, Vehicle Tax, Parking, Mileage etc)

Travel & Subsistence

Entertainment

General Office Expenses (stationery, telephone, postage, computer supplies etc)

Marketing (split online / offline)

Subscriptions

You will find this a much easier task if you break the expenses down into ‘similar’ things – that way you get to consider a section ‘as a whole’ for its impact (good, necessary or bad) as well.

Conclusion

Less hustle, more focus has to be the way forward (unless you enjoy doing lots of work for little potential benefit). It is the way to create a profit intentionally in your business.

PS – Sales, Margin and Overhead are the only 3 things that you have to manipulate and improve your profitability with – so focus specifically on them to generate the best result – don’t waste your time trying to answer that ‘big’ question!