Four Metrics to Monitor for Profit

To monitor your bottom line profit you need to put some fundamentals in place.  Once those foundational elements are implemented, you next need to create a monitoring schedule to check in on your profits.

Again, we’re not suggesting anything that is revolutionary in the world of running a business.  But we’re presenting these suggestions based on our real world conversations with business owners as we interview them to begin searching for credit financing solutions for their businesses.

In other words, as obvious as this advice might seem, we’ve encountered many business owners who don’t have these fundamentals in place for their business. If they do have these building blocks established, we discover their systems for implementing and monitoring are only one step removed from “back of the envelope” calculations.

We want you to do incredibly well with your business!  We’re presenting this obvious advice to help you organize these basics in a way that you can almost say to yourself, “Set it and forget it!” This leaves the system in place and removes so much anxiety and impatience from the day to day operations of your business so you can dig in to the two things that count most: loving what you do and building your business to even bigger scale!

The 4 fundamentals to measure profitability.

Timeline.  What is the sales/production cycle for your business?  Create a realistic expectation of when the cash hits your bottom line by reviewing your past three years performance.  Look at your previous cycles.  Calculate the turn times on when you delivered your product/service, and when you realized the cash injection to your bottom line.

Production Costs. While your production timeline might be, for example, three weeks, you must ask yourself if any production costs linger after the production cycle.  Are there delayed payroll expenses?  Are there residual expenses for cost of deliveries (freight costs, internet marketing costs, re-tooling expenses for next production run, Accounts payables to outside vendors necessary for the production cycle)?

Receivables.  Review your Accounts Receivables aging reports for the past three years. What is the true timeline when you receive better than 90% of the cash income from your receivables after you’ve sold your product or service?

Delays.  With each of the above three fundamental criteria, add a percentage variable to account for delays. What happens if there’s a slowdown in your ability to deliver your product/service? Add that into your calculation. Same for cost overruns that could lead to extended time periods of production costs

(What if your current freight delivery provider can’t manage the extra volume of a large order and you need to bring in another provider? What if you needed to add three more freelancers to complete video/content/production or implement design elements?) 

Same with your receivables. Assume the worst for your slower paying receivables and add delayed payments to your calculations.

Time To Check Your Profits.

Once you implement the above four fundamental monitoring elements, now create a schedule to check in on your profits.  Get it in your calendar!  Lock the door!  Give yourself (and your management team) time to focus solely on this aspect of your business.  No interruptions, and answer the question: where do we stand with profit?  If you’re profitable, what’s your bottom line number and does that match your expectations from your Business Plan?

Throw in the additional calculation: margin. Compare profit to expense. On a per product/service delivery price, what is the exact percentage in your profit column?

In the final analysis, literally, you’ll have a clear understanding of your profit.  When you comprehend in clear terms how you derive profit for your business you can then think about how to improve profit.  You may find yourself discovering new opportunities for profit centers and thus new products/services.

You may be pleasantly surprised that you’re more profitable than you thought you were.  Then you can decide what to do with that extra income, to plow it back into the business, to create cash reserves, maybe make bonus payouts to ownership, make charitable contributions, or take a vacation!

Again, what we’ve found is that many business owners lack a clear picture of their profitability in terms of hard numbers, metrics that you can see on your computer screen.

These fundamental systems may seem daunting in terms of the investment of time and money to implement, but, like any other feature of your business, once you’ve put them in place, not only will they help you with clarity of your profitability, but you’ll only need to tweak these existing systems in years to come as you grow your business by leaps and bounds!

Email us with any feedback, especially any solid “fly by the seat of your pants” stories.

Prospecting Avoidance

Professional salespeople know when they wake in the morning they have to do the one thing that is sure to guarantee an income:

Prospect for new business.

In a way, salespeople begin everyday looking for a new “job”, don’t they? Because without a new client to purchase what they’re selling, how is there any any hope of a paycheck in the future? Even if that salesperson is a salaried professional, without showing results for their employer, there’s no guarantee the employer will continue to employ that salesperson.

I think therefore, we can agree that a professional salesperson, whether commissioned or salaried, knows that prospecting for new business is the number one priority for their days, each and every day.

That’s not to say they all follow through on the actions necessary to prospect. “Prospecting avoidance” is a commonly understood malady in the sales profession. Sales Managers everywhere constantly harangue their sales teams to hit the pavements, ring the doorbells, make the calls, set the appointments, to fulfill the promise of prospecting.

Avoidance of prospecting comes out of the simple psychological fear of rejection. We all have it. Besides, as simple as prospecting can often turn out to be when you actually do it, it can also be as difficult to initiate.

It’s no wonder then that business owners who are NOT professional salespeople may suffer from this very disease of prospecting avoidance. The creative excuses people come up with to avoid having to make prospecting calls are legendary. Yet, as the owner of your business, unless you have a professional salesperson or sales team working for you, you must must, must, Prospect for new business.
The only way to overcome your avoidance of your emotional pain about Prospecting is to simply attach a level of importance to this task.

We hear so often from Business Owners of being distracted with other important tasks: making payroll; attending to a malfunctioning machine on the shop floor; taking a call from the accountant/attorney/spouse/pesky customer/excellent customer/number one account/printer/fleet mechanic and on and on and on.

The Business Owner has attached a level of importance to each and every one of these tasks. Attach that same level of importance to Prospecting. You must. Absolutely must. Your business health, wealth and survival depends on you doing so.

Once you make Prospecting as important an activity as any other in running your business, all those other avoidance afflictions melt away into nothing. Fear of rejection disappears. Procrastination towards your Prospecting Plan converts to an optimistic sense of urgency.

And, yes, you may even like Prospecting.