Every business needs to make a profit, we already know that, but when should that profit be measured?
And as for many questions, the first response is “That depends”.
It depends upon why you are measuring the profit.
Ideally, and unless you can afford to run “loss leaders’, every transaction needs to deliver a fair profit. That is a sales price that makes it worthwhile for the business to sell it, and that makes it a good deal for the person or business buying it.
A successful business also needs a longer term perspective. There are bills that only need to be paid after a longer period – rent is maybe weekly or monthly, suppliers often provide monthly accounts, utilities might only need to be paid every quarter, and some memberships or licence fees are due on an annual basis.
So your measure of profit has to take into account a longer time frame than just a single transaction. Your sales price has to cover the cost of acquiring what you sold, plus a contribution to these other costs of doing business.
That’s all probably stuff you’ve heard before, but have you heard of behavior being a measure of profit? Before exploring that, let’s take a step back and agree on something: What you do today will build the world you live in in the future. Taking it easy will not provide you with a nice house and car. Managing your money, taking control of your finances will be more likely to do so.
The point is that behavior that your market disapproves of will eventually cause the business to fail. It may survive on past glory for a while, but it needs to truly serve the needs of the market or it will eventually fail when people stop coming in to buy, and that makes a big difference to your overall profit position.
Think of it this way: if you don’t truly serve your market they will go to someone who does.
What business issues do you think other business owners would be interested in? Let me know in the comments section.
That is a question that very few people ask, and it has two meanings. Both of them are important to you if you currently operate a business, or plan to.
There is truth in the saying that “You only ever sell yourself”. That is, building rapport with your client/customer is the first step to making an eventual sale. It follows that you have to be ‘saleable’. Your knowledge of your industry and product, your appearance, and your behaviors all contribute to the level of rapport you are able to build. Do you know what you are talking about, and can you explain that to your non-expert client? Are you dressed in an industry- and location-appropriate manner? Normally doctors don’t wear hi-vis clothing and work boots, whereas a building contractor probably should. (And would you trust a building contractor with a stethoscope around their neck the way you trust a doctor wearing one?)
Do you stand by your word? Does your market believe what you say? If not then you are giving them reasons to not buy from you.
Then of course there actually has to be a viable market that you can connect to and influence. That influence has to encourage them to buy from you instead of some other business, otherwise your business will slowly (or maybe not so slowly) just fade away.
What are your answers to these questions? Are you earning your market’s trust and influencing them to buy from you? And if not, why not?
There’s another question that is also important about now: Why should I care? The answer to that is relatively simple. You can build a long term, sustainable business and secure your future, or you can head for the ‘dark side’ and not always do what is best for your clients. The dark side leads to a ‘feast and famine’ cycle where you need to restart the business every so often, which eats into your profits, and eventually can cause the business to fail. The ethical approach, by comparison, maintains good relationships with the people making up your market, which maintains your profit level.
The ethical approach means that your income planning can sit on solid ground, the other way means that you always have to hope that people don’t find out your secret.
More on this topic later, and let me know you agree or not. I’m also interested in what you’d like covered in the next post.
If you think back to just about every business adviser since the flood they have all said “You need a niche” and then they leave it at that other than some general statements about it being good for business.
Here’s a link to an article I wrote on another site about what having a niche means for your business, and it also tells you why they say you need to identify your market. I hope you enjoy it, and that you get some profit from it.
It might sound strange, but your Finance Department (even if that’s you after normal working hours) might be holding your business back. Having the right financial environment assists your business to survive and thrive, having the wrong one can close it down.
It can be as simple as having the right bank accounts. What does your business really need? A Trading Account, of course, and what else? At a point in your business growth you will also need some form of investment or interest bearing account. Exactly what you need is best decided between you and your financial advisors at the time, but there is obviously no real point having all your money just sitting around at the bank for free.
Your business may benefit from ready access to liquid funds – a bargain that has to be accepted immediately for example. Having a credit card or debit card may be the solution you need (Debit cards have much the same function as a credit card but use only your own money, so they generally cost less).
Would your business benefit from accepting card payments? That obviously allows you to minimise the risk of having cash on hand. Some stores have recently opened that do not accept cash at all, including a local coffee shop! You also open up the possibility of online trading when you can accept card payment, and that opens up a wider geographic range for your business.
If you trade online then you might consider using an online currency. That’s a real currency that only exists as an automated payment. There are no coins or notes, only electronic payments (including your card as a means of making electronic payments). Bitcoin is probably the most famous, however some Reserve banks are considering launching their own version.
Maybe you need a hierarchy of accounts for different levels of manager, or different geographic locations. If nothing else that prevents a store manager somewhere taking all your money and disappearing overseas with it – at least they can only clean out a local account.
Your financial history has a lot to do with what you can or can’t do – ask anybody who is bankrupt about the limitations they face. That said: nothing lasts forever, and may very wealthy people are ex-bankrupts. Don’t let your past performance dictate your future. Instead: learn from your mistake and do it better next time.
Convincing people to invest in your business requires you to provide financial projections. Any accountant can do that – they take your current financial position, add any expected investment funds and sales income – allowing for any credit period you might offer for payment, subtract expenses and that gives a prediction of the financial position of your company for each month for as long as you care to project it. But that’s only half the story. To convince someone to invest you also need to demonstrate to them that you have the capability to deliver on your promise. You tell them not only what you will do, how much income that will generate, but you describe you and your team’s experience. That just means that finance is ore than just the money you earn and spend, it is the way you do it too.
Your cash flow is the life blood of your business, if you don’t already then you need to start treating it with the respect it deserves.
One of the most important and most overlooked things that help make you business a success is your ownership structure.
You might think it is of no importance, whatever it happens to be you can sell stuff, right? Kinda, but that’s not the important part.
Maybe you need to have something registered in more than one geographic region. What would happen if a competitor registered a business in an adjoining State that meant you couldn’t trade there with your existing name? Nothing, if you registered yours first.
You may not want to trade in many countries, and the internet can make it easy to actually trade in a single jurisdiction while servicing the planet – but if you want to avoid the same issues then you may want to own a number of country-based business registrations. For example: you have a .com business and somebody registers the same name but with a country-specific suffix: yourname.com becomes yourname.com.xx. People in that country might look for a local branch to do business with, which means all your advertising is building their business too. The same can be true for .biz, .tv and all the other suffixes.
A second often overlooked feature is the contract you have with those in your employ. Think you’re friends and don’t need one? Think again – a falling out can damage your business and cost you the friendship. (But please don’t ask me how I know!) You don’t need a 20 page document that prescribes how often they breathe per hour, but you do need a clear description of what you want them to do, what you will do in return – and that can be more than just salary, their authority and responsibility, and any ownership share that they have or may qualify for.
Your premises need to be somewhat guaranteed for the duration, you don’t want to be moving every couple of years. Your customers may follow you for the first couple of moves but after that you will start to look a bit, well, shifty. A typical lease has an initial period that is under lease, with a second period that is offered on a ‘first refusal’ basis. Maybe you have a “3 x 3” meaning you have a lease for 3 years, plus an option on the next 3.
Likewise your contracts with your suppliers (and your customers) need to cover more than just a single transaction. Your needs will change over time, so you will require different service from your suppliers, even if that’s just double or triple the quantity you now need, or for them to service the additional premises you have just expanded into. By the way: the contract works both ways – you get guaranteed delivery and service levels, they get guaranteed sales. It’s a win/win, as long as the signed contract exists.
All legal agreements should be locking a win/win into place. If they are too one-sided then somebody is at risk of being forced out of business. That’s bad if it’s you, and it’s bad if it’s the other business: do it often enough and you have nobody to do that trade with, and that puts you out of business anyway.
Successful businesses are about solving somebody’s problem: Hungry? Buy this food. Need transport? Buy this car. Cold? Buy these clothes. Need premises? Rent this space. Need help? Hire this person. If your business does nothing except solve other people’s problems, and they pay you for doing so, then your contracts will reflect the right balance, and if you look for the same kind of connection when it is your problem being solved then you have a solid foundation for a long term business.