It’s not the norm – most small business owners don’t focus on profit – they focus on growing their businesses faster and bigger and find the profit never happens because it’s an after-throught.
But profit is really the most important thing. It is the thing that means we can take money home for our families – growing the sales is just vanity if there is no money left for us at the end of the day, week or month.
The techniques I will go through in this blog post have been successful for literally thousands of business all over the world…so please embrace this with an open mind and you will have a great year with your business.
The system that I want to speak about today is called the profit first system and it is super simple as it leverages your existing patterns – you don’t need to learn how to read balance sheets and profit and loss accounts to be able to run the system that will result in more money for you and your family – we leverage the natural habit that 99% of us have – which is looking at your bank balance.
So this is what happens with most of us – and happened to me before I started implementing this system – is that we check our bank balance most, if not every day. We see the money coming in from clients/customers and then we spend it straight away on those bills waiting and the new shiny app or software that we want to get for our business.
Then there are other days where we log in and, let’s be honest, there is no money in there…and we panic – we become reactionary – trying to flog our products or services to anyone to get some cash in, making collection calls on those that owed me money.
But this habit of looking at our bank balance will, with simple guard rails in place, become your biggest asset in your route to a more profitable business – you biggest ally.
Remember of course – that the power any system will not just be in the learning but in the doing too – in the implementation….so let’s get stuck in…
There is a formula that every business uses – and I will be shocked if you are not using it too – the formula is:
Sales – Expenses = Profit
And it makes sense at first glance – but if you think about this formula – profit is what is left over.
This formula has been used for so long that we all think that this is the way business should function – and it worked – until we worked out it doesn’t work – not really.
There are these axioms in life – that seem to be set in stone…until they are not…and that’s what the formula is:
sales – expenses = profit
Remember that people once use to think the world was flat…in fact they were convinced of it – flat maps were drawn with sea monsters at the edge of the world to discourage sailors in getting too close and falling off the earth. But of course we figured out it was round and everything changed.
The axiom that we use for business Sales – Expenses = Profit – is a lie and it is actually what holds business back.
I know this because this is how I ran my business for years…and how my clients used to run their businesses too. Focussing on selling as much as possible but at the end of the day there was never a profit – or if there was it was tiny and not what I needed or wanted to support my family.
I used to use this method called “bank balance accounting” which I touched on earlier – so I’d check my bank account daily – and if there was money I’d pay the bills and any investments I wanted to make – and very quickly the bank balance would go back to zero.
The traditional formula Sales – Expenses = Profit keeps so many small business in a cheque by cheque struggle, in a daily grind, and business owners being forced to live off the financial scraps of their business.
If you simply flip the formula it changes everything….I want to introduce you to the new formula
Sales – Profit = Expenses
Now the maths savvy amongst you will realize that this is the formula displayed in a different way – but thinking in these terms has a profound effect on businesses, they way we behave changes dramatically
In the traditional version of the formula the focus is on Sales and Expenses. So when you have a sale you then focus on looking at the expenses that need to be paid.
In the new version Sales – Profit = Expenses – the focus is on Sales and Profit
So when you have a sale you then focus on taking the profit first, and then you pay your expenses.
This leverages a technique known as Parkinsons law which is a theory of the utilisation of resources – it states that if there is more of a resource then our demand on that resource increases to the same degree
For example – say you have a project due in 2 weeks – it will take you 2 weeks to complete. Say the same project is due in 8 weeks – it will take you 8 weeks. And this isn’t true just for time, it’s true for physical things…and money.
In the old formula the Sales – Expenses = Profit – we see the money coming in – the resource, and we use that resource to pay the expenses – the demand on the money increases at the same rate of it’s availability – and there then is no profit.
With the new formula Sales – Profit = Expenses – first extracts a portion of that money for profit – it’s the pay yourself first principle – applied to your business – now the remaining resources has been depleted – the remaining money available to pay expenses has decreased and as the theory states – as the availability decreases, the demand decreases – so we being to find more innovate ways to get things done with less money for the businesses expenses – and I promise you, you can do that, just like thousands of other business owners who have used this system – all over the globe – I promise you – you can too – and, through these blog posts, I will be teaching you exactly how.
So now you know the basic formula that I highly recommend you use is Sales – Profit = Expenses
And if you want to find out more about how you can really make this formula work for you in practice then head over to www.superaccountant.co.uk/chasing.
Annette Ferguson is a profit professional, financial coach and Chartered Accountant for small business owners who are not taking home the money they need or want, who are putting their time, effort and energy into their business and seeing little or no financial reward and who are living off the financial scraps of their business.
Through her great blogs, top tips and webinars as well as her Passion 2 Profits Academy and 121 client work she shows you how to make your business profitable which means you can take more money home for you and your family to enjoy and shake up your approach to your businesses finances.
Her fans have been known to call her the “Money Mistress” and “Super Accountant by name, Super Accountant by nature” And when she is not helping small business owners make more profit you can find her hanging out with her little boy and hubby, running and drinking tea but not all at the same time.
To find out more and for great profitability tips and tricks head over to www.superaccountant.co.uk