This month we are happy to have business profitability coach Diana House provide some peace-creating wisdom.
“As entrepreneurs, we are often visionaries and creatives but often not accountants and financial experts. We are often focused on creating amazing products, world class customer experiences and efficient processes. But it’s easy to forget one of the most important aspects of our business – our financials.
One of the most impactful encounters of my life was meeting an entrepreneur named Rick.On the outside Rick was a super successful entrepreneur who had an infamous brand and well-known small business. He was a bit of a rockstar in how he dressed, spoke and worked a room and people were so drawn to. A lot of younger entrepreneurs looked up to Rick and wanted to be “just like him.” He seemed to be living the entrepreneur dream.
One day Rick and I were having a heart to heart and in a moment of vulnerability and honesty he shared with me what was actually happening behind the scenes – his “top line successful” business was actually losing money, he couldn’t make payments for his business line of credit and he was probably going to have to go bankrupt.
He was scared he might lose his house and …his wife might leave him…
He was scared he might lose his house and he was terrified that his wife might leave him if she found out how badly things were really going. All the while his business was pulling in impressive and growing revenue numbers. Rick never thought of himself as a “numbers guy” and neglected this side of the business and unfortunately every new dollar of revenue he made, the more money he lost.
Thankfully, Rick had an epiphany and decided to master these 5 areas of his finances and was able to turn his business around, get out of business debt and build a more sustainable business going forward.
Where the media and culture have glorified revenue and “top line” numbers in business, as business owner and operator the most important number, as Rick learned – is really profit.”
Trying to get “on track”? Here are Diana’s 5 steps to increasing profitability in your business:
1 – MINDSET
“Mindset sounds so basic but getting into a healthy psychological place around your business finances and profit is key. For many people money is very emotional and is tied to a lot of past experiences and memories. The best ways to up-level your money mindset is to read books like T.K. Harv’s “Secrets of the Millionaire mind” or hang out with other entrepreneurs that have a great money mindset. Commit to working through your money blocks so you have a great foundation around your business finances.”
2 – AWARENESS
“Once you are in the mental headspace to really commit to making more profit, it’s time to strengthen your optics. You have to start looking at your numbers on at least a monthly basis.
A lot of entrepreneurs and business owners want nothing to do with their numbers and aren’t even sure how to get into their accounting software. They meet with their accountants once a year at tax time and ignore their balance sheet and profit and loss statements. When you start looking at your numbers on a monthly basis you start to see what is working and what is not working. You become empowered to start making decision based on what the numbers are saying rather than just “your gut”.”
3 – ORGANIZATION
“You also need to make sure that the data that you are looking at is simple and is organized in a way that easily tells the story of the business. A profit and loss statement can be so helpful if related expenses are all grouped together. ie. All marketing costs under one header
Once you have this organization you can start to see what percentage of your revenue you are putting to different expenses and start to set targets for what fits with your growth strategy and budget.”
4 – AN INTERNAL AUDIT
“The word audit often scares people but the internal audit is an audit triggered by the CEO or owner.
Annually I believe all businesses should perform an internal audit on all of their expenses. This will help you uncover sneaky fees that are being put through without your awareness, reassess recurring subscriptions and fees and in general re-analyze everything that is going out. As entrepreneurs we are usually pretty smart – once we sit down and see what is happening, instantaneously we usually know what to do.”
5 – TEAM PRODUCTIVITY
“Finally, a metric that can be very valuable in creating more profitability is around team. Greg Crabtree author of the book “Simple Numbers” speaks extensively about the Labour Efficiency Metric in his book. If you divide gross profit by staff costs you will get a number that should be at least 2.75 and hopefully over 3. If you look at this number on a monthly basis you can make sure your team is increasing their productivity so that your bottom line is growing.”