It is an interesting question to ask a business owner “why are you in business?”
In my role as a Profit Coach I get a wide variety of responses, however, very few respond with anything to do with making a profit.
In fact many business owners started their business due to an immediate circumstance more than any other planned or strategic reason. Alarmingly very few would say profit was the key motivator.
At Simply Business we believe the subject of profitability doesn’t receive enough attention. Unfortunately ‘Profit’ has become a dirty word, which means it not talked enough about, it is not analysed enough and certainly not enough is done about improving it.
So it’s time to challenge owners and their thinking in regard to profit!
In business we all understand, or think we understand, the importance of profit and what profit is.
At Simply Business our definition of business is “to solve a persons want, need or problem – at a profit.” Yes at a profit!
So what is profit?
According to common business definition, profit is; “A financial gain, especially the difference between the amount earned and the amount spent in buying, operating, or producing something.”
We would extend that to say that there are two types of profit in business:
1. Operating Profit
Operating profit is the lifeblood of an organization and provides a return to investors, looks after employees, and provides working capital for future growth. Equally important is the fact that a business must grow as growth provides the oxygen that breathes life into the future of the business.
“If a business is not profitable it will disappear, if it doesn't grow it will also eventually disappear.”
2. Profit on sale
The second type of profit is a Profit on sale which I believe is the ultimate prize or reward for owning a business and can only be achieved once, however the process to build a business that will return a significant profit on sale should start from the beginning. If you have been in business for many years the process to maximize profit on sale could take anywhere from two to five years, however the financial return for the effort could be extraordinary.
Our philosophy in business is that profit is not a dirty word – profit is the prize – it is reward for being in business.
We have developed a set of what we call the fundamental profit questions all owners and leaders need to ask:
1. Is your business making acceptable profits?
2. Are your profits growing?
3. Are your profitability levels in the upper quartile of your industry sector?
4. As a business owner are the rewards sufficient for the effort, energies and risks of being in business?
5. If you sold your business today would you achieve an acceptable enterprise profit?
I am very passionate about 'Profit' and plan to release an ebook on this topic later this year. If you would like to receive a complimentary copy, please type "ebook" in the comment section below and we will send you a limited early release edition.
If you would like to know more about growing your operating or profit on sale, please simply contact us.
Simply Business Australia
Philip Coombs “The Profit Coach”
0419 834 678