Phil-osophy “A business must make sufficient profit to make the efforts, energies and risks of being in business worthwhile.”
There is one fundamental question I always ask a business owner, “what are you in business for?” Although there are many and varied responses, all owners generally include an element of financial betterment. The reality is you cannot achieve financial betterment without your business being profitable enough to meet your goals and in turn you won't be able to achieve many of your personal goals without your business being successful.
Unfortunately reality is that most business aren't as profitable as they could or need to be, and running a SME business is a lot more difficult than perceived. Many find that they can't grow and the harsh reality is that 90% of businesses don't sell and those that do may find that they don't get anywhere near what they expected. Although this may not be painting a wonderful picture, it is the reality that some 2 million registered businesses are facing today.
From my 30 years of experience, the biggest issue I see is that SME owners are not talked enough about profit. Unfortunately owners and business leaders rarely ask for assistance and don't do enough about improving their profits. Many find excuses, cross their fingers and hope next year will be different. Profit has become a dirty word.
The good news is that the formula for success and resultant profitability is constant across industries, size of companies and once understood there is a lot a business owner can do to improve their own profitability.
Firstly let's look at some simple profit theories by starting with my definition of business. This will simplify the concept and provide a clear understanding of what business is all about.
“A business solves another person’s problem and satisfies a want or need at a profit”. Many business owners do a wonderful job of satisfying their customer’s wants or needs or can solve a problem, but unfortunately in many cases do not do so with sufficient profit.
So let’s look at Profit. Contrary to popular belief there are not one but two types of profit in business.
Firstly there is Operating Profit, which is the lifeblood of an organization and provides return to investors, looks after employees and provides working capital for future growth. Equally important, a business must grow. 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 eventually disappear”.
Secondly there is, Profit on sale which is the ultimate prize or reward for owning a business and can only be achieved once. The process to build a business that will return a significant profit on sale should start at the beginning of the life of the business or if you have been in business for many years then the process to maximize profit on sale could take 2 to 5 years prior to the sale, which will maximize the financial return for the effort.
To obtain a significant profit on sale requires the owner and its leaders to spend regular time working on the business not just in it. All of this must be achieved in an environment of acceptable work life balance which was discussed in last week’s Profit Tip Article.
Owning a SME is a tough and lonely place at times and starting a business and registering a company does not mean you have the license to drive it. The formula for success is at hand, so if you are having trouble with your profitability, work life balance or growth please contact me to show you how.
One of the greatest leadership traits is asking and getting the right help at the right time.
Over the next couple of weeks we will be publishing articles on “the secrets to sustainable profit growth in business” and the “secrets to achieving a significant profit on exit”.
It must be remembered that making sufficient profit is required to make the efforts, energies and risks of being in business worthwhile and a core ingredient to improving work life balance.
If you would like to improve your profit please contact;
Simply Business Australia
Philip Coombs “The Profit Coach”
0419 834 678