Business Planning - Profit & Loss

A curious thing happens to many entrepreneurs in the spring of every year. You wake up one day and realize you had better figure out how much money you made last year so you can complete your tax returns. But wait, as a business owner, shouldn't you already KNOW how much money you made last year, last quarter, or last month?

If you don't keep track of how much money you're making, you have no idea whether your business is successful or not. You can't tell how well your marketing is working. And I don't just mean you should know the amount of your total sales or gross revenue. You need to know what your gross and net profit is. If you don't, there's no way you can know how to increase it.

If you want your business to be successful, you need to make a financial plan and check it against your actual results on a monthly basis, then take immediate action to correct any problems. Here are the steps you should take:

Create a financial plan for your business. Estimate how much revenue you expect to bring in each month, and project what your expenses will be. If you need it, get help from your business coach, planning software, or your accountant.

Review the plan monthly. Many business owners take the time to prepare a financial plan with profit and loss projections, and then they often let it sit in on the shelf. It's not enough to create your plan -- you have to review it regularly.

Remember that lost profits can't be recovered. It’s like time, once you’ve spent it, it’s gone forever! When entrepreneurs compare their projections to reality and find earnings too low or expenses too high, they often conclude, "I'll make it up later." The problem is that you really can't make it up later: every month that your profits are too low is a month that is gone forever.

Make adjustments right away. If your revenues are lower than expected, increase efforts in sales and marketing or look for ways to increase your prices. If overhead costs are too high, find ways to cut back. There are other businesses like yours around. What is their secret for operating profitably?

Think before you spend. When considering any new business expense, including marketing and sales activities, evaluate the increased earnings you expect to bring in against its cost before you proceed to make a purchase. Always conduct a marketing campaign break-even analysis. You can often increase your profitability simply by delaying expenses to a later month, quarter, or year.

Don't be afraid to hire. Retailers and restaurateurs wouldn't consider operating without employees, but many service businesses limit themselves by being understaffed. Almost any business can benefit from hired (or contracted) help. Business owners can almost always better use their talents for generating revenue than for running errands and filing.

Pay yourself a regular salary. If you are incorporated, you may already be doing this. If not, allocate an amount to owner's compensation on a monthly basis. Each month that your business meets its profitability goal, pay yourself the full amount. When you miss your target, dock your "pay" and when you exceed it, pay yourself a "bonus." Writing yourself a monthly paycheck will give you a strong incentive to keep your business profitable.

Evaluate the success of your business based on profit, not revenue. It doesn't matter how many thousands of dollars you are bringing in each month if your expenses are almost as high, or higher. Many high-revenue businesses have gone under for this very reason -- don't be one of them.

The bottom line is: review your bottom-line and your financial statements on a regular basis to ensure you are managing what you have already got, and to gain mastery of your business.

For more information on creating your Business Plan and how Business Coaching in South Florida will work for you, contact John at johnlayzell@action-international.com or 305-899-9963 for a complimentary coaching session or diagnostic of your business.

Time Management

QUESTION:

I run a small business, employing just three other full-time team members. My workload has increased quite significantly in the past six months but not to the extent that I can justify taking on an additional Team member. Nevertheless, I am finding that I am now rarely at home before 10pm in the evening, that my quality of life has dipped significantly and that my stress levels are becoming almost unmanageable. Do you have any suggestions?

ANSWER:

Your situation is typical of the many owners of small/medium businesses that work with Action International’s Business Coaches. The first thing I would say to you is to STOP and take some time to understand what is happening in your business and the subsequent impact it is having on your life. You should ask yourself the following questions:

1. Why has your work load increased?
2. Is it as a result of an increase in new business or does it result from other areas?
3. Is the work you are doing profitable or is it costing you money as well as time?
4. Can you delegate any of the workload to your Team?

It appears that you need to focus on your time management and following are some tips to help you do this:

1. Prepare a daily time sheet for each day over the next week or two. This will help you record how each hour of your day is spent and will also highlight where it may be possible for you to save time. Ensure you include all meetings, telephone calls or emails you make and receive.

2. Prepare a list of ALL the tasks that you have to complete over the next few weeks, including cleaning the office or doing the month end accounts.

3. It is important that you involve your Team in this entire process and that you also get them to also complete daily time sheets and lists. The key to reducing time spent in the office is to have and develop a championship Team.

When your list is complete, grade the tasks into four categories as follows……I call it the ABCD Class principle:

A Class: These are really important tasks which should be completed by you before anything else is done.

B Class: These are not so important and should only be completed when the A Class list has been completed.

C Class: These are tasks YOU do not need to complete but which are important. These tasks should be delegated to your team.

D Class: These are tasks which are not important at all and therefore you should dump them in the trash!

You should now be able to see quite clearly where you have been spending your time and consequently how you can reduce your workload and stress levels.

Also, have you ever found that just as you are getting through an important piece of work your phone rings or someone arrives at your office without an appointment? These are unwelcome distractions and are the cause of many time management problems. Here are some simple ideas for you to practice:

1. Only take phone calls which are relevant and important to your current task. Get messages from the other callers and return their calls when you have completed what you set out to do.

2. Do not encourage the practice of people from outside the company arriving uninvited or without an appointment. Internally, set aside specific times during the day to meet with your Team.

3. Only check your email three times a day. In this way you will not be interrupted or distracted.

None of my advice will be of any use unless you make a decision to do something about your problem. So START tomorrow morning and stick to the task. I guarantee it will work.

For more information on managing your time more effectively and how Business Coaching in South Florida will work for you, contact John at johnlayzell@action-international.com or 305-899-9963 for a complimentary coaching session or diagnostic of your business.