We all went into business to make a profit, enjoy more freedom and to build our wealth. But chances are you are not making the profits that you wanted to. If left unchecked, the growing expenses of a small business can quickly chew away at all your precious profit margins leaving you little or no profit leftover.
There are three things every business needs in order to boost profits (that we can do with you as a client of Inspire).
Profit Improvement Potential Plan
Every business needs to know the NEW formula for profit and how much potential their business has to improve its profit and business value. The OLD formula for profit is Sales – Expenses = Profit. This implies there are only 2 ways to boost your profit – increase sales or decrease expenses. The NEW formula for profit provides 7 inspirational ways to boost your profit. It says that, Leads x Conversion = New Clients + Existing Clients = Total Clients x Retention x How Much x How Often = Revenue x Margin = Profit x Multiple = Value. When you run your business numbers through the NEW profit formula you get a real command for how your business can actually make a profit. The NEW Profit formula allows you to forecast what small incremental improvements to each of the 7 levers of profit, can make to your overall profit. The future is quite exciting once you know your profit improvement potential and the 7 ways you can make that profit a reality!
There is a healthy amount of profit based on your revenue. Take too much profit and you’ll starve your growing business of its growth potential. Take too little profit from the business and you’ll starve yourself and your family of a valuable reward for all the effort and hard work you put in. This could lead to burnout and stress. So every business needs a Profit Assessment. A review of the business numbers each quarter to see, as a percentage, how much profit was actually set aside in the profit war chest. Let’s say that last quarter, 15% of every dollar that the business earned went to the profit war chest. But this business could ideally afford to set aside 25% profit. A profit assessment will help assess the profit target for the coming quarter, making sure the profit allocation is the right balance of healthy and sustainable.
“Profit War Chest”
A profit war chest is a separate bank account where a small percentage of every dollar that the business earns goes to and is stored safely for distribution to the owners each quarter. Failure to protect your profit in a separate account leaves your profit at risk of being eaten up in your growing day to day expenses. At the beginning of each quarter it is important to budget for all your expenses, including profit. A budget is like you telling your money where to go, instead of wondering where it went. Rather than hoping that we have a profit leftover at the end of the quarter, your projected profit budget is put aside into your profit war chest with each transaction.