Small Business Owners: Plan to Meet Your Profit Goals

To make a profit, the business must focus, not break even, not on survival, but on business profitability, literally the ‘ability’ of the business to target and produce a specific dollar amount of profit as a percentage of projected gross revenue. Only when this is the clear business objective is it possible to build a business that can generate profit for the owner year after year. Only then can that business truly become a continuing income generating asset for the owner. How do you do this? How can a company become a profitable asset? Show me the money! Most small businesses are inherently profitable. Depending on the business, there is already a reliable profit of 10% to 30% of total annual sales as the potential and ongoing return on investment of the company. But where is this benefit? Why is it so hard to see, let alone produce?

As a small business consultant for a major consulting practice, I was continually amazed at the number of small and medium-sized businesses that operate with a ledger and an aluminum cash box. I was surprised that the computer was used only for Internet email, client letters, and office decoration. The accounting software (QuickBooks or Peachtree) was on the computer for tax purposes used by the accountant at the time of the tax return. As a consultant, I was able to help small business owners realize that the most effective way to run a profitable business was to plan to be profitable. Getting the owner to understand that expenses and sales must be planned towards a goal and events must be controlled in such a way that they produce the profit target. By not monitoring the profit and loss status, the business events control the owners and the management cannot drive the processes and procedures towards profit. The accounting software packages were then configured to view each product by profit and loss statement on a monthly and annual basis. This allowed the small business owner the ability to react quickly to any deviation from their budgeted plans (cash being lost). The organization learns from the feedback it receives by comparing budgeted goals to actual results (decrease in revenue). Increased communication throughout the organization about employee expectations toward profitable goals.

Owners, when was the last time you updated your business plan, which is probably sitting on your shelf where you have placed it since you initially developed it? Now, don’t get stuck on the document, just dust it off and use a red pen to ask yourself the following questions:

Benefits planning: budget vs. Business plan

Has the management team updated the business plan to reflect current/future market industry ‘realities’?

Does my management team understand the “market complexities” of each product they sell and service in the business unit they oversee?

Does my management team understand the product needs and wants of the ‘customer’ they sell and service in the business unit they oversee?

Have you developed a profit and loss statement for each product? What are your sales revenue, direct costs, and overhead for each product?

Have you compared your gross profit margin to industry standards? Is he tall or short?

How are the sales trends of your products? Quarterly? Is your product cost percentage decreasing as you sell more volume of products? If not, can the workflow be optimized?

Is my business making money? Do I have a simple profitable business model for each product?

Have you identified your best-selling product lines vs. Your best sellers? Select which product will grow your business.

Has your management team created action plans to meet specific planned product profit targets and targets in target areas?

Employees/Operational Readiness

What is the current employee morale? Who will champion the ‘Profit Program’ they can believe in?

What are the current ‘barriers’ to reducing costs and increasing product performance? Because?

What are the training needs of my employees to achieve profitability targets? How will training improve business or morality?

Do employees know what is expected of them? How will they be held accountable for performance?

How will they be rewarded? Plan to give Incentives, Increase Profit Sharing, Surprise Bonuses, Spontaneous Intangibles?

Have your managers and supervisors set specific production goals and objectives in the target areas?

Are my employees cross-trained in key production areas (growth products)? Why not?

Do I have a financial metrics dashboard posted to the workspace? Do I have relevant workflow processes published to the workspace?

Do we have the best technological solution to achieve profitability objectives?

Customers

Has my customer base changed?

Has my product/service offering changed?

How often/how many new customers have I gotten in the last year?

What product do my customers need to solve their problem? What services can we offer to provide convenience or can we reduce the cost of the product?

Is there an out-of-industry solution that “wows” the customer? Is the marketing strategy relevant to the customer’s wishes?

What is the reputation of the company to the customer? If it is low, how can we improve the reputation and brand image in the market?

Do I know who my best customers are? What do they really want?

Do I have more/fewer clients? Why did they leave?

Who are the current ‘bad clients/clients’? Money owed? Should I keep them or sell them?

Competitors

Do I have new competitors? WHO?

Do I have more/fewer competitors? Because?

What are the current competitive threats to my business?

How are my competitors solving the customer’s problem? WHO?

What industry has the best innovative solution to address the needs of my clients? Because? Applicable?

What technology is a competitive threat to my best-selling product?

Evaluate the answers against the strengths and weaknesses of your entrepreneurship. Formulate your strategy according to the opportunity available in the market. The game is to make money in the long run, not see how many widgets you can ‘hide’ at the end of the month or play financial engineering games with the books.

price points

It is never a good idea to lower the price, even in tough economic times. If you lower your prices, do so only for a limited time by encouraging customers to “act now.” This should be a last resort effort. The temptation to cut your price in tough times is great. Ask your management team: ‘If we lower prices, how will prices go up when the hard times are over?’ Stay on message. Its value does not diminish in difficult times. Why should you lower your price? Companies should focus more on customer satisfaction. By focusing on delivering more than you promise, you are putting the customer first. It reinforces your decision to buy.

business partners

Look for companies you can partner with to cross-promote their products and services while sharing the costs. For example, a laundry mat offers free detergent with every washer load, and the free detergent is paid for by both the laundry mat owner and the detergent supplier. The price was not reduced, but there is a unique customer incentive with a specific start and end date, which will cause the customer to “act now.”

Plan to make a profit with this year’s sales. Explore new markets, new perspectives, and new products and launches. This year, the three P’s of marketing your business are: leads, products, and launches. All three may need to change a bit for you to have a profitable year.

You can do it. Surround yourself with mentors you can talk to to plan for success. It’s amazing what a difference simply speaking through your ideas makes. Think of planning as setting yourself up for success with a clear picture of profit in mind.

New markets

As you review your business plan, ask yourself where else you can sell your product or service. Go back to those customers who haven’t bought from you in a long time. Have a compelling reason for them to buy from you now, such as improved service, different products, or increased customer satisfaction, just to name a few. Does it make sense to enter new geographic markets? Has any competitor in that market left or ‘retired, waiting for better days’?

Update your offers

After reviewing your business plan, is there a need to change or update your product or service offering? Will changes or additions to products or services allow you to sell more to your existing customers? An “upgrade” here could mean a redesign of your website, starting a blog, joining a social network. Essentially any way you can expand your reach to potential customers. The reason why newspapers across the country are closing is due to a lack of readership. People are moving online to search for news and information…and to find your business!

improve your tone

Thoroughly understand your product and service and why someone should buy it from you. Use written testimonials from some of your satisfied customers.

• Tell your story in five minutes or less.

• Practice to perfect your presentation “before” the sales call.

• Listen well. Ask questions and really listen to the customer’s needs and concerns.

The bottom line is that practice makes perfect. Be a dedicated practitioner in connecting with the client. You’re the owner. Your time, care and connection in the sales process will bring results. In these times, you can be tenacious and focused on seeking new opportunities that will pay big dividends when the economy turns.

Our nation is experiencing a recession and has been in a severe, prolonged economic downturn for the past decade. According to Tom Reilly, MissouriBusiness.Net, “Seventy percent of today’s CEOs have never led a company in or out of a recession and 60 percent of today’s salespeople have never sold through tough times.”

In each champion team, the great coaches must be given accurate information to adjust their strategy to win the game. To be a truly great small business, you must operate from a core value of honesty to strategy and profitability. Remember the old management adage “If you don’t measure it, you don’t get it done” and “Opportunity missed” (bad decisions) can close your business. Profitability planning is a proven business method that allows your company to gauge whether it’s succeeding or failing, without talking to inexperienced senior executives, presenting the latest management theory of the month to the board.

Remember, Enron, WorldCom, George S. May International, Arthur Anderson, and Tyco.