24/01/2019

Profit: A Dirty Word?

Profit: A Dirty Word?

Do you have clear sales targets?
Do you have a budget for expenses?
Do you have a plan for profit?


This may sound so obvious, but many businesses leave making a profit to chance...

In our previous newsletter we looked at the first stage of getting fuel into your business - through setting prices appropriately. With maximised pricing your business has a chance of making a profit - but, of course, there’s far more to achieving this.

The next step is to consider how many sales you might realistically achieve in a certain timeframe; be it each week, month or year, to achieve your desired sales revenue. And then set a budget for your expenses, creating a plan for profit.
Alongside your sales targets, an even more important target is your profit target! Again, it may sound so obvious, but considering profit is central to business survival, it's surprising how many businesses leave profit-making to chance.
This is partly because profit can be seen as a by-product of all your activity. It's like the exhaust at the back of the your engine - and to some people, like exhaust, profit is a dirty word. There is shame attached to being focused on making money. To others, the exhaust from an engine doesn’t really matter. They focus on making the engine work as best they can, and whatever exhaust is produced is pure chance.

Many business owners run their business in a similar way. They focus on working hard, doing the best job they can, and see what profit they’ve made at the end - if they look at all. They feel they have no control over the result, which is true with this mindset.
However, profit is essential in any business! 
If you resonate with any of the above poor habits, it may help to understand the 4 essential ways in which profit can be used:
  1. Retained in the business to provide woking capital and financial security
  2. Re-invested in the business providing funds for growth
  3. Paid as dividends to shareholders and investors
  4. Used to pay off any debt
Having realised the essential nature of profit, we all need to ensure we have well thought-out financial plans, starting with sales, expense and profit targets - and take control through the correct use of management accounts - which we will discuss further in next month’s blog. 
In the meantime, as obvious and perhaps patronising as it may seem, ask yourself honestly…
Have you set simple sales and revenue targets?
Have you set a budget for your expenses?
Do you have a plan for profit?

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