The reason a business exists is profit.
That's not a popular thing to say. It sounds sounds cold and greedy. It's missing all the feel-good things like glorifying God in our work. Helping our community. Using our gifts. Leaving our mark on the world.
All of those things should absolutely be part of business. But it's healthy to peel them away and recognize that if you're not consistently turning a profit (or on your way there), you're really not in business–you've got an expensive hobby.
Small business owners are often so attached to their businesses or engrossed in their day to day that they don't pay enough attention to their bottom line. It's time to get real about profitability.
Before I get too far into it, I think we should reflect on what profit is. After your customer pays the company and the company pays its expenses, whatever you have leftover is your profit.
Income - Expenses = Profit
The quickest way to see your profit is your Profit and Loss statement from your bookkeeping software. What it says on that bottom line is the profit.
Profit is often thought of as only benefiting the owners and shareholders of a business. However, it's more than that. Profit is good for everyone involved in your business: your customers, your vendors, your employees and you.
As consumers, we don't like to think that a business is profiting off of our purchases. Your customers are no exception. They want your products or services, but they're not particularly interested in your profit. However, if you think about it, a customer should want a company to make a profit. A company's profit means that company has a good chance of being around down the road. It means they are motivated to make their products and services better. It means they can take care of their employees (and shareholders). Profitable businesses are good for customers.
A vendor has every reason to hope that you're profitable after paying for their goods and services. If you are, they're in good standing with you as a business partner which means you'll probably keep spending with them. However, if things are tight, you may be forced to seek out new vendor relationships.
If you have employees, you can be sure they hope to see their career and compensation advance. Your ability to offer that advancement is directly related to your profitability. If you're losing money or breaking even, any additional expense like a raise or a bonus pushes you further in the red. However, if you're making a profit consistently, you can (and should) invest in your team with confidence.
Sometimes, I can be self conscious about my personal stake in profit. I have to remind myself that owning a business is an investment. I've risked my capital and invested great amounts of time and energy. I should expect my investment to provide a return at some point. Getting a return on your investment (profit) means financial reward and great satisfaction.
I also have to remind myself that I'm on the hook for losses, too.
2 things drive profit. We saw them in the definition above: Income and Expenses. If you want more profits, you either need more income or less expenses –ideally both! Sounds good in theory, but how do you make that happen?
To boost your income, you can sit around and wait for demand to grow, or you can take some action.
Cutting expenses is even more immediate than increasing income. Your income could stay the same or even shrink and you could grow your profits by getting lean.
Taking action on these 2 fronts will begin to move the needle.
What are your go-to ways for increasing profits? What holds your business back from being as profitable as you should be? Drop me a comment below.