Profits

Profits are somewhat like love, bright and elusive.  You may remember Bob Lind’s big hit in the 1960s:

Don't be concerned, it will not harm you
It's only me pursuing somethin' I'm not sure of
Across my dreams with nets of wonder
I chase the bright elusive butterfly of love

I don’t know that chasing profits will not harm you.  Chasing profits can be a very stressful process.  As can sustaining them.  Because success takes more than 7 hours – not just a day, but many days, and many more hours per day.   Becoming a debt-free, profitable business, or building one from the ground up, is a lengthy process.

We start our businesses for many reasons; freedom, working for ourselves, time with family.  Chasing dreams with nets of wonder. 

Naturally, the reality turns out to be very different - we become slaves to our own business.  None of these dreams are achievable if our business is not profitable. 

Our dreams may never make it to the reality of the present.  They can become permanent residences of the past.

And the reality turns out to be so different because sustainable profitability turns out to be so elusive, fluttering like a butterfly and evading our grasp.

Why is it so?

The first question is;have we chosen the right product and market”?  To start a business -- any business -- successfully, you must be able to do three things:

•    Develop a product that people want to buy.

•    Figure out how to sell it at a profit.

•    Push yourself and everyone else on your start-up team to get the first two things done before you run out of money.

If there is no competition then there is probably no market.  On the other hand, to quote Phil Lewis, University of Canberra:

“If everyone can do it, you can’t make money at it.” By this we mean that in markets which are competitive with relatively easy entry and exit, suppliers can’t expect to make above the average return for long. In this case that means earning above the average wage, or for the less skilled, the minimum wage or even unemployment benefits. If activities are profitable then people will enter the market and drive down prices. 

At the extreme, you’ve entered "Commodity Hell."  That's when a market for a product is so crowded, every product is virtually the same.  Interchangeable with the competition.  And the only way to get ahead is to slash prices until the pain of profit loss squeezes either you or those competitors out of the business. 

Without profit, it's hard to justify a business' existence.  Even a non-profit works on a system of profit.  Because profit is not the ugly word it's painted out to be. 

Profit is merely the sum you earn that allows you to keep doing what you love.  Helping others in the process, while realising those dreams.  

Business without profit is not a business any more than a pickled onion is a chocolate.

So what else can go wrong?

We have to look at what you have control over, and what you don’t.  Which leads me to SWOT; Strengths, Weaknesses, Opportunities and Threats. 

First, let’s look at the elements you can control, those things internal to your business.  They are your Strengths and Weaknesses.  Dr.Dr. Greg Chapman identifies five keys you need, which, if you have will be strengths, and if you don’t, will be weaknesses which need remedying.

1. A Business Plan to drive your business growth.  See “What do you want your Business Plan For?” for more detail.

2. A Marketing Strategy producing predicable & controllable streams of enquiries

3. A Business Management System that turns your business into a profit machine.  As Michael Gerber says, “Do you ever wonder where the profits really come from?  It’s your business systems that add value.  It’s your business systems that create profit.”

4. Motivation to get the most from people within your business.

5. Owner Accountability and discipline with a business that’s run by reports.  Protecting your profits begins with knowing and attending to the correct, critical numbers in your business.  The key question business owners have to ask themselves is if they know what is happening in the business from the information they collect. 

It isn't about how much you turnover, it is about how much you make.  Most businesses can tell you how much they turnover, but few can tell you how much profit they make.  And that is why profit is so elusive!

Second, you need to consider your external environment.  That is where the Opportunities and Threats come from.  While not fully outside your control -  research into your marketplace, and competitors is something you can and should do - you have less control over what happens outside your business.

As I discussed in “SWOT – A Useful Planning Tool – If Used Properly”, Opportunities and Threats are created by events, trends or possibilities for action that promise to:

•    Expand/Reduce the size of your customer base – e. g. natural growth, demographic shifts, rising incomes, economic conditions.

•    Give new avenues for customer access (or remove them) - new ways of ‘packaging’ your product, new opportunities for promotion, alliances & networks.

•    Increase/reduce the customer appeal of your value package - compared to those of the competitor.

•    Exploit a weakness or blunder by a competitor/your business - inability to respond to your initiatives.

Profit will definitely be elusive if you allow a Weakness to collide with a Threat.

Don't be concerned, it will not harm you
It's only me pursuing somethin' I'm not sure of
Across my dreams with nets of wonder
I chase the bright elusive butterfly of love

Your Profits Need not be Elusive, Like a Butterfly

When clients approach me for coaching, clients with businesses that are underperforming despite the crippling hours and effort the owner is putting into them, it is not just marketing that is holding them back.  They so often lack a management mindset, and lack control over their business.  Eight times out of ten that lack of control comes down to a lack of knowledge of what is happening in the business, and where their business is coming from.

For more than 29 years I’ve been helping small business owners plug the profit leaks in their business and restoring their cash flows by assisting them understand the information they need to have control over their business, how to manage and analyse it, and how to answer that critical question – WHY IS IT SO?

If you would like to discuss with me how you might do that, book a Strategy Consult here.

© Copyright 2017 Adam Gordon, The Profits Leak Detective 

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