If you’re a business owner like me, you know that one of our many responsibilities is to make sure our business is profitable. However, there is a lot more to profitability than having a solid budget in place, operating in the black, and reading your P&L. Operating a profitable business means providing your team—and yourself—with opportunities for freedom, security, benefits, growth, and much more! Like most aspects of running a business, it’s not an easy task, but profitability is achievable with some simple guidance and my four proven tips!
Profitability Myth Busting
Before we can talk about ways to increase your profits, we need to have a shared definition of what profitability is and what it isn’t. Let’s start with an easy question: are you looking at your profit and loss (P&L) report on a monthly basis? If you aren’t looking at your P&L monthly, you absolutely need to! As the saying goes: “what you don’t manage will manage you.” It’s incredibly important to see the summary of your financial input and output. But, please don’t get confused. Your P&L is not king—cash is.
That’s right, what is happening in your bank account is where the truth lies. Profitable business owners understand that one of their major roles in running their business is knowing the numbers. Your profit is what you have left over after all your expenses are paid, all your specific savings are accounted for, and after you’ve paid yourself. Many business owners pull their income from profits – this is a costly mistake. You must include your salary in the monthly numbers. One way of knowing if your business is truly profitable is if an outside buyer could purchase the business, take over, and earn a great income.
Profits are important because we need to operate a high functioning business without worrying if we can make equipment upgrades, invest in our staff through professional development, and any number of other investments. It’s also important because we all have dreams of our own that would not be possible without profits. Examples would be if you wanted to sell your business, so that you can retire comfortably. Or, maybe you want to draw from profits annually to donate to your passion projects. It could be that you want to remodel your store, add a second location, or even buy the building you’re in.
At the end of the day, none of this is possible without profits. What do the next two to five years look like for you? What long-term goals do you have with financials specifically tied to them? If your business isn’t profitable, you’ll be without the flexibility to focus on bigger dreams.
What if your business wasn’t your only mission, but rather a vehicle that drives a larger vision. I recently had the opportunity to interview Winn Claybaugh, a renowned motivational speaker and business expert, and he shared the three basic human needs we all have. We want to feel safe/secure, feel like we belong, and have purpose in life. If money is keeping you up at night and you’re lacking in any or all of these human needs, now is the time to focus on what you can do to grow your business’ profits!
Now that you have a clear understanding of profits and why they are essential for a successful business, stay tuned for my next post when I’ll share my four tips to increase your profits! In the meantime, connect with me on social media or send me your thoughts!