Top 3 Business Tips to Stay In the Black
Running a business is no easy task and running one that is consistently profitable is even more difficult. The variables you face in creating a profitable business are endless and when you think they have been all addressed, new ones surface that can derail your plans. The key to staying on track and focused on creating and maintaining a profitable business is developing a game plan that can be followed even when new variables surface. The top 3 business tips I would share with a business owner to stay in the black would be:
1) Create a Budget
2) Develop Sales Objectives, and
3) Manage Expenses
All seem pretty straightforward and most business owners would say they have or do all three on a regular basis. Unfortunately, we see business owners say they do these things but when you review their daily practice, they miss all the ingredients which make each of these successful.
Some Food for Thought as You Think About Each of the Business Tips
Create a Budget
Creating a budget means taking a realistic approach to all facets of the business. It is critical to the overall plan of the business and encompasses business tips numbers 2 and 3 to a deeper level. A budget allows you to plan for multiple scenarios – excellent, workable, and ugly. It provides a high level view into assumptions that can be tested and re-tested on a regular basis. Remember the variables mentioned earlier that seem to come from out of the blue? A solid budget creates ways for you to plug in the unknowns and re-run the budget to understand the impact. A budget will create direction for you and your team. It helps senior managers with goals and accountability and gives them a blueprint for creating their own budget if necessary. Budgets can be simple or complex, but one needs to exist for your business to reach profitability.
Develop Sales Objectives
Having defined sales objectives and goals allow business owners a view into how cash will ultimately come into the business. It also creates strategy around reviewing existing sales channels, defining new sales channels, and setting goals for staff. Companies without sales objectives who run on the standard percentage increases based on last year’s figures do the business and their teams an injustice. Trust me, I have been there. A concrete sales plan allows you to identify your sales leaders and laggards and also provides insights into your customers. It helps you see which customers are producing the most revenue, which are most profitable, and which should have their pricing adjusted for costing the business too much time and money.
Without a sales plan, you don’t know any of these details which all impact the profitability of your business. One thing business owners forget is that sales do not pay the bills – cash pays bills. Tracking your cash conversion cycle based on products sold, a service rendered, or by customer, allows you to see how fast your sales are converting to cash. It will help identify slow paying or non-paying customers and also which products have the highest sales level.
All business owners know that if you can’t increase sales, you need to decrease expenses in order to be profitable. Lean management is a key term in many businesses. It can be tied to those producing a product or providing a service. Running a business efficiently is critical especially in times when sales are soft. It also creates opportunities to see if investments you are making in resources (sales, marketing, technology, or staff) are paying off. Looking at trends across several months can give you a sense of what is working or what needs to be tweaked. Oftentimes, the biggest issue seen with businesses is the inability to adjust expenses on a timely basis.
Purchasing excess inventory because of bulk pricing discounts, maintaining old equipment that will not be used in the future, increasing staff for a new job that is ultimately delayed, or not making staff cuts when sales soften are all areas of expenses that need to be managed. Many of these involve tough decisions and usually make sense from a business perspective, but emotionally are difficult to execute.
Putting These Business Tips to Work
Running a profitable business is not easy and is much more difficult for younger businesses and those with limited resources. I find it amazing how entrepreneurs power through the difficult times and make the tough decisions to make sure they are profitable. To some, this is the ultimate goal. To others, they focus on pure cash flow and as long as they have funds to pay the bills, they are OK. Depending on your business objective, either will work provided you have a defined plan.
About the Author
Mike Semanco serves as President and Chief Operating Officer for Hitachi Business Finance. He has over 20 years of experience in the financial service industry. His career spans a variety of lending institutions, beginning with banks and credit unions to becoming a partner that launched Hennessey Capital in 2002 (which is now Hitachi Business Finance). He can be reached at email@example.com or (248) 658-3201.