If you have been thinking about what makes your business successful and what to focus on to move to the next level, then you will want to read Building Business Profits – Roadmap #3 by Steve Pohlit, CPA, MBA.
This series is for people running their own business, thinking about going into business or working for someone and wanting to make a valuable contribution to the success of that company. There is a sequence to these reports. For maximum value, please start with Issue 1.
The Second Highest Priority When Your Cash Flow and Financial Flash Says “You Are Not Achieving Your Cash Flow Goals!!”
The first priority is the analysis and rationalization of all expense requiring cash. Any expense that is unnecessary should be cut. Remember if your gross margin on a sale is 40% cutting $400 of expenses has the same impact on cash profits as recording a sale of $1,000.00. This area of business management will be addressed in greater detail in the next issue.
The driver of cash profits long term for any business is revenue and the gross margin for that business. Gross margin is the direct profit realized from making any sale. If your business is selling prescription medication and your gross margin is 27%, this means you have $27 dollars for every $100 in sales to pay expenses in overhead.
Here is a very simple but valuable lesson: There are only three ways to grow any business:
1. Develop more customers
2. Increase the average sale
3. Increase the frequency of purchase
That’s it – only three. Now here is part 2 of this lesson. Maximum revenue and profit growth are gained by incremental improvements to each of the three above at the same time and not just one at a time. For example, adding new customers whose purchases are higher than your current average and who buy more often bring huge benefits to your business.
What actions can you take to start hitting on a each of the above cylinders? There is a huge list. Let’s look at one example. Develop a list of complementary products for the top 20% of the items that make up 80% of your revenue. If you don’t have your top 20% list, get it promptly. Now you have two steps you can act upon right now that will make an immediate difference in your business.
It seems to be nearly universal that there are only about a handful of items that make the most difference in your business. And while the list is short, most companies fail miserably in allocating the right amount of time and resources to this list.
Why is that? Distractions – a large number of small items that steal the time out of your day. Maybe it is your cellular phone, a coworker, mail, email, or any one of a large number of incidentals. Regardless of the items, the day comes to a close and the major items – the ones that will propel your business or career into the stratosphere have been ignored.
I recommend an easy to use A, B, C system. List your key tasks. Those that make the most difference should be in you’re A category. No more than 20% of your tasks should be in the A category. Focus 80% of your time and energy on the A tasks and you will make remarkable progress.
In the next article in this series, expense structure analysis and rationalization will be discussed in greater detail along with additional insight on strengthening revenue and profits. Until then, be well and prosper.
About the Author:
Steve Pohlit is the President of Exec Net Consulting, Health Rewards International, (http://www.healthrewardsinternational.com), Total Marketing Solutions, Inc.(http://www.TheProfitSystem.com ) and the Chairman of the Diabetes In Control Advisory Board. His career includes, more than 10 years experience as a CFO for companies ranging in size from $40 million to $1.6 billion. Steve has owned and operated a chain of drug stores with pharmacies and has developed a number of Internet based businesses. He is currently writing a manual titled Consulting Secrets Revealed which provides all the details of the processes and procedures he implements with his consulting clients. Steve offers an initial complimentary consultation and is available as professional speaker on “Build Cash Profits or Close The Doors”.