Like most things in business, adding to your revenue takes planning with a purpose. Here are six steps to intentional pursuit of profit that every SME should follow.
When I ask business owners about their goals, one of the biggest things they tell me is that they want to make more money and grow their wealth. But when I then ask how much time they spend working on this goal, by getting really close to the numbers and being super intentional about their expenses and income, I’m often met with silence. “How much time do you spend managing your money? Planning your spending? Updating your budget?” Crickets.
Here’s the thing: If you want to create big profits, you need to create a plan for striving towards future wealth. As a qualified accountant, I know how important it is to master your numbers. In fact, I schedule regular money meetings with my accountant, my bookkeeper, myself and my husband – I have several money meetings a week.
For some business owners, spending this much time and attention on their books doesn’t come naturally. But if you want to truly master your money and unlock a whole new world of potential profits, you need to be intentional in your approach. Here are the steps I take my clients through to get started on this journey.
Step 1: Run your profit-and-loss reports
Open up your accounting program and run your profit-and-loss report month by month for the last 12 months. This gives you an overview of your total sales for the year, along with your actual profit.
By generating the report over a 12-month period, you can get an understanding of your sales cycle and notice the peaks and troughs, the slow periods, the busy periods and other trends.
“Imagine the sky’s the limit when it comes to setting goals.”
Don’t forget to adjust your profit for wages if appropriate. For instance, if your profit runs at $100,000 for the year, but you also paid yourself a wage of $150,000, then you actually made $250,000. Also, if you’re not sure how to do this, refer to your accounting software guide or ask your accountant for help.
Step 2: Reflect on results
Once you have the numbers in front of you, take some time to reflect on these results. Are your numbers in line with what you thought they would be? Are you happy with your current profitability? Are there any surprises?
For some, looking at the cold, hard numbers can be confronting. You may discover your business isn’t performing as well as you thought. This was the case with one of my clients, who was turning over $1 million a year and thought she had a wildly successful business. When we ran these reports and took a closer look, we realised she was only just breaking even – and she was able to pay herself less than $1000 a week (some weeks, nothing at all).
On the other hand, you could be pleasantly surprised when you review your profit-and-loss reports and realise that you’re actually in really healthy shape.
Whatever these reports show you, the bottom line is you gain valuable access to information – which can empower you to be decisive in step 3.
Step 3: Update your budget
Your ultimate goal here is to work out how to grow the profit in your business intentionally, right? In practice, this journey starts with some world-class goal setting, which begins with a solid budget.
It’s likely that you’re familiar with the concept of setting goals in some way, shape or form, but I want you to ground your goals in some facts and figures, in the form of a budget.
While your profit-and-loss has mapped out exactly what you earned and spent in the last 12 months, your budget sets out your expenses for the year ahead. You can refer to your spending and income over the past year to guide your plans for future spending, but keep in mind that it’s just a guide; your journey is not set in stone, and just because you made $500,000 last year, doesn’t mean that’s the limit of what you could achieve this year.
Step 4: Schedule regular profit appointments
Now that you’re starting to get into the groove with the financial side of your business, set up some regular appointments with yourself to keep up these habits.
You don’t want to make these budgeting and profit-and-loss exercises a one-off experience, keeping close to your numbers is something you should do regularly. So, schedule a profit-and-loss appointment with yourself at the same time every month, and diarise appointments every quarter where you check in with your budget to make sure your income and expenses are lining up with your projections. If they’re not, take the time to adjust your budget and forecasts so your numbers are accurate.
Step 5: Identify next steps
By now you have a clear picture of your business finances and how much profit you’re actually making every week, month and year. Your next step is to work out what goals you want to set and what actions you can take to build on your success from here.
One exercise I often suggest to my clients is to imagine the sky’s the limit when it comes to setting goals. If absolutely anything were possible for you and your business, what would be your aim?
With a big, bold, audacious goal in mind, you can start working backwards and work out which baby steps you can take to get closer and closer to your dream result.
Step 6: Intentionally invest in your own success
When you’re running a business, you’re often so focused on your expenses and keeping those costs down, that you don’t always think about the potential returns that can flow back your way if you invest in your business.
But if we revisit step 5, and the goals you set there, you may come to the conclusion that you need to make some investments in your business to realise these dreams.
For instance, if you want to be the number one go-to provider of your service in your area – let’s say you’re a marketing consultant, and you want to consult with big brands and land six-figure deals – then you’re unlikely to attract those types of clients with a cheap/free website. You may need to intentionally invest in a bespoke brand campaign to give your business the professional look and feel you need to be able to attract the clients you want.
Not sure what you should invest in? Consider this: If you were handed $100,000 tomorrow, and you had to invest it in your business, what would you spend it on? Write it out and allow yourself to get excited about what could be possible.
This story first appeared in issue 41 of the Inside Small Business quarterly magazine
