The Gospel of profit

Imagine if we were gauged by a meter which would measure our performance at work and get paid according to that. I tell you some of us would go home without a penny, but on the other hand that would really make people work twice as hard to earn their money. The fear of not getting a paycheque is always the best motivator. I got an amazing book for my birthday by George Cloutier called "Profits aren't everything, they're the only thing" and it has opened my mind to some mistakes we make and I just had to share this gospel of profit. Cloutier has a different perspective as to why profit (or loss) is always at the bottom of the profit and loss statement. What this does is it makes us think that profit is the afterthought or the last thing after all else is done. When you see profit as the most important thing it will transform your business in an instant.

The reason why we decide to run our own businesses is because we want to make our lives better. The desire to create wealth and live a comfortable life is not a crime, its the whole point. Many owners of small to medium businesses are suffering because they are just about breaking even and are only managing to cover costs. I'm sure most of us have experienced paying everyone else in your company except yourself!! Cloutier says that should end now. Pay yourself first. You hold all the risk so you should reap the rewards. When you find yourself sacrificing your own income, there is definitely a much deeper financial problem. There are no rich martyrs! Pay yourself what you are worth. By underpaying yourself you intentionally hide major pricing flaws and other failures in operations.

A business' profit or loss is all about discipline. The hardest part of running a business, even for me is holding yourself accountable for profits and adjusting costs accordingly to maintain a targeted profit margin. So Cloutier talks about a Profit First plan where you make profits first and then pay expenses later. He says if you open a business and make 12% profits, you set aside 12c from every dollar and the remaining 88c runs the business. This seems very practical because you can regularly scrutinise and adjust costs to stay on budget. And to make more profit, you need to make more dollars, so you know the drill,more sales calls, more marketing and the works.

What I like about this Profits first plan is that you do not delude yourself into thinking all is dandy when it isn't. You also don't waste time and money on things that are not profitable. Its just a whole different mindset. Pricing your goods and services appropriately to ensure that money is being made. Its a way of approaching financial operations that makes sure that costs do not get out of control. So I am slowly taking away the things in my life and in my small business that simply don't bring any financial rewards. Simple.

So here are a few rules that I am incorporating into my daily operations:

1. Run your business by the numbers.
2. Profits and cash are the only true measure of the health of your business.
3. Do a profit and loss statement weekly.
4. Focus on cash flow and expenses.
5. If money is tight, cut costs viciously, and then cut some more.
6. Make sure profits on the book translate to cash in the bank.

Its really a simple and straightforward thing to follow,but requires a lot of discipline for its success. So I have shared this little gospel, I think it will work for me, hope it works for you!