Why Should You Focus on Profit?
It has been said, you get what you focus on. Focus your mind and your efforts towards the things you want and you’re more likely to get them. This is true in careers, sports, having healthy family relationships, and mastering a new skill or hobby.
And in business, it must include focusing on profits.
A business without profit eventually will die. Being passionate about your work may keep you in the game longer, but your business must generate profits to survive. You have to spend within your means, there isn’t a shortcut that allows you to succeed if don’t have a clear path to profitability in your company. Every business may go through short cycles when expenses will exceed income, but allowing it to happen repeatedly without making adjustments is like running red lights and not expecting to get in an accident…You might make it through a couple of lights, but eventually it isn’t going to end well!
If your goal is to have a healthy sustainable business you won’t get there if you aren’t profitable. It’s not about being greedy. In order to have an Employee Profit Sharing Program you must first have “Profit”. If your goal is to one day be more philanthropic and provide financial support to charities that are important to you; you can’t do it without having profit in your business and your personal finances. The math doesn’t work.
The challenge in business is we often don’t place our focus on profits. We spend all our energy concerned about the price we are selling our product or service for and what our expenses are going to be to delivery it. Profits are an afterthought – we forget about the focus of having a profit, the significance of having a profit.
Shifting the focus to profit:
Expenses vs. Profits by definition
Expenses: “The cost required for something; the money spent on something.”
Profits: “A financial gain, especially the difference between the amount earned and the amount spent in buying, operating, or producing something.”
Does the word “expense” evoke a positive or negative reaction in you? What about the word, “profit”. It’s not even close – seriously, which call to you want to take from your accountant?
“I am calling to talk about all your profits” or
“I am calling to talk about all your expenses.”
Profits are healthy – profits mean your winning. Expenses are important and need to be managed, but they’re never going to be a positive.
In Mike Michalowicz’s book ‘Profit First’, he suggests businesses shift away from the traditional formula we have used to calculate how well our business is performing, by shifting the focus on profit…first.
Old: Sales – Expenses = Profit
New: Sales – Profits = Expenses
The new formula is mathematically the same, it has the same three components, but by subtracting the profit first it is forcing you to think about how much your business needs to earn in profit to be healthy, to be sustainable. Which formula is going to make you think more about making adjustments either in spending or your selling price if the profit is on the front end of the equation and not what’s left over?
How about your business? How much focus do you put on profit? Just being passionate isn’t going to guarantee success. If you have never thought about putting more focus on profit, give the above formula a try and see how it makes you respond. The difference may surprise you.
If you’re a business owner in the KC area and would like to roll up your sleeves on the financial performance (profit) and seven other drivers that directly impact the value of your business, there is an excellent opportunity coming up on Sept 14th. We’re calling it “The Freedom Workshop.” If there is still room, we would love to have you join us!
As always, we value your comments in the space below.
Chris Steinlage Kansas City Business Coach