When you start to GET PAID for sharing your superpower, it’s easy to get caught up in the dollars and forget about actually making a profit. You bust your bum all year round and still somehow end up broke. We’ve all been there.
Every business owner wants to maintain a healthy profit, but so few of us ever reach that goal. Most of the time, it’s simply misinformation and poor mindset that holds us back.
The truth is that profit can be achieved and maintained very easily if you follow some simple rules and you stop believing all the lies swirling around.
Myth #1: Profit is what’s left at the end of the year
For many businesses, their sales cycles are all over the place and profit is never really determined until December 31st. Working this way is just leaving your business to chance. You should actually be planning to make a profit and you CAN plan for it.
In his best-selling book “Profit First”, author Mike Michalowicz outlines a very simple system any business can use to actually build a profit each month. Using Mike’s “Profit First” methodology, you can literally start making a profit today. There are no gimmicks involved.
You just need to know a few key metrics about your business and make the appropriate adjustments to get on track. It’s that easy.
We highly recommend you grab a copy of the book here and dive in.
Myth # 2: To increase profit, you need to raise your prices
In principle, this sounds like a great idea… raise prices and suddenly you have more profit. But in reality, it doesn’t work that way. Raising prices can affect your position in the market and shift your customer base.
Raising prices also brings an expectation of better quality products or services. Delivering that quality can become costly and you may end up making less profit if you don’t plan accordingly. You must think through the ramifications very carefully before increasing your prices.
When we scope out pricing options with our clients, we start by analyzing their direct competition. It’s critical to know what they offer, how they present it and what the perceived value is in the marketplace. We also research their target audience to get an idea of how they are reacting to current trends and competing products and services.
If pricing is an area you struggle to master, we’d be happy to analyze your current sales funnel or help you build a solid marketing strategy. Feel free to book your session here.
Myth #3: To increase profit, you need to cut your costs
While cutting expenses sounds practical on the surface, there’s a lot of things to consider. Reducing costs could reduce the quality of your product or service. Inferior products would then cost you valued customers and tarnish your reputation in the marketplace. Consider each cost individually and remove what you absolutely can without sacrificing quality.
Oftentimes, it’s not a particular expense that needs to be cut. Optimizing your business processes can create efficiencies or better utilize existing services which can save you money and increase your profit.
For example, during a strategy session with Briana Michel, we helped uncover tasks that could be automated through software she already owned. This decreased the time she spent on her coaching service, creating more profit for her business.
Myth #4: Profit is only about money
While every business is out to make money, profit isn’t always about the dollars in the bank. When you learn how to maintain a healthy profit in your business, you get the added benefit of running a stress-free operation. The constant feast or famine cycle of your business no longer becomes an issue. You can ride out the tide, knowing you can manage the waves ahead.
Profit also buys you time. With a healthy profit in the bank, you can afford to wait for the right buying cycle. You don’t have to throw money at band-aid solutions. You can benefit from discounts by purchasing in bulk. You can literally buy yourself more time on any decision.
Myth #5: Profit should only be spent on your business
Isn’t the purpose of profit to put money back into the business? Well yes and no.
You, as a business owner, should also be profiting off of your business. You should be rewarded for all the blood, sweat and tears you’ve put in.
A portion of your profits should also be going into the company owners’ pockets each quarter. I’m talking about a financial bonus above and beyond your normal paycheck.
If this truth freaks you out a bit and you don’t think your business makes enough money to do this, then you’re probably not making a healthy profit to begin with. We suggest you read the “Profit First” book and take the self-assessment to see where you actually stand.
You’ll learn what your target profit should be and how much should be allocated to your account each month. You’ll also be able to see the gap between where you are now and where you need to be so you can take the appropriate steps to adjust your business structure.
Myth #6: You need an accountant to figure out your profit percentage
We get it. Math can be hard and taxes are super confusing. But determining your profit and putting that money safely in the bank is easy. You can do the number crunching yourself with a simple spreadsheet. The “Profit First” book can walk you through how to do this.
However, we also recognize that having an outside perspective on your financial picture can be largely beneficial. Whether you hire a bookkeeper or just want a second set of eyes to review your statements, here are a couple of resources that can help:
“Profit First works for every business. Many of my clients come to me saying that they are “bad with numbers.” The favorite part of my job is to see my clients go from frustrated and stressed to empowered and truly excited to look at their numbers. You are human if you think you aren’t good at this stuff. As a society, we have very little built in guidance about this subject. I can assure you that it is possible to have a healthy relationship with money, and you don’t have to kill yourself to get there. The only complaint I regularly hear is that my clients wished that they had implemented Profit First sooner.” – Amber Dugger, Mastery Level Profit First Profession
Or, to put it another way…
“When has putting anything last ever worked for you? We don’t put our family or health last or if we do, we know what happens. Why do we put our profit last?” – Shannon Simmons, Certified Profit First Professional
Myth #7: You won’t have any profit your first few years in business
This is also a lie you’ve been fed. There’s no reason for a business to not make a profit from day one. Money management is a struggle for most business owners because it’s not typically a skill we’ve been taught.
Every business should have a profit plan and should be putting money in a dedicated profit account every month. When you operate this way, it becomes very easy to make financial decisions on operating costs, hiring, inventory and much more.
At Left Right Labs, we use the Profit First method and we recommend it to all of our clients. The bottom line (no pun intended) is that it works.