One of the ideas behind Profit First is borrowed from a fitness expert who spoke about how unhealthy the whole “clean your plate club” philosophy is. In fact, in his book Mike Michalowicz asks himself, “If I reduce the ‘plate size’ of my business’s operating account, will I spend differently?” By reading his book, you find that he later answers himself with a resounding “Yes!”
The whole idea behind Profit First is to move funds onto different “plates” like the Profit Account, the Tax Account, the Owner’s Pay Account and away from the Operating Expense Account. This results in two things: 1) guaranteed profit every quarter because there is money in the Profit Account and 2) reduced availability of funds in the Operating Account. The idea here is both to inspire the owner by providing profit but also to inspire the owner to reduce costs to keep from overspending their Operating Expense money.
This means that just moving money toward profit isn’t the end of the process. The next step is to start examining costs in order to make sure that they are being controlled to match the percentage goals for Operating Expenses. Everything should be looked at and evaluated for its necessity.
Easy steps would include checking with services like credit card processing, payroll services, utilities and suppliers to make sure that you are receiving the best price for the services that you are receiving. Regular reviews of these services are advisable because there are always offers and specials being run that would reduce the costs for these services. Your Profit First Professional is the perfect partner to help you review these costs.
As the percentages of money increase in the Profit Account and decrease in the Operating Expense Account, it will become even more challenging to find ways to economize. This is where it becomes interesting and fun. This is where you get to play “Apollo 13”.
Millions were spent on the Apollo 13 project to produce a state of the art spaceship that would safely transport men to the moon and back. Unfortunately, it failed and the men were in mortal danger. In the attempt to save them, the engineer on Earth walked in with a couple of hundred dollars’ worth of equipment for the astronauts to use to build a replacement for the million plus dollar scrubber that failed. Fortunately for the astronauts the engineers were successful. The lesson for us business owners is that when we are forced to, we can find new and innovative ways to do what we do for even less cost.
Good luck and happy cost saving. Make sure to use the resources provided by your Profit First Professional to help guide you through this examination.
If we can help with any questions, please contact us at any time.
Can you believe that half of 2019 is gone already? That means it’s a great time to take stock of how your business has done for the first half of 2019 so that you can meet your financial goals for the entire year.
On Track for Sales
Are you on track to make your 2019 revenue number? The first step is to check your 2019 budget numbers for total revenue. (Don’t have a budget? – Check with us; we’d be delighted to discuss that service with you.)
Next, get your Income Statement for June 2019 Year-to-Date and check the revenue figure. Are you on track with your budget, or are you halfway there revenue-wise, accounting for seasonality? If so, pat yourself on the back! If not, what promotions will you put in place to boost your growth for the rest of 2019?
On Track for Profit
Looking at the same Income Statement, check your net income figure. Are you on track with what you planned? If so, great! If not, the reason is simple: it will be either lower sales than expected or higher expenses than expected.
If your expenses are too high, you’ll need to drill down into each of your expense accounts, including cost of goods sold, to see which ones are higher than expected. Were there some unanticipated costs? Does your pricing need adjusting? Do you need more volume to cover your costs? This is where we can help you with an analysis of where your opportunities are to increase profit.
On Track for Cash
One more place to look is your cash balance. It can be uncomfortable when you are running short of cash for your business. If your balance is lower than you’d like it to be, it could be because of some of the factors mentioned above. It could also be because you just purchased an asset like a truck. If you need help with improving your cash flow, that’s another thing we can help you with.
This mid-year review can help you head off any small problems before they grow into big ones throughout the rest of the year. And it can keep you on track so you can meet your 2019 business goals.
If we can help with any additional questions, please contact us at any time.
The best cakes have layers and layers of different delicious flavors to enjoy. Stacked on top of one another, each layer is baked separately and becomes part of the whole. Like a layer cake, your business expenses have layers of meaning to them. When you can understand how expenses play a part in profit, you can manage them better.
Here’s how to make a layer cake of your business expenses. Let’s start with the most direct expenses.
If you have inventory you will have a balance in the Cost of Goods Sold account. It should represent how much you paid for product or inventory that you are selling. It is the most direct expense of all the expenses; if you don’t spend this money, you would not have a product.
If you sell services, you should not have a balance in Cost of Goods Sold, but you will have direct expenses that are tied to performing your services. These might include labor from wages of the employees who carry out the services for clients. Any supplies directly involved with delivering services should be included as well.
You may also have other direct costs related to selling specific products or to servicing specific accounts.
The next layer includes indirect expenses. These expenses do not make up your product directly and might contribute to several different lines of products. Indirect costs might be attributable to a group of products or projects and can be apportioned accordingly.
Although overhead is technically a form of indirect cost, it’s good to create a separate layer for it. It includes management salaries, rent, utilities, and other fixed costs that cannot be directly allocated to a product or service.
Assembling the Layers
A wonderful exercise is to classify each of your expense accounts in your Chart of Accounts as direct, indirect, or overhead. In that way, you can see how each account contributes to the costs of running your business. Some questions to ask yourself:
- What is my gross margin before indirect costs and overhead?
- What is my gross profit after indirect costs and before overhead costs?
- How can I cut down on any of these categories of expense?
- What is my break-even volume in sales before overhead is factored in?
- Can my profit margin be changed if I spent less in a certain area?
This layered view is just another way to view the financial aspects of your business and can help you make better decisions down the road.
You can also break the layers down even further by classifying the expenses as critical and non-critical. This will help you determine where best to invest while maintaining the level of profit you desire.
You can’t manage what you don’t measure. Layering your expenses will help you have your cake and eat it too. And if we can help, just reach out as always.
Having repeat customers is essential to many businesses, and the key to keep clients coming back is to provide them with great customer service. Here are six ideas to rate your business’s savvy when it comes to serving customers well.
1. Make a great first impression.
When customers make a purchase from you, make them feel great about it by sending them a series of indoctrination emails. Congratulate them on the purchase, let them know how to get the most out of their new purchase, and encourage them to connect with you on social media and your mailing list.
2. Measure response time.
How fast do you answer prospect and customer questions? Social media has changed the game. Customers that reach out via social media platforms, their phones, chat, or messaging apps expect an immediate answer. Facebook even gives a badge to businesses who respond quickly and consistently.
Not only do businesses need to monitor messages coming in from a record number of places – email, phone, web forms, chat, social media, and more – they need to respond faster than ever.
Without measuring your response time, it’s hard to know how you’re doing, so putting measures in place is the first step to improving this customer service metric.
3. Publish clear policies.
Good customer service starts with setting clear expectations. Before a customer buys from you, they should be able to know what your refund policy is in case something goes wrong. Some of the policies that should clearly be published online as well as at all customer-facing business locations include:
– Refund policy: If the product or service is not as expected, can the customer obtain a refund? Is there a re-stocking fee? What about shipping? Cash back vs. store credit?
– Terms of service: Are there any limitations to the product? Or legal items that need to be communicated?
4. Encourage feedback.
Your best ideas for new products and services can come from your customers. Ask for feedback by sending customer satisfaction surveys and requests for testimonials and reviews. Read what customers have to say about your service so that you can make improvements as needed.
5. Check your ego at the door.
As small business owners, sometimes we need to be humble, especially when things go wrong. Be generous with apologies to customers; it will go a long way toward improving customer relations. If you’re at fault, admit it and make it right with the customer. Even if you’re “right,” find a way to explain to the customer so that they feel good about you and your business.
6. Make an even better last impression.
I had the privilege of attending the season opener Savannah Bananas baseball game last week. This is a college league summer team drawing over 4,000 fans to each game, that’s about one-thousand times what any other team in this league draws per game.
The owner is Jesse Cole, author of Business Done Differently which I highly recommend. He stresses the importance of not only first impressions, it’s also important to pay attention to last impressions. This is why the players run from the field to the exit to greet fans as they leave the stadium. Everyone leaves happy.
Are you clients all leaving happy? Does someone know their name at the door and simply remind them to have a good day or let them know they’re looking forward to seeing them in a day or two when it’s time for their next class?
Delivering great customer service can be a huge competitive advantage for your business. How does your business stack up against these six ideas? Try them, and watch your revenue grow.
If we can help with any additional questions, please contact us at any time.
Ready to MAXIMIZE Your Profits?
Learn how with a FREE Download of the first five chapters of Mike Michalowicz’s book, “Profit First”.