At Holden Moss, we love working with business owners who are going places – the people with fire in their belly and a real vision for making a success of their company.
And the key thing that will help you achieve these business dreams is putting profitability at the core of everything you do as a business owner. When you’re turning a healthy profit, you’re more stable, more effective and more prepared for growth, expansion, and long-term stability.
So, to help you focus better on profit, we’re starting a series of blog posts that take you through the important questions to ask yourself as an ambitious business owner.
How to create a more profitable business
We’re going to make you a more profitable enterprise. And we’ll do that by helping you to consider the following key questions:
- Where am I now? – this is about understanding your business position as it stands at the moment. Are you winning, or losing the business battle?
- What can I do to make things better? – small efficiencies have a big impact, whether it’s on your finances, business ideas or people management.
- How do I know I’m making progress? – tracking how well your improvements are progressing puts real impetus behind your evolution.
It’s a simple, easy-to-execute way to get more from your business. And if you need more help, we’re always here at the end of the phone to give you the support and guidance you might need.
Where am I now?
Let’s start right from the beginning.
You may be a brand new start-up, or you may be a long-running business that’s been trading for years. But the starting point is defining what kind of shape the business is in right now.
Let’s imagine that your profit improvement plan is a half marathon you’ve decided to run for charity. Your first thought should not be ‘What colour training shoes shall I buy?’, it should be ‘I’d better get a physical and check I’m in good enough shape to run this race!’.
And giving your business a ‘physical exam’ is exactly what’s needed. You’ve got to check every part of your business body and see where there are weaknesses, and where there’s a need to improve your overall fitness.
A great view of your numbers
Your business numbers are the foundation of your financial health as a business. So it’s critical that you know as much as possible about your financial systems.
- Do you know what accounting processes you use? – a good overview of your accounting set-up is vital. Knowing whether you’re accounting on a cash or accrual basis, or how you’re set up for tax with the IRS, will be a big help further down the line.
- Does your accounting software system deliver real-time numbers? – the new breed of cloud accounting software can show you numbers that are 100% up to date – and that’s a huge benefit when looking at reporting and performance metrics.
- Are you looking at your numbers regularly? – with the benefit of online accounting, you can check in on your numbers any time, anywhere. And the more often you look at your numbers, the more informed you are about your business health.
Finding your normalized profit
With a good grip of your financial systems, you can then start working our what your normalized profit number.
Normalized profit isn’t your tax profit, but the number that shows the real profit you’re making. By removing the non-recurring costs and gains (throwing away the rubbish, essentially) you get to see the true value of the business as an entity.
And this normalized profit number also helps you to set an ‘acceptable level of profit’ (ALP) for the business as a whole – you can find the ALP formula here, but in essence, it’s the minimum profit you want the business to achieve to be able to meet your medium and longer-term goals.
By finding your normalized profit number, you can track which of the following three health categories your business falls into.
- 5% or less – profits are too low and your business is vulnerable. If you carry on at this profit level, you’re eventually going to fail.
- 10% or above – you’re doing ok, but there’s definitely room for improvements in your profits. This should be your minimum base ALP.
- 20-30% or above – you’re doing great and bringing in the level of profit needed to take the company to the next level of growth.
The next step: knowing where to look for improvements
So, you’ve had your physical, the doc has given you the honest truth about your state of health and now it’s time to start training!
Getting the best possible grasp on the current health of the business is such a foundational part of your profit improvement transformation. And that’s why we place so much emphasis on getting this step right.
If you’re looking to create a more profitable business, please do come and talk to us – our Awesome 8 approach to profit improvement will soon have you up to speed with your current business status, and looking for the efficiencies and financial changes that will drive the next step in your journey.
Get in touch with your local Holden Moss office to book a session with one of the team – we’d love to help you deliver more from your business.
In the next part of this series we’ll ask ‘How do I improve my finances?’ and will give you the practical advice needed to start delivering better profits.