– Vince Lombardi, Former Coach, Green Bay Packers
Most of the entrepreneurs we work with need to strengthen their relationship with profit. We all know we need profitable businesses. But what does that really mean? In nutshell, income less expenses equals profit. Profit earns you the right to do business. If you don’t earn a profit you will eventually lose the right to do business.So what are the keys to making a profit?A good accounting system. Every business must have the systems in place to track the numbers and generate reports. Managers should have access to income and expense information on a daily, weekly, monthly and annual basis.
An estimating/pricing system. You must be able to estimate the amount and cost of material and labor that it will take to produce your product. With an accurate cost accounting system, you can determine your gross profit margin, deduct your expenses, and calculate your net profit. Without an accurate system in place you are just guessing as to your bottom line.
Projections and plans. The plans for sales and expenses provide a road map of where the business is going. Without the projection you are being run by the circumstances. That is a condition for uncertainty. You don’t want the market to determine where your business will wind up. You want to be guided by your own ideas and knowing that you are heading down your chosen path.
Measure for profitability. You have to stay on top of the progress of every department in your company. When things start slipping in production, you need to step in quickly to find a solution. Conduct weekly meetings with your accounting, production, sales, and estimating departments. Develop reports that show each department’s impact on the bottom line. If you are a sole proprietor, you still need to schedule time to measure for profit and make adjustments for things that aren’t working.
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