If you want your small business to be successful, make a financial plan and check it against the facts on a monthly basis — then take immediate action to correct problems. That’s the advice of business coach C.J. Hayden.
According to Hayden, “Entrepreneurs tend to be optimistic mavericks with a high tolerance for risk. Many ignore expert advice, and don¹t even look at their financials until tax time, unless the checking account is overdrawn.” Here are Hayden’s tips for achieving year-round profitability.
Seven Tips for Making Your Small Business Profitable
Seven things you can do on a regular basis to keep your small business profitable:
- Create a financial plan for your business. Know how much revenue you expect to bring in each month, and project what your expenses will be. If you need it, get help from business planning books, software, or an accountant.
- Review the plan monthly. This is where most small business owners fail. Even if they have taken the time to prepare profit and loss projections, they often let them sit in a drawer. It’s not enough to have a plan — you have to review it regularly.
- Lost profits can’t be recovered. When entrepreneurs compare their projections to reality and find earnings too low or expenses too high, they often conclude, “I’ll make it up later.” The problem is that you really can’t make it up later: every month profits are too low is a month that is gone forever.
- Make adjustments right away. If revenues are lower than expected, increase efforts in sales and marketing. If material, labor, or overhead costs are too high, find ways to cut back. There are other businesses like yours around. Can you learn from them? What is their secret for operating profitably?
- Think before you spend. When considering any new business expense, including marketing and sales activities, evaluate the increased earnings you expect against its cost before you proceed.
- Don’t be afraid to hire to increase profits. Retailers and restaurateurs wouldn’t consider operating without employees, but many small businesses limit themselves by being understaffed. Almost any business can benefit from hired help. Owners of small businesses can often better use their talents for generating revenue than for running errands and filing.
- Pay yourself a regular salary. If you are a sole proprietorship, here’s how. Allocate an amount to owner’s compensation on a monthly basis. Each month your business meets its profitability goal, pay yourself the full amount. When you miss your target, dock your “pay” and when you exceed it, pay yourself a “bonus.” Writing yourself a monthly paycheck will give you a strong incentive to keep your business profitable.
Remember that the way to evaluate the success of your business is profit, not revenue. It doesn’t matter how many thousands of dollars you are bringing in each month if your expenses are almost as high, or higher. Many high-revenue businesses have gone under for this very reason — don’t be one of them.