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Monthly Archives: January 2021

Five Reasons You’re not Seeing a Year-End Profit

As you digest your year-end financials, what’s the big thing that sticks out to you the most? For so many business owners it’s the lack of profit at the end of the year. 

Being profitable doesn’t mean that you, the business owner, are taking home a big paycheck each month. It doesn’t mean that you’re able to invest in the latest and greatest equipment. Of course, it could, but being profitable means a whole lot more than that.

There are a lot of reasons why you may not be seeing a year-end profit, but our goal is to make sure you are. So as you’re wondering what happened last year, we want you to consider some of the circumstances you have in your business today.

You have a large amount of debt

Debt can weigh heavily on anyone’s finances, but especially a growing business. If you’re still in a physical location, lease payments aren’t necessarily a bad thing if your in-person revenue stream is steady. But business credit card debt can cripple your business, particularly if the interest rate is high (and we suspect it is). Credit cards are not a good tool to keep afloat because the debt will eventually drown you.

What to do: Find ways to help you get ahead of your debt and stop incurring new debt. This means you’ll need to find ways to reduce expenses in other areas so you can increase your monthly debt payments. You may not see large profits right away but you’ll reduce what you’re spending on interest charges every month, and that will feel really good!

You’re spending it on year-end assets

The goal always seems to be reduce tax liability as much as possible, but that shouldn’t mean at the expense of your profits. Just because you have money in the bank at the end of the year doesn’t mean you need to spend it on a big purchase. Assets like gym equipment, new flooring, a new computer and the like should be planned for well in advance, not become a line item in your effort to reduce your taxes.

What to do: If your tax accountant suggests you make a year-end purchase to reduce your overall tax liability, ask yourself some questions first. Is this something you truly need right now? If not, there’s no reason to buy. Do you have money saved already for taxes? It’s better to have a plan for both purchases and taxes. With both of these in place, there’s no need to make a big year-end purchase.

You’re paying too much on recurring expenses

Every business has recurring expenses, like insurance, phone bills, cleaning fees and software systems. Often rates go up and you fail to notice because we missed the email notification or forgot to check to make sure you’re still using all the parts of that service. Just because your bill is currently one price, doesn’t mean it has to stay that way.

What to do: Every quarter, make a date with yourself to review your expenses. What services are you no longer using? Is there a way to reduce your rates due to good payment history, longevity of service and/or lowering a service plan? It never hurts to do your research and negotiate new rates to save some cash.

You’re not flexible and open to change

You know how hard 2020 hit local service businesses. Some gyms didn’t make it out of last year intact; those that did were flexible and open to change. The health and fitness businesses that survived are the ones that embraced doing things outside the box and found new ways to bring their services to their clients. Often they were able to shift because they had an emergency savings that gave them a little bit of peace of mind and a little bit of time to think through their next steps.

What to do: The obvious answer here is to build up an emergency savings account so you’re prepared in the future. Knowing this may not be possible for you right now, find ways to be innovative and flexible with your offerings. Relying on only one stream of revenue may not be possible moving forward so identify ways you can diversify.

Most importantly: you’re not taking your profit first

We teach clients how to take their Profit First, which is hands-down the best way to ensure you have a profitable business. It’s about allocating a percentage of your revenue to profit, before you deduct operating expenses, taxes and owner’s pay. Because if you’re not taking that profit first, chances are you won’t have anything left at the end of the month.

What to do: Find sustainable ways to increase profitability in your business. We’ve written about profitability numerous times, like how to increase profits and why you need to implement profit first in your business

But the easiest way to learn how to increase profits and see that year-end profit you so badly want is to book a call with us. We’ll assess your profitability and put you on the right path to a successful 2021.

But Nobody Can Do It Like I Do!

Admit it. Even if you don't say it out loud, you rehearse it in your mind. After all, you are the one who started this business, and without you it would all fall apart. 

NOBODY AROUND HERE CAN DO IT LIKE I DO!

Well whose fault is that?

You see, there's a big problem (or two or ten) with this line of thinking, and even bigger problems if it's actually true.

What happens if suddenly you aren't around? 

If 2020 has taught us anything, it's that "stuff" out of our control does happen. We get sick, we have an accident, we need to take care of our kids or our aging parents. Or maybe, just maybe everything is going really well and we just want to take a nice vacation to somewhere warm. (It's possible this could be autobiographical, as parts of the state where I live, NH, just got dumped on with 4 feet of snow. Just saying.)

This brings us to Need #4 on the Order Level of the Business Hierarchy of Needs; Linchpin Redundancy

Question: Is your business designed to operate unabated when key employees are not available?

In his book "Linchpin", author Seth Godin describes this role as somebody in an organization who is indispensable - who simply cannot be replaced because they are just far too unique and valuable. The point of the book is to teach you as an employee how to become that in the organization you work for. 

Most of us know who the "linchpin" is in our company. As described before, many times early in our business it is us as the owner. As the business grows often it is the office manager or "admin" who is the glue that holds it all together. 

This is a dangerous place for a company to find itself in, for the reasons described above. When "stuff happens" in your business and pulls a key person out, what happens? Does the work just pile up waiting for that person to come back, if they ever do, or is there someone else in your organization that can step up and get it done? The bottom line is that no business should have a dependency on any one person that is so critical things come screeching to a halt if they are out for more than a couple days.

And that's why it's so important to have documented systems in your business, and more than one person trained on those systems. The key words here is "documented" and "trained". If you have been following this series you'll recognize every business has a way of doing things, those are their business "systems". But not every company has documented those systems so best practices can be followed by everybody, every time. And it's not very fair (or productive) to ask someone to take on a task they know nothing about or maybe didn't even realize someone else did. Training and cross-training takes care of that problem.

There are many ways to document systems so they can be easily taught. You don't have to write huge step-by-step manuals. One of the most effective ways is to record video walkthroughs and screenshots of everyday tasks, and then make them available on a shared drive.

So think about it. Who are the key people in your company you just can't imagine not having there? What would happen if they walked into your office today and told you they needed some time off? Or quit? Is your company prepared for life without them? 

And what about you? Are you able to take some time off when you need to without things falling apart? If it's true that "Nobody Can Do It Like I Do", you have some work to do taking care of that. I promise that the short term pain of creating "linchpin redundancy" in your business is more than made up for when it hits the fan. 

Start small. What's one system you could document and teach today?

Now Make it Happen!

What Being Profitable Really Means

Do you know how profitable your business is? To be clear, your profitability isn’t the revenue you’re bringing in or even your net income, after expenses.

One of the biggest mistakes we see business owners make is over-simplifying the profit in their business. It doesn’t have to be a complicated process, but it does take a little bit of thought.

And to actually see real profit month over month and year over year? That takes a plan.

For us, Profit First is the plan.

It allows us to take a profit every month, regardless of our revenue, because we take our profit first. The revenue matters, the net income matters, but the fact that we’re profitable means more.

We’re not going to talk about how to be more profitable here; that’s a blog post for another time. 

But we are going to address why your bottom line revenue isn’t what matters when trying to grow a profitable business.

It’s easy to get excited about having a big revenue month. As bookkeepers, we know better, but we get excited too! To see a five-figure month is exciting. To hit $20k, $50k or more for the first time in a month is cause for celebration.

But once the confetti settles and the champagne goes flat, what does your bank account look like? Have you paid out all that revenue to expenses? Did you pay yourself a livable wage this month? Do you have anything left over?

Usually the answer is yes, all the money is gone. No, you didn’t pay yourself this month (again) and no, there’s really nothing left over.

So while the revenue looked and felt pretty good while it lasted, there was nothing left for profits and nothing left for you, the business owner. And our guess is that you spent much of that big month feeling pretty stressed out as you made sure the work was getting done.

Being profitable means a few things:

  • You’re able to reserve a percentage of your revenue as profit each month, usually because you set it aside first.
  • You’re able to plan out and/or control your expenses so you’re not spending every dollar every month.
  • You have enough cash to pay yourself and your employees a living wage. Consistently.
  • You enjoy a quality of life where you’re able to spend time with loved ones and enjoy some of your own hobbies. In other words, you’re not working all day, every day.
  • You don’t stress out so much about revenue because you have a really good handle on your expenses–and you know where your break even point is because you hit it regularly.

Profit is so much more than your revenue and having a profitable business will help you feel more relaxed and comfortable about where your business is and where it’s going. If this feels out of reach for you, we can assure you that it’s not. It just takes a plan and some accountability.

Let us help you find the way. Book a call with us today so we can show you how.

It’s Time To Let Go

There comes a point when you can not and should not be doing everything in your business. When you have to let your inner "control freak" go. You have most likely heard this referred to as "Delegation".

Here's the problem when many, if not most, business owners start "delegating". We hand off a task or responsibility to someone on our team and then proceed to stand over their shoulder and try to make sure they do it exactly the way we would. That's not delegation, that's micromanaging. You don't like it, I assure you, your team members don't either.

You know what else frustrates your employees? When they have responsibility without authority. If someone has to come running to you to get your permission to do something all the time, you haven't delegated. You've simply given a job to do without all the tools to get it done.

Which brings us to Need #3 on the "Order" Level of the Business Hierarchy of Needs (BHN) - Outcome Delegation.

Question: Are the people closest to the problem empowered to resolve it?

When a team member is truly empowered, that means that you give them leeway to not do it exactly like you would, and also to accept the outcome. If the problem wasn't resolved in a fashion consistent with existing guidelines or values, that is a conversation you can have to help decision making in the future. But unless they did something that is illegal or jeopardizes the business in some way, you need to stay out of it.

Another key phrase is "people closest to the problem". As your business grows, that won't be you anymore. For instance, if you own a gym and are consistently hearing from your admin that the check-in process isn't working, you have two choices:

1) Insist that it's not being done because of X, Y, Z, and tell her to just "get it done".

2) Ask her why she thinks this is happening and how she thinks it could be made better.

I think we can agree number one isn't going to win you any "boss of the year" awards. The second is probably more powerful than you realize. When an employee knows you are willing to listen to ideas, they feel good about themselves and about you. It brings out creativity and problem solving, and often the solution is much better than the current process and better than the one you would have come up with.

It would be no surprise to those who know me and those who worked for me that I struggled with this as we added team members. I like things done my way, and it caused conflict until I realized that just because the idea wasn't mine, or wasn't like I would do it, didn't mean that it was a bad idea. Usually just the opposite. They were closer to the problem, which meant they had perspective I did not have. And it can work the other way. Sometimes explaining (or reminding) why you do things the way you do them brings your team a better perspective and you get better cooperation. Just don't get caught in the trap of "that's the way we have always done it". That leads to stagnation and frustration.

For the business owner, it all starts with the willingness to listen, learn, and when appropriate, let go.

How are you doing with that?

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