As we near the end of December, it’s time think about how our businesses have fared this past year and what we’ll do differently in 2012. In last week’s article we looked at how to complete an assessment on your overall business. In this week’s column we want to address one topic — making money.
Unless you run a non-profit organization, you’re in business to make money. As a business owner, you’ve invested large amounts of time, emotion and cash into trying to build a successful company. But do you know if you’re really good at making money? This may seem like an odd question, but it’s one every business owner should ask.
Just because you run a business, and maybe even make a profit, doesn’t mean you’re good at making money (if you are, you might need to get better at it). There may be some people who have a money-making gift — that fabled “Midas Touch.” But for most of us, the art of making money is a skill that needs to be mastered.
Whether you’re a start-up or seasoned professional, we believe that at the end of each year you should assess how well you’re doing at making money.
First of all, is your product or service something people actually want to buy or do adjustments need to be made? We have seen countless business owners who have followed the Field of Dreams approach to business (“If I build it they will come”). If you want to get good at making money, you need to be sure there are enough people out there willing to buy what you want to sell.
As you look back on the year, how well did you do in this category? Are there enough people who want to buy what you’re selling? Do you know your market extremely well — who is buying what and how often, and why people buy from one vendor versus another? If you want to grow next year, where will the new business come from? What product or service (or both) do you need to provide in order to get new business? People who are good at making money know these things about their market.
Second, are you good at obtaining new customers and retaining existing ones? Do you know what drives sales, and have repetitive processes and methods to measure them? Do you have a consistent process in place for continuing to contact prospects that could buy your product? It’s crucial to not just wing it but truly understand how and why you get new customers, have solid processes in place, and have a “pipeline” of prospects and referral sources.
How well are your customers taken care of once they come in the door? Do you have company-wide policies and procedures for how customer issues are handled? Do you know how your customers feel about the service you provide? Building customer loyalty is an important part of how and why companies make more money. Assess how well you are doing in this area; or better yet, ask your customers.
Next, let’s discuss how you obtain and process financial information, which is fundamental for knowing how well your business is doing at making money. Laddie is constantly amazed at how many business owners don’t know how to interpret financial statements.
Profit and loss statements and balance sheets contain a wealth of information to help you understand how you’ve been doing in different areas. Consider your financial statements as a numerical way to tell a story. If you understand how to read them, they will tell you a great deal about your business and where there is more money to be made.
In addition to financial statements, other forms of financial reporting are also extremely beneficial. For example, a contractor needs to understand job costing; restaurants should know what it costs to produce their products; and retailers should understand the profitability of their product mix. Every industry has a few key numbers that, when watched on a regular basis, will provide insight into overall profitability. How are you doing in this area?
If you’re weak in any of these areas take the time to educate yourself. Assess where you’re weak and determine what you can do to learn more. Take classes, attend seminars, read business books or turn to mentors to help you learn. Decide that making money is a skill you’re going to master in the coming year.
Understanding these important parts of your business will help you determine when, where and how changes need to be made to improve profitability. You’re in business to make money so learn to do it well!
Laddie and Judy Blaskowski are partners in several businesses, including BusinessTruths Consulting. They are authors of The Step Dynamic: A Powerful Strategy for Successfully Growing Your Business. Judy@BusinessTruths.com. Connect with them on LinkedIn.