The Cash Profit Machine
One of the 2 key prerequisites for a finely tuned and high performance cash machine is profit. This is quite basic yet in the Volatile, Unpredictable, Complex & Ambiguous (VUCA) world we live in profit is becoming a more elusive outcome for many small businesses. That is, while profits may be being earned they are far more difficult for many to achieve and often lower than they once were.
So what do we see as some of the reasons for this. Often there's no "profit plan" or process. The plan should cover:
a) Sales - Who's the preferred customer? What do they really
want? What's the offer? What are the pricing policies
b) Margins - What average are we targeting? What are the
pricing policies? What's the industry benchmark and "high"
target? Who's our suppliers ad what's our deal like?
c) Labour costs - What constitutes high performance (i.e. good
d) What policies and procedures are in place to control / manage
costs to our targets.
e) What are the 3 or 4 key issues that need to be monitored.
While we can analyse everything on our profit & loss report it is
very common for there to be perhaps 3 or 4 key issues that make
all the difference between a good and not so good result. It could
be as simple as ensuring that sales volumes, gross margins and
labour costs are all aligned that will determine the outcome.
Often in small businesses there maybe no understanding of the
key issues. Even if there is there may be no "high
performance" targets or measurement of the results to enable
quick corrective action if required. (It's said that Rupert Murdoch
built his empire by utilising such a process that enabled focus
on what really mattered and fast information and response.)
In this regard a simple "scoreboard" is created measuring
actual to required (high level) performance.
What simple process can you implement to do something to improve your profits?
If profit is expressed in a formula it would be:
Profit = Sales less (Cost of Sales + fixed overheads + variable overheads)
1. List down 5 actions that can be taken.
2. Identify the priorities (use the 80/20 rule; what 20% of
actions will give 80% of the result)
3. Flesh out the action to be implemented on each priority in
a one page plan.
4. Set up your simple "scoreboard" focusing on measuring actual
to required (high level) performance.