How Can I Improve My Profits?

BY HARLAN KHAN

One would think that business owners are focused on this question every moment they are working. But the reality is that business owners wear many hats. They focus on getting new customers, executing sales, dealing with vendors, collecting money, and administering their businesses so it stays compliant.

At what point do you focus on trimming costs or bringing in new lines of business revenue? Why is it that Wall Street companies are always talking about estimates compared to actual sales results and income? Why is it a minority of others in my industry are succeeding, while so many others struggle or go out of business?

Many of us went to school and may have learned about a “bell curve” (see illustration). Where does your business fall within this curve? “Some People” represent 16 percent on each edge of favorable or non-favorable, leaving 68 percent, or “Most People,” split down the middle.

Most people build a business through entropy. We take all the customers we can get in the very beginning. Hopefully the business grows to the point of too many customers, where we must hire help or send some customers away.

This building process creates a job for a business owner. The owner fixes problems as they arise and is multi-directionally focused.

Get away from the entropy mindset. What is your business anyway? Isn’t your business your vehicle for you to attain the financial and personal quality of life for you and your family? How’s your vehicle running?

My purpose is to address the giant gorilla in the room. Public corporations measure actual vs. estimated results and the company stock soars or tumbles accordingly. In school, accounting courses certainly cover budgets and financial statements indicating results.

How many small businesses write a business plan? Most self-help and motivational books talk about goal setting. Maybe you need someone to sit down with you and set some achievable business goals? Maybe you need help refining your goals or crystalizing them?

Specific goals lead to specific results. You no longer need to wonder why most businesses fail. The “Some People” to the left and “Most People” – 84 percent of the businesses on the bell curve – have less than stellar results and few succeed. Do you?

Most of us don’t have a road map for business. Yet you need more than just a map or a strategic business plan, to be truly successful with your plan you must measure your results and adjust.

You need to have the pulse of your business at your fingertips all the time. Most people refer to the business pulse as “key performance indicators.” If I asked you what your company’s key performance indicators are, could you tell me?

Can you tell me which lines of business are most profitable or least profitable? Can you sum up how you differentiate yourself in the market place in a couple of sentences?

To boil it down, without a specific destination any road will take you there, which means allowing circumstances to make your future gives you a non-specific future.

Defining exactly and specifically the quality of life you aspire to and the income to support it allows you to make your own future. Once you have exacting and specific goals, you can work your way backwards from where you want to be to where you are and create a road map.

In business we call this a strategic action plan. Once you have a strategic action plan, you need to stay on the right track and monitor key performance indicators. This kind of approach is proactive and responds to market changes and business needs, as opposed to being reactive and always putting out the biggest fires and band-aids on problems.

For more information, contact [email protected]. Harlan S. Kahn is a CPA and a profitability consultant with Paris Accounting Corp in Bayside, and author of Fix the Tax Code Please. He earned his accounting degree from Queens College in 1986, has lectured for the IRS, Queens LIBOR, National Allied Professionals, and others.