It’s a no-brainer that running a business is a balancing act – balancing management, sales, operations, human resources and a life outside the office too. So how do you know if you are on the right track and that your business is actually growing? It’s in the numbers. Here are three key elements for measuring success for every business owner:
1. Start with Profit – In his book, Profit First, Mike Michalowicz up-ends the old model of Revenue – Expenses = Profit. The model to grow a business and wealth, he says, is to shift to a new mindset of Revenue – Profit = Expenses (subtract your profit first and use whatever is left to pay expenses). His Profit First System gives step by step instruction on how to make this change in your mindset and accounting system. The key to managing expenses and maximizing profit is to make your expenses fit into the cash that is left – which leads to the next important step.
2. Face Reality and know your basic numbers – Profit & Loss Report, Cash Flow, Expenses. It’s important to look at the reports that track money in, money out, fixed and unfixed expenses, cash flow, etc. and to review these numbers on a regular basis. Make sure you are accurately inputting these numbers in your accounting software and reconciling/auditing on a regular basis. You can’t grow what you don’t measure, and you can’t use the Profit First model without tracking real information. When you have information about your expenses, take the time to renegotiate with some vendors, if possible. For example, I just received a lower rate from my credit card processor because I reviewed the expenses, saw room for improvement, and contacted the company to renegotiate my existing rate.
3. Know your sales numbers – How many sold products does it take to meet your monthly and yearly revenue goals? How many future clients do you need to connect with to convert to the closed-business goals? Understanding this information is essential in allocating your sales time and efforts. Once you establish the revenue goals and the booking ratio, you can then establish numbers for how many new clients, initial consults, speaking engagements, networking events, emails, phone calls, etc. are needed in the sales process. Be sure to set specific, measurable goals for each of the components in your sales process and track the results regularly.
“The numbers” are the least enjoyable part of running a business for most business owners – and often times the last priority. In order to keep your business headed in the right direction, take time to review this important information and work with professionals to help you stay on track and optimize your profits!
Kim Ellet is a certified professional coach and owner of The Growth Coach of Metro Atlanta. She finds joy in helping successful leaders committed to continuous improvement, be more of who they are, dream bigger dreams, and accomplish more than they realized was possible. www.TheGrowthCoachATL.com