Peter Richman stated it succinctly in his book, “The Insider’s Guide to Growing a Small Business” when he said: “Profit is the only objective measure of your company’s performance.”
If this is a fact, and it is, then your business’s Profit and Loss Statement is its scorecard, showing whether you are winning or losing the game of business.
No one starts a business intending to lose. Still, half of all new businesses are forced to close within the first three years. Why? Lack of profit.
If you want to win at the game of business, and win big, you must make a profit – you must become what Peter Richman calls a “Prophet of Profit.”
Being a Prophet of Profit means that you embrace two key facts about your business: First, you are the owner. You create the culture, define what is important, and develop the systems, that is, steps and procedures, to ensure current customers are happy and new customers are obtained. You are also the leader who guides your business to success or failure. There is no way around it. You are responsible — the buck stops with you.
Second, the way to effectively manage your business’s performance is to measure how profitably it: 1) makes current customers happy and 2) gains new customers. Embrace, internalize, and live these two business facts and you are on your way to becoming a Prophet of Profit.
To become a Prophet of Profit you must overcome the following overly common myth: while it is 100 percent OK to earn a six-figure salary working for someone else, it is somehow wrong to earn more than a subsistence profit in business. This myth is completely absurd yet it is one of the largest hindrances to business success. No one wants to be the business survivor who earns 18 percent less than they did doing the same job for someone else. Still, that is what the average business owner earns. Why? Lack of profit.
If somewhere deep down in your psyche you subscribe to this myth, please replace it with the truth: our ability to choose is the cornerstone of our freedom. We are free to choose how to spend our money, what car to drive, where to buy groceries, what mechanic to use, which papers to read, the size and model of the TV we want.
Why do we choose the way we do? Because the value we place on these purchases — or experiences — is greater than the value we place on the dollars we trade for them. If they weren’t worth it, we wouldn’t buy them or we’d buy them from someone else.
Your customers repeatedly choose your business because they value the experience of purchasing from you more that the price you charge. You are making lives better! Accounting forms the bedrock beneath any solid, growing business. Your financial statements tell the story of your business decisions, good and bad. They shine the irrefutable light of reality on how things may seem or feel. You cannot grow what you cannot manage, and you cannot manage what you do not measure. Your numbers are important!
According to a 2010 Careerbuilder.com and Harris Interactive survey, 77 percent of Americans live paycheck to paycheck. Unfortunately, the vast majority of small businesses operate exactly the same way — from customer to customer, from job to job — they do not share the same luxury as larger businesses whose sheer mass ensures months, even years, of survival when business turns south. In short, becoming the Prophet of Profit isn’t just a prerequisite of growth — it’s a requirement of survival.
— Brett Hersh is the owner of HBS Tax and Growth Strategies, LLC. He is also the creator of the Five Pillars of Business Success. He can be reached at (304) 267-2594 or firstname.lastname@example.org.