The 5 Reasons Businesses Don’t Make More Profit

One reason most of us become entrepreneurs is we want financial freedom. And it’s often easier said than done.

When clients come to me, one of their main goals is typically to improve their profitability. I take them through a process in which I do a complete evaluation of their financial data, systems and processes.

When we are done, I almost always find that clients who want to improve profit have one or more of these issues:

They are not setting an intentional profit goal.

As author Jon Acuff says “it starts with a goal”. Profit is intentional. Profit is proactive. Profit is a set of decisions. Those who make a profit and grow that profit consistently have an intentional profit goal.

They set that goal just like they set a revenue or sales goal. It’s an integral part of their strategy. It frames decisions they make about investments, resources, spending, strategy.

Do you decide ahead of time what your profit for the year will be or do you wait for the end of the year?

Are you making highly intentional decisions with your profit in mind?

Are you carving out your profit in advance?

They don’t know their numbers.

Entrepreneurs have to know their numbers. It’s probably even more important in a smaller business with more limited resources.

And this isn’t just about sales or profit or reviewing a financial statement. This is about identifying the key metrics that drive their business and using those metrics to identify and address issues proactively. You can’t rely just on sales and profit.

And once you know the metrics, you have to understand the story behind them. Numbers themselves are neutral, just data points. It’s the story they are telling that’s is where the magic lies.

What are your businesses top 7-10 metrics?

How does each metric drive revenue or profit?

How are you tracking them and using them to diagnose issues and solve problems?

What story are your numbers telling you?

They don’t receive timely and accurate financial information

Reviewing financial statements on a monthly basis (and many clients who come to me are not), is important, but that’s after the fact. It’s reactive. Effective financial management requires that you receive relevant and accurate information on at least a weekly (and sometimes a daily) basis so you can be proactive.

Many clients are not leveraging their accounting system fully or are maintaining multiple databases and spreadsheets as work-arounds to their accounting system and processes.

Is your accounting and financial data real time or does it have a lag that keeps you from relying on it?

Are you getting the data from your bookkeeper in a timely manner that gives you data you need to know what’s going on in your business?

Are you spending time maintaining databases or files outside your financial system? Do you trust the data in your system?

Do you have that in a weekly scorecard or dashboard and are you using it to manage your business?

They don’t have solid financial systems and processes in place

A business’s reporting and data is only as good as the processes behind it. Those processes need to be defined and documented just like any other process or system in your business.

Depending on the nature of your business, you’ll need processes for purchasing, inventory management, accounts payable, invoicing, accounts receivable and collections. These protect your assets and help you maintain control of your finances.

It’s not unusual at the 7-figure mark for businesses to have informal or undefined financial processes even if solid processes exist in other areas of the business. To level up to the next level, the financial processes need to be documented and refined just like other processes.

Do you have defined processes for all your financial processes?

Do your financial processes function indepenent of you?

Do you spend time fighting financial fires (e.g., making sure you have cash to pay bills, chasing after past due invoices, answering payroll questions, managing your bookkeeper, etc.)?

They have grown to the point they need higher-level advice than their bookkeeper can provide.

Often clients come to me when their profit is stable but underwhelming. They want to improve it, but have plateued. They sense they should be making more money, but are not sure where to look.

A bookkeeper is a core part of your finance team and often one of an entrepreneurs first hires. But bookkeepers are transactional in nature - their primary goal is to get transactions recorded and classified correctly and in a timely manner.

As you scale your needs evolve and you have a need for more sophisticated, strategic advice as well as financial reporting.

Do you have an annual budget and do you track against it each month?

Do you have a cash flow forecast?

Do you a sales forecast process?

Do you have client and product/service profitability?

Do you have clear goals and a cohesive strategy? Is your financial management linked with your strategy and is that linked with your vision and 3-year plan?

Are you spending 80% or more of your time in your zone of genius?

Has your profit plateued? Do you want to make more profit?

If so, you can probably see yourself in one or more of the above scenarios. If so, I’d love to invite you to a complimentary profit and strategy coaching call. You’ll get to experience the work I do with my clients and you’ll walk out of the call with actionable steps to improve your profit. >> Book your call here <<