The vast majority of small businesses are in survival mode. Chances are, if you own a small business and are reading this right now, your business is barely getting by. And it has been that way for years.
The problem is not you. It’s the formula you use…
Sales – Expenses = Profit
This old fashion profit formula has been around for centuries, but it is wrong. Deadly wrong.
Sales – Expenses = Profit translates to this:
- Grow (Sales) as much as you can.
- Then spend (Expenses) money to support your growth.
- Lastly see what is left over and give it to yourself (profit). Profit is your reward…and you never get it.
Do you see the danger of this. Profit is a left over. A LEFT OVER, PEOPLE! Do you want your profit to be the main “meal” that your business gives you, or are you thrilled to always be getting the scraps? Profit must come first. Otherwise, you will constantly be stuck in the sell so you can spend cycle that the old formula supports.
If you want your business to be permanently and perpetually profitable (and you better want that), you must flip the formula. Use a formula where you take your profit first:
Sales – Profit = Expenses
In the Profit First formula, you grow your business with sales. But then you take your profit first. You take a preset percentage of 10%, 20%, 30% or whatever number you pick. Now Expenses are the “leftover,” forcing you to be frugal and innovative to sustain your sales and grow.
The Profit First formula of Sales – Profit = Expenses translates to this:
- Grow (sales) as much as you can.
- Reserve and save (profit) for yourself and your company. It’s “pay yourself first” applied to business.
- Then use frugality and ingenuity (Expenses) to grow in ways that your competition has never even considered, because that use the old “Sell so you can spend” formula.
This subtle change does NOT have subtle impact. I have done if for myself for 7 years now. I have written an entire book, called Profit First, about this process. I have coached and/or lectured to thousands of business owners who are now doing. The impact on the way you run your business is nothing short of profound. The amount of profit that will accumulate is nothing short of amazing.
Take your profit first, always.