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The main aim of most businesses is usually to make a net profit; which considers all aspects of the business and ends up with a figure indicating the financial stability and reliability of the company. Any single year can be an anomaly, so it is best to take a view over a period of three to five previous years’ trading.
Despite what accountants will tell you, profit is a simple calculation! A good accountant can make your business figures look like anything you want them to be, but in real terms the following calculation is the most complex you will ever need:
Revenue is sometimes referred to as ‘income’, but the formula is
WHAT COMES IN minus WHAT GOES OUT
Having now established and clarified the complexities of accounting, it can be the starting point for a company strategy to be constructed upon.
MAXIMISE REVENUE whilst keeping COSTS to a minimum. Costs should only be reduced if that cost is impairing your ability or does not contribute towards generating and maintaining revenue. It is advisable not to cut costs if that element of the business is a contributor to the revenue.
Revenue can only come from a combination of four directions:
Therefore, there are only FOUR things a business owner needs to do to have a successful business:
Find good customers
Develop them and keep them
Find good employees
Develop them and keep them
Some of the biggest fixed costs in a business are the people who you employ, so they, and their departments, really need to be contributing efficiently and effectively towards the previous four things. If you have people employed that do not contribute towards these factors, you must deal with them as soon as possible.
Business owners should think carefully about increasing fixed costs, especially during rapid expansion strategies as this can often be a real company breaker and seriously impact upon cash flow. It is better to focus investment on generating business and then look for suitable premises rather than invest in fantastic premises then look for suitable business to pay for this!
Most businesses fail to succeed because of their inability to constantly assess the state of their business input base and make the necessary adjustments ahead of the game.
Most businesses spend most of their time looking at their results. Whilst this is an important facet of forward planning, there is absolutely nothing you can do about a result because it is HISTORY, and no one has ever been able to change history! Focussing on results only is like driving a car looking through the rear-view mirror. You will crash into something quite quickly.
The more important aspect of historic results is the understanding of HOW that result was produced as this will lead to a clearer picture of what needs to be done (differently) to achieve a new or better result in the future.
As we journey through this book, we will never lose focus on the above facts and will endeavour to dig deep into our resources to leverage the best and most effective and efficient ways to grow and sustain your business. We accept that it may involve some difficult decisions for you and require some effort to get that position, but these principles should be the drivers behind all your decisions.
You will find it useful at every bus stop in this book, to go back to this page and read the 10 business facts of life again. It will put the chapter that you are reading back into context for you.
There are points for you to personally reflect on each chapter in the book and these are signalled by:
You will also notice a blank page after each bus stop so please take the opportunity to write down all the issues identified in the chapter in relation to your own company.
In this way you will not only read the ‘how to do’ but you will begin to build the ‘what to do’.