Which one of these keeps you awake at night?

I have consulted to over 120 small businesses in trouble and have seen companies with:

• Terrific sales but no profit.
• Mediocre sales and no cash.
• Great profits and sales but no cash in the bank.

Why?

Photo: Contributed

There are many reasons and each company is different enough to defy being able to give a single definitive answer. But there are some common threads.

As debt increases, more and more of the daily, weekly and monthly revenues are assigned to service debt. Less and less goes to keeping the business healthy. Debt then forces businesses to borrow indirectly by slowing supplier payments, getting behind with payroll taxes, and cutting owner pay. Borrowing money to solve business problems like cash flow shortfalls or to finance receivables eventually crushes profits into the dirt.

So, get rid of the debt. Just like in your personal finances, a focussed strategy for debt reduction yields huge rewards. And if you cannot reduce debt in a reasonable amount of time, then seek professional assistance. And after the debt is gone? Keep the habits going and build wealth.

The Leaky Bucket

Many companies pay attention to the sales line of the profit and loss statement only, believing that this grim determination will surely be enough to make them successful. But this lop-sided attention means inevitably that costs are ignored. Each cost ignored is a hole in the profit bucket and over time, you must work harder and harder to keep the bucket full.

Solution?  A few management metrics will help you focus on the important areas once a day. Better, would be creating a culture of cost attention in your company so that everyone and not just you, the owner, holds costs down.

Bad Pricing

Even companies that have costs under control and small debts to service, can be crippled by the absence of a good pricing strategy. Too often, pricing is the job of a staff person who is pummelled by the sales people and customers to drop prices. This is not the fault of the employee. Rather, it is the absence of a pricing strategy that is designed to build profits, build the customer base and increase sales. And like the HR and policy manuals, this should be part of your business strategy, everyday.

The Floodlight Business Solutions Group can help you Build Your Business with a Better Profit Strategy.

This article is contributed by Andrew D. Gregson B.A., M.A. M.Sc.(Econ) – Floodlight Consultant