An interesting question.
We have many reasons for wanting to make the move from employment to self employment or running a larger business. These reasons range from being in control, not having to be told what to do, more time to spend with family, to make a difference etc.
However are any of the above things possible if the business doesn’t make a profit ? Yes there are not for profit organisations but don’t forget these have to be funded to survive and that funding has to come from people or businesses that make a profit. Without profit arguably society as we know it will cease to exist.
Given profit is important, we must therefore be able to measure it. Unfortunately many businesses do this only once a year through the annual accounts and sometimes up to 9 months after that year end, apart from calculating how much tax is payable for that period these Accounts are of little use. Successful businesses monitor how much profit they make as a minimum monthly and some weekly or even daily.
Getting deeper, the level of profit a business makes is actually only the outcome of the activities that a business does, so what the business owner is really interested in are the primary activities that drive that profit.
These primary activities should be measured and are commonly known as key performance indicators. Some of these will be common to all business, an example is sales which can be broken down as follows :
Number of leads/enquiries X Conversion rate = Number of sales X Average sales price = Sales Revenue
To maximise Sales revenue, we should as a minimum measure the number of leads or enquiries a business receives (and where they come from), Conversion rate (the percentage of these leads that turn into sales) and average price because these are the drivers that deliver Sales Revenue (the outcome). So by focusing attention on these drivers the business owner can work to make small improvements which over time multiply to greater levels of profit.
So in my experience one of the critical success factors for any business is measuring what drives profit. This is just one system that successful businesses have in place, and successful businesses systemise everything !
If you would like to discuss how we can help your business put in place systems to drive more success then please get in contact.