Before a business has a bottom line (profit), it must have a top line (revenue).

Sales and marketing generate revenue; cost controls and performance measurements (metrics) determine the profit.

In tough economic times, business owners discover that the first thing to suffer is the top line – sales.  They can cut costs and measure results until the cows come home, but they will not have a good bottom line without a strong top line.

Integration of marketing, sales, cost controls, and performance measurements are necessary to foster profitability for any business.

To make sure profitability is a rising graph and not a declining one, you need to develop systems to achieve profitability.

Marketing

Marketing, simply stated, is any contact you have with your target customers.  It is influencing the people you serve to consider or contact you instead of your competition.  This is crucial for the health of your business.

This is what you need to do:

• Evaluate the effectiveness of your current strategy (web, direct mail, etc),
• Make your product or service stands out from your competition,
• Start testing and measuring the results from the dollars spent on what works most effectively for you.

In most cases, you should be able to reduce marketing costs, increase leads generated, and generate more dollars and more customers!

Sales

Nothing happens until you sell something.  That is the next step in the business cycle, and it is essential.  Once you have pulled more people with your marketing, you must now convert those leads into customers.

You need strategies to improve the sales process and a sales system that is effective.

Cost Controls

Effective cost controls are an essential part of any profitable business. It may be budgeting, paying attention of critical line items, or something else, but cost controls don’t have to be complicated.  They just need to be effective.  Make sure you’re concentrating on doing the right things, not just doing things right.  Effective managers do the right things.

Performance Metrics

To find out the score, you need to keep score.  Performance metrics keep you focused on what is important.  They keep your company on track by making sure you hit important mileposts and stay on track as you progress toward your long term goals.

The effective manager is the manager doing the right things, not just doing things right.

Knowledge of the financial needs and problems that face a business from time to time could mean the difference between growing and closing your business forever.

Successful business owners understand, anticipate, and mostly avoid financial problems, but they also know how to repair the damage when problems do occur.

Insufficient or No Financing

Cash for a business is like blood for the heart.  Without a constant flow, you’re in trouble.  Businesses need money continuously.

Whether you use investors to raise money or obtain business loans, underestimating your cash needs is a critical.

Determine how much money you’ll need for whatever phase your business is in and ask for it.

Poor Cash Management

Even highly profitable businesses need to manage the money that comes in.  Know your accounts receivable collection days so you are aware of the delays that occur between the billing, the time you collect, and the time you must make payments.  

Counteract cash flow problems by knowing exactly when you have to pay, the exact amounts, and exactly how much you’re expecting to take in—and when.

In addition, manage accounts receivables aggressively; don’t be afraid to collect from people who owe you money.

No Budget

Every business needs a budget to plan for regular expenses, such as utility bills, rent and wages.  Estimate their costs over a period of time, such as a year, and set aside cash each month to continue paying them.

Don’t forget to set aside money monthly for bills that come due quarterly, semi-annually, or annually, so you aren’t caught short of cash.

Establish a monthly break-even sales point and check sales progress daily.

Putting Off Difficult Decisions

Fear of making decisions could be more hazardous than making a wrong decision.  Making no decision has at least a 50% chance of being wrong.  Putting off making hard choices almost always costs money.

Write down the problem.  List all possible solutions.  State the good and bad of each decision.  Choose the best one.

Unnecessary Risk

For a business owner—like a squirrel—it isn’t whether you go out on a limb; it’s which limb and how far.  But taking risks contrary to your business’ goals, mission and purpose, lead to financial trouble.

Assess risks carefully, evaluating them against your company’s strategic plan.  Always weigh the risk versus the potential reward.

No Strategy

From beginning to end, your business should have a plan.  Begin with the end in mind.   Write a formal business plan and use it as a roadmap, checking off mileposts as your business grows.

A plan helps you increase cash flow, estimate budgets, and determine when you need additional financing.

Create an income and expense pro forma and monitor it monthly.  You can’t imagine how much this impresses your banker.

If you can’t write it down, you haven’t thought it out.  The investment of time and effort will repay you many times over, in both financial reward and peace of mind.

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