PROFIT
unbeknownst to me while writing it, is my
next book. Fix This Next was released on
April 28th (what timing, right?). I wrote
the book over the course of five years,
during which I never could have imagined
we would be facing the challenges we are
facing today. I am, however, grateful
that I did write it and within it created
The Business Hierarchy of Needs (The
BHN). The BHN is the compass to help
you determine the vital needs of your
business and the diagnostic tool for
fixing the need you should focus on first.
Knowing where to start can be pretty
daunting these days.
Enter Profit, the second of the base
levels in The BHN. Profit is the creation
of sustainability. Now, it is commonly
misunderstood that profit means making
money, when in reality, it means taking
money. Profit is the reserve you can use
in any way you require, and it won’t hurt
your business.
WITHOUT PROFIT,
YOUR COMPANY
WILL CONSTANTLY
BE TEETERING ON
THE EDGE OF GOING
UNDER. WHEN YOU
MASTER THE PROFIT
LEVEL, YOU BRING
FISCAL HEALTH TO
YOUR COMPANY.
There are a lot of ways we can discuss
profit, but let’s apply it to the current
situation. For your business to survive a
crisis, it must be able to retain cash. In
times of crisis, many businesses revert to
sales when in reality they should focus
on creating profit, because profit is what
insulates your business during these
times of a crisis. That retention of cash
gives you a runway. Depleting the funds
from your profit account is not running
business as usual. It simply gives you
time to look at the data significance. Ask
yourself, Do you have enough data to
point out that you are having an actual
problem and you need to take action? Or,
is your business running as it normally
would?
The thing is, if you don’t see money
coming in, you react without having
data significance, and it’s not a good
move. It is best to use your cash reserve
to get through the crisis you are facing—
usually a period of two to four weeks
is enough for most businesses. In that
time you can determine from your data
if there are trends, if your business is at
risk, and if you need to take action and
revisit your costs.
In Fix This Next I explain that a common
occurrence is that business owners often
have a profit problem but are focused on
sales. Remember, it’s more important to
bake profit into every transaction you
have.
Sales does not translate into profit
because we, as humans, spend what
we make. If you are smirking that you
already know this because you read
and implemented Profit First, then you
know what I’m talking about. You need
an efficient system in place to bring
profitability around.
To determine whether or not profit
is one of the problems you should be
focused on, I’m going to give you another
sneak peek at the five Core Needs—this
time, at the Profit level within The
Business Hierarchy of Needs:
NEED 1 – DEBT ERADICATION
Do you consistently remove debt, or do
you accumulate it?
NEED 2 – MARGIN HEALTH
Do you have healthy profit margins
within your offerings, and do you seek
ways to improve upon them?
NEED 3 – TRANSACTION FREQUENCY
Do your clients buy from you instead of
the other guy?
NEED 4 – PROFITABLE LEVERAGE
When debt is used, is it used to generate
predictable and increased profitability?
NEED 5 – CASH RESERVES
Does your business have enough cash
reserves to cover all expenses for three
months or longer?
Once you’ve fixed the right problem, you
start reviewing The Business Hierarchy
of Needs again from the bottom up.
Using The BHN will ensure you are
creating a solid foundation for your
business. You simply have to focus on
the fundamentals.
I hope that some of this has helped you
get some clarity on exactly what profit
is and the role it should have in your
business. I am sending you well wishes
not only for excellent physical health but
entrepreneurial health as well.
Keep going, my friends. The world needs
you to succeed! +
Mike Michalowicz is the entrepreneur behind three multimillion dollar companies and is the author of Profit First,
Clockwork, The Pumpkin Plan, and his newest book, Fix This Next. Mike is a former small business columnist for
The Wall Street Journal and regularly travels the globe as an entrepreneurial advocate.
MikeMichalowicz.com ProfitFirstBook.com
9