PROFIT 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 – a period of two to four weeks is usually 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 often , business owners have a profit problem but are focused on sales . Remember , it ’ s more important to bake profit into every transaction you have .
Sales do 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
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