Show Me The Profit!

Show Me The ProfitEven if you’ve never seen the movie, you’ve heard the famous line from Jerry Maguire, when Tom Cruise screams, “Show me the money!”

That might as well be the mantra of every business person, yes? Remember from the last blog: that’s what we’re doing this for. Not to ‘get by,’ not for a hobby or a part-time side project, but because we’re going to go all out and get rich doing it.

So when we get our business off the ground and that money starts coming in, we feel good that we’re going somewhere, right?  Well, yes, but there’s more.

The problem is most business owners don’t know the difference between money that comes in and money that’s always available. It’s such a small distinction that makes a huge difference, yet so many business people don’t get it, and that’s why their business becomes their job—if they’re among those that make it past three to five years—instead of their money machine.

We have to make some clearer distinctions about that money that’s coming in. Most people put their attention only on revenue. Is that important? Absolutely! But rich business people put their attention on more than just the money that’s coming in. The other areas that must be addressed in order for a business to grow are expenses and cash flow, and then profit.

Revenue does not equal profit. The average person in business says, ‘Okay, how much money came in today?’ and that’s it. They don’t even know what their expenses are. If they did, they don’t track them. People have no idea as to how big a role expenses can play in your bottom line, your profitability.

If your business has a 20% net, what that means is that out of every dollar that comes in as revenue, 80 cents goes to expenses to run the business, and 20 cents is left. You have to multiple every dollar you spend by either five or ten to account for expenses.

The fastest way to blow up your business is with expenses. Every one of them costs you five to even ten times what you think it’s costing you.

Secondly, we have to consider timing. There is a big difference between money coming in and money that will be coming in that leads to cash flow! Most people run into trouble because they can’t pay their expenses, let alone generate cash flow for further investing back into the business to grow it.

And that’s not necessarily because they don’t have the sales or revenue. It’s because that revenue hasn’t come in yet but the bills sure have. By far more businesses go under because of poor timing more than poor sales.

If you get paid after you’ve delivered the goods—that might as well be like raking nails across a chalkboard to my ears! There are established companies that do that, but first bring in the cash flow that is more prevalent than the expenses, and then you can start to spend some money!

There’s revenue, cash, expenses, profit and timing. Get this right and you’ll get rich.

Now it’s your turn! Do you have stories about learning these lessons firsthand? Most business owners have experienced this in one way or another. We’d love to gain more knowledge and sharing within the community!