Crafting a Profit Plan That Drives Your Business Forward
Oct 31, 2024In today's business landscape, effective financial management is more crucial than ever. In episode 681 of the "Keep What You Earn" podcast, Shannon offers insightful advice on crafting a profit plan to help entrepreneurs take better control of their finances and drive their businesses forward.
Shannon begins by discussing the concept of "profit first," popularized by Mike Michalowicz in his book of the same name. Traditionally, business owners take their revenue, spend on operating expenses, and save what remains as profit. The profit-first approach suggests prioritizing profit by setting it aside first, then using the remaining funds for expenses. This method promotes structured financial planning and eliminates the uncertainty of waiting to see what’s left after expenses.
Shannon prefers the term "profit plan" over "budget," which often has restrictive and negative connotations. A profit plan incorporates profit-first principles but aligns more positively with specific business goals. To create a profit plan, Shannon suggests categorizing expenses into "buckets" for targeted spending. These could include people, operations and admin, client fulfillment, and new client acquisition. Different business types will prioritize different buckets. For instance, an apparel retailer might allocate a large budget to product inventory, while a service-based business may invest more heavily in customer acquisition.
Shannon stresses the importance of setting specific targets for these buckets, whether in percentages of sales or dollar values. Monitoring actual spending against these targets helps identify overspending or under-investing areas. She likens this to a health check-up, where outliers highlight areas needing attention. The goal is to provide clarity on how spending patterns affect financial health and to guide the business toward profitability.
For those eager to implement this approach, Shannon provides practical steps. Using tools like QuickBooks, business owners can run profit and loss statements and classify expenses into relevant buckets. Reviewing financial statements to identify spending patterns and setting up monthly targets is crucial. Shannon also advises collaborating with financial professionals like bookkeepers or CFOs for a more accurate and tailored approach.
A key theme in Shannon’s advice is taking action and being aware of financial dynamics. Understanding and monitoring the financial health of their business allows entrepreneurs to make informed decisions aligned with their goals. This proactive approach empowers business owners to take control rather than feeling overwhelmed by external factors.
What you'll hear in this episode:
03:34 Set targets for balanced spending allocation ranges.
09:16 Take ownership of finances amidst economic challenges.
If you like this episode, check out:
Productivity Does Not Equal Profitability
The Five Money Metrics You Need
Where Are the Best Places to Look to Find Cost Savings?
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The information contained in this podcast is intended for educational purposes only and is not individual tax advice. Please consult a qualified professional before implementing anything you learn.
