Make Your Business Profitable Overnight (Part 1 of 2)

You know you should be making more profit than you are making with the sales you have. You just aren’t sure why your business is not making the kind of money it should be. Wouldn’t it be great if someone or something could point out where you are going off track? There is a way you can figure it out – you need to use a budget. A budget is one of the most misunderstood and overlooked tools for an owner to manage a business with. Properly used, a budget can literally turn a business into a profitable enterprise overnight. How is that possible? 

Imagine you are getting ready to take a drive from New York City to Phoenix. You know where you want to go, so would you just get in the car and start driving, thinking, “I know the general direction, so I’ll get there eventually?” Of course not. Chances are, you would check out the route ahead of time on Google. You would probably also program your destination into GPS, so that it could give you turn by turn directions. You would have a plan to get there, and you would follow your plan. 

Most business owners don’t realize that in the same way a GPS can give you direction when you are driving, a budget can give direction to your business. Instead of just saying, “I want to make a profit, and I’ll get there eventually,” you can have a plan and follow it to get you to where you want to go with your business. 

It should be noted that most accountants are aware of budgeting, but they seldom suggest the use of a budget to their clients, quite possibly because they don’t appreciate the value of it. Of the ones that may say something, very few actually take the time to go through the process of using a budget with their clients. 

So, what is a budget? A budget is a roadmap for planning the income and expenses of your business, typically broken down into monthly amounts. Your roadmap allows you to look at your revenues and expenses on a monthly basis, compare them to your plan, and see whether you made any wrong turns. If you do a budget analysis with a business that is not making money, you can immediately see where adjustments need to be made, and if you make the proper adjustments, you create profit. This is why we say that you can literally make your business profitable overnight. With knowledgeable input from someone who has an understanding of what to do to change the numbers, the process invariably works. We have been successful in using it to redirect clients to profitability time and time again. 

How you arrive at your budget numbers is paramount. You need to analyze each line item of income and expense.  You also need to do this with a critical eye toward what actually needs to be spent. Some people think that simply looking at what they spent last year for a particular category is sufficient. This prior year “baseline” approach is the type of approach used by governments. It just assumes that all expenditures were completely justified. This is why governments are broke or spending at the rate of enormous deficits. Unlike them, you can’t simply print money or compel people to pay you more.  Your business has to live in the reality of being competitive while trying to earn a profit. The approach that makes the most sense and that we recommend is called a “zero base” budget. 

With a zero base budget, you start from zero with each line item, and allow for only what is realistically needed to produce the sales that you presently have. What you spent on a category in the previous year may come into play in helping you determine what you need to spend on an ongoing basis, but it is not your starting point. If you have been overspending in a particular category, why would you want to use that amount as a guideline?  

In Part 2, we’ll show you exactly how to build your budget, calculate profit targets, and use your numbers to stay on track each month.