I often ask this question at my live events:
“What is the purpose of your business?”
and get a variety of interesting answers. Varying from “helping my customers solve their problems with my ‘superior’ service”, “making the world a better place” to the ubiquitous, “to make money”.
I point out, that none of these possibly worthy goals is the purpose of your business. It might be the reason you went into business, but not its purpose.
The purpose of your business is to make a profit. If it’s not, you are running a charity, and quite likely, your boss is crazy! Nothing wrong with charities, which are non-profit, or even loss making organisations, but that is not the purpose of a business.
Note that making a profit is not the same as making money. Your profit is what’s left over after paying yourself a decent, market related wage.
How much profit should you be making? I argue, at least 10% of turnover after you have covered all the costs of running your business.
Why a 10% minimum? This is to ensure you cover sales volatility which can easily turn a 5% profit into a loss. Think of it as a margin for error. Some business are able to operate on a 5% margin, but they usually have exceptional cost control systems rarely seen in small businesses. This is typically seen in low margin, high volume businesses. Of course, your profit may be significantly higher than this amount, but 10% should be a minimum goal.
With your profit objective in place, it is now possible to focus on the strategies you will need to achieve this result.
While profit may not be the reason you are in business, it’s the result at being good at business. Think of your profit as a scorecard that demonstrates your reason to go into business was a good one.
May Your Business Be – As You Plan It!
Dr Greg Chapman is the CEO of Empower Business Solutions, providing advice for a decade to small business owners who are sick and tired of being small. He is also the award winning author of the best selling small business book: “The Five Pillars of Guaranteed Business Success”. Download a free preview copy at www.empowersolutions.com.au.