Using key measures to make a profit


We’re having trouble making a profit right now. Invoices are up this year, but so is payroll and just about every other expense. If we can’t make money, what’s the point?

Thoughts of the Day: Growth needs a plan in order to get things to turn out right. Figure out what you really want. Don’t try to get it right all at once. To get where you want to go, put someone in charge of managing finance.

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Getting Paid in Tough Times as an Owner

The business has been struggling. And consequently, so has my family. Things got really bad at home when I had to suspend my salary and didn’t take any distributions. We’re working hard to get things to turn back up, but I’m still not comfortable. I expect that as sales turn back up, things should get easier. We can hold off on paying down the credit line for a while, which means I’ll be able to take salary again. Am I missing anything?

Thoughts of the Day: As an owner you have to think about who comes first – you, or the company that feeds you. Making decisions based on the Income Statement and ignoring the Balance Sheet can be very dangerous. When things get tight financially it’s important to figure out how long it will take to turn things around.

Ownership of a business is both a privilege and a responsibility. Nurturing the business, insuring it grows, thrives and stays healthy is not only good for business, it’s also good for the owner’s pocketbook.

In times of stress, it can be hard to be objective about personal needs versus business needs. Family is important, so is the business, but which comes first?

For most business owners, their company is their primary source of income. Household expenses may seem urgent. But taking money out for household spending and leaving the company under-funded can be deadly for both home and business. Making sure the company is healthy means your family will be able to prosper as well.

One way that business owners get into trouble is looking at the net income left over on the Profit and Loss Statement and ignoring the Balance Sheet. Thinking that you can go back to taking money out as soon as sales improve overlooks the need to deal with diminished resources. That story is told on the Balance Sheet, which shows the fiscal health of the business.

Not sure how to read the company’s balance sheet? Get someone to explain it to you. Do you have enough cash on hand to weather 6 months of problems? Are current assets twice what current liabilities are? Are debts below 2.5 x equity? Has debt been dropping? Have you successfully invested over the years in the company’s future? Is equity rising?

Take a hard look at how the business got to this difficult spot. Lack of success stems from years of missteps. When things go upside down in the business, and there’s no more money to pay out, it’s time for drastic re-evaluation.

Get perspective, from outsiders who you respect, ask for their opinions. Listen, even if you don’t like what you hear. Use their advice to refocus by figuring out what gets you to the end goal, rather than what gets you through tomorrow.

Deal with hard choices. Stop spending on things that drain cash and don’t contribute to profitable growth. Explain to family members that cuts have to be made. If you lost your job – or lost the company – you’d be making cuts. Do so before it comes to that.

Be realistic, how long will it take to get from where you are today to where you want to be? Prioritize rebuilding the company over personal comfort. Give your company time to heal permanently.

Most research on happiness says that the more things people acquire the less happy they become. Brainstorm other ways to have positive experiences that bring you joy. Go for a walk. Have a picnic in the park. Drive to the beach for some sun and fresh air. Spend time helping a friend. Read a book. Listen to music. Low cost / no cost solutions for the mind and soul can help improve your outlook as you re-focus on rebuilding the business that has provided you with so much.

As an owner, getting paid by the company is a privilege, not an entitlement. First you have to pay to operate the business – payroll, equipment, materials. Make enough profit to pay taxes, invest in constant refreshment of the company, build up reserves and pay off debts according to plan. Then, and only then, can you, as owner, afford to take money out of the company for personal needs.

Looking for a good book? Happy at Last, The Thinking Person’s Guide to Finding Joy, by Richard O’Connor.