Unlocking Profitability: Essential Money Advice for the Million Dollar Business
Making a million dollars is a common goal for many small business owners and entrepreneurs. But you might be surprised to learn that one of the most common questions we get from newly minted million dollar businesses is where did all that money go?
You might also be surprised to learn that some businesses just kinda fall into it. They’re doing what they love, the stars align, and they hit that lucky million or two.While their books show that they’re making a lot of money, often their bank accounts don’t. So what gives?
Understanding Your Profit Margins
The first issue is that most small businesses are focused on the work they love, which is different from thinking about the work that makes them the most profitable. There is always a hierarchy within your products and services. Some products and services make good money, some make a little. (Spoiler Alert: Others are just flat out unprofitable.)
Say you have a dental practice, root canals would be the primary money maker and teeth cleanings are the services that get the job done. It’s a simple premise, but what gives some businesses more profitability teeth than others?
In order for you to strategically increase your profitability, you need to understand these margins for yourself. This requires creating a map of your products, the overall costs you incur to deliver each of those products, and the places where you have the potential to substantially increase your profits by removing inefficient systems. Our guess is that along the way you’ll also start to identify profit leaks or areas in your business that aren’t only not profitable but a waste of your business’s time and money. Many of our clients have just done what they do, the way they do it for so long they aren’t even thinking about their business from a profitability standpoint. If you want those zeros in your bank account to start increasing, you’ll want to get more strategic about earning your next million.
Hidden Culprits That Steal Your Profits
Over the years, we’ve been witness to quite a few profitability thieves in our clients business.
Here are a few for you to be on the lookout for:
Overhead Cost: Overhead cost refers to the expenses associated with running your business that are not directly tied to production or the cost of goods sold. These expenses can include rent, utilities, insurance, salaries, and more. While these expenses are necessary for a business to operate, they can often become a burden if not managed effectively.
Inefficient Staffing Patterns: Inefficient staffing can take many forms, such as understaffing, overstaffing, inexperienced staff, inconsistent scheduling, or improper allocation of resources. These patterns lead to decreased employee morale, increased turnover rates, and ultimately, reduced customer satisfaction. Not only does it impact your business's ability to meet customer demand, but it also affects your revenue and reputation in the market.
Inefficient Systems: One of the most common culprits that can drain your profits is inefficient processes and workflows. When your operations are not streamlined and optimized, you end up wasting valuable time, resources, and money. Inefficient processes can lead to increased labor costs, longer lead times, and delays in delivering products or services to your customers. This can result in dissatisfied customers, lost sales, and ultimately, reduced profits.
Holding Inventory: When businesses hold onto excess inventory, they tie up valuable financial resources. Deadstock takes up valuable warehouse space and ties up your working capital, preventing you from investing in other areas of your business. Additionally, excess inventory can become outdated or obsolete, resulting in lost sales and wasted resources.
Lack of Employee Training: Another hidden culprit that can impact your profits is a lack of employee training and development. When your workforce is not equipped with the necessary skills and knowledge to perform their jobs effectively, it can lead to costly mistakes and inefficiencies. Untrained employees may struggle to meet customer expectations, resulting in lost sales and damaged relationships.
Poor Customer Communication: Your customers are the lifeblood of your business, and their satisfaction is directly linked to your profitability. Poor customer service and communication can be a hidden culprit that drives customers away and negatively impacts your bottom line. When customers have a negative experience with your business, they are less likely to return and may even spread negative word-of-mouth, further damaging your reputation.
Be sure to follow this blog series over the next few months as we dig deeper into each of these profit thieves so you can prevent them into your business.
Hiring The Right Financial Professionals for Your Million-Dollar Business
If you’re running a million dollar business, we know that you’re busy. We also know that you’ve likely made your way by bootstrapping and making things work. You’ve put a lot into your business and there are important things on the line. When you start to make the big money, things sometimes get more complicated and that’s when it pays to bring in the experts. Experts like us.
At Oracle Profitability, we bring a wealth of knowledge and expertise that can help you make informed financial decisions, optimize your cash flow, manage risk, and drive profitability. Our job is to use the numbers to give you accurate and timely information. By analyzing financial data and preparing your financial statements, we gain insight that can help you understand the true financial health of your business. We thrive on helping you create budgets, forecast cash flow, and identify opportunities for growth. This information is vital for making strategic decisions, securing funding, or attracting investors as you take your business to the multi-million level. Contact us today for a free consultation.
P.S. If you’re a million dollar business, leave us a comment below about what kind of profitability content you’d like to see in the future.