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Profit Gaps Example

We’ve gone through a lot of theory about profits and finance without having to resort to many numbers examples.

That’s about to change to help you to understand the Profit Gaps in your business. I do the best to keep the numbers simple.

Calculating Your Profit Gap – A Worked Example

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Profit Extraction

I am not a tax expert and this isn’t meant as tax advice .

I believe business owners have a great opportunity to take out the profit in the most tax efficient way.

It’s the money you get to keep that matters and not what it’s called. [continue reading…]

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Market Costs Of Your Time & Money

To answer the question “How much profit should my business make?”, we need to look at the market cost of the resources it uses.

You probably already pay market prices for your supplies and staff but the two areas that may be heavily subsidised are what the business gets from its owner – management time and money invested.

Lets put a value on your time.

The Market Cost Of Your Time

I want you to look at what you do in your business – all the many hats you wear from salesperson, copywriter and Internet expert…to the things necessary to deliver your product or service…to the administration and bookkeeping. [continue reading…]

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How Much Profit Should You Make?

“How much profit should my business make?” is one of those classic questions without any clear answer.

It depends…although I was taught as an accountancy student that a 5% return on sales (or profit on sales) was average and 10% was good. [continue reading…]

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Reversing The Death Spiral of Profits

The story of Peter the Printer (link to death spiral) is a gloomy but the Death Spiral of Profits can be reversed.

You need to raise your expectations of the profit your business could …and should be generating.

The key question is:
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The Death Spiral Of Profit

The death spiral of profits is meant to sound dramatic because its impact can be dramatic.

It’s based on the idea that lower expectations of your profit breed lower profits, so you then lower your expectations
[continue reading…]

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The Opportunity Cost Of Your Money

Just like our earlier bank account example (link to the economic definition of profit), the money invested in your business could be earning a nice safe return in the bank…or you could aim for a higher but riskier return elsewhere.

You may have also given personal guarantees to your bank to secure a loan so your business is getting more money at a lower interest rate – and you should recognise that cost. [continue reading…]

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The Opportunity Cost Of Your Time

I believe your time as the business owner is enormously valuable and is often the biggest constraint that limits improved performance in the business.

And how well you use your time – which we will look at in Pillar 2 Your Inner Game – has a major impact on how well your business performs. [continue reading…]

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The Economic Definition of Profit

Let’s move from the accountants definition of profit (link)to the economists’ definition.

For an economist, profit is the difference between revenue and opportunity costs, not actual costs. [continue reading…]

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The Accounting Definition Of Profit

Ask an accountant to define profit and he or she will say something like:

“Profit is the difference between revenue and costs in a defined period of time.” [continue reading…]

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