Business is all about making a profit, so if your business strategies aren’t adding up to business profits, don’t do it, or do it differently.
To be a business – that is, ‘a commercial, profitable enterprise that works without the business owner’ – the business must give a good return on investment plus a full wage for every hour the owner spends working in his business. He can then pay someone to do his job and the business profits are not affected.
The quote, ‘if it doesn’t add up, don’t do it’ can be applied in all areas of one’s business enterprise. Advertising is a prime example. If an advertisement is run and does not get an immediate response, there is no point in keeping it running. It is wasting precious time and money. It becomes necessary to change the advertisement or where it is running.
Growing one’s team must also add up in dollars. Perhaps a business should consider setting training and operating systems in place so juniors can be hired to follow the systems, rather than hiring seniors who have the head knowledge of how it should be done.
Alternately perhaps the business should look at new machinery or technology instead of more team members.
If you want to buy a business, the figures also must add up – or have the potential to do so. Ideally, a business owner should make a list of the criteria the business must fill and make sure this list is filled before he commits himself.
Many people buy into something believing it would fulfill their needs, to discover the figures were inaccurate or did not add up. If the business owner is not sure, he should get help. Two heads are better than one, and prevention is better than cure.
A great idea when looking at a business is to check the industry average and see how this particular business compares. Given that four out of five businesses go broke in the first five years, it is crucial to be better than average.
Finally the bottom line where the figures must add up is in net profit margin. To get this figure a business must add all expenses, including an appropriate wage for all the hours put in the business, plus interest on the capital invested into the business. This will give the business owner his real margins.
‘If it doesn’t add up, don’t do it” must be applied regularly. It may be financial suicide to wait until the end of the financial year to find if the business made a profit.
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