When your revenue is flowing easily, finding profit is not a problem. In these times of success, morale is at its highest, and everyone is feeling safe. Salaries and commissions are at an all-time high, and spending doesn’t seem like a big deal anymore. Many companies have experienced this “high” at some point and continue to stay in that world year after year. For the businesses that face profit and revenue challenges daily, it’s time to focus on what’s critically important and be ready to make challenging decisions.
To weather the profit and revenue storm, consider what you would do revenue slows because of an unforeseen and uncontrollable circumstance. For example, governmental or political influence, another pandemic, or a major vendor or customer shutting down their operation could all have a massive impact on your business. Will your business be able to survive it? Or would you be forced to react by making a permanent decision based on a temporary situation? Use the following three phrases to reframe this scenario and make sound business decisions:
1. Make Money
So how are you supposed to make money when your revenue has noticeably slowed? First, you must understand your business transactions and the profit a dollar should be generating. Don’t fall into the trap of waiting until the end of the month to analyze P&Ls, balance sheets, and bank accounts. Instead, pay attention to how every dollar should return a percentage of profit.
When you know your ROI for every dollar spent, you should also know that every transaction has a cost. Are you making your planned ROI per dollar? Is the decision you are making today generating the desired profit? If the answer is anything other than yes for these questions, consider getting to know your business’s financials more intimately so you can make the right decisions to yield the profit and revenue you expect. Below are some challenges that can get in the way:
- Conducting business with friends and family (either as customers or co-workers)
- Long-term relationships with vendors/ customers who are your “cash cow” or biggest revenue generator (you have become afraid of losing their business, revenue, and relationship)
- Lack of understanding and awareness of the expected profit goals
- Being blinded by monthly cash flow instead of having a clear understanding of daily ROI per dollar
2. Save Money
When companies are easily making profit, all stakeholders should reap those benefits. In the same way, when things aren’t going well, and a company struggles to make payroll or pay vendors, everyone in the business should “feel the pinch.” This doesn’t always have to result in layoffs or furloughs. It could mean managing the luxuries and the status quo with a fine-tooth comb. Sometimes tough decisions must be made immediately to save the company. Yes, company functions may be limited or suspended until further notice. Travel and expenditures may be halted indefinitely. Saving money is an instant game changer to profit as it flows immediately to the bottom line and doesn’t cost anything to generate an ROI!
3. Solve Problems
Solving problems is key to employment security.
Solving problems takes a bit more insight, fortitude, and emotional intelligence than making money or saving money, often because of the human element of business problems. Task your middle management team to solve the problems they can. This practice frees other leaders to think more clearly about introducing different revenue streams, ROI, growing EBITDA, or retained earnings. In other words, when middle management and their support team in operations can solve problems, they allow you as the business owner to “work on your business instead of working in your business.” What a luxury to have employees who can identify and solve problems so you, as the business leader, can focus on leading. Companies with many problem solvers will weather any profit and revenue challenge that may come their way.
When you’re in a tight spot with revenue loss, keep making money in whatever ways you can, save money wherever you can, and trust your team to help you solve problems.
