Business owners often ask me: “How much profit should I expect to make?
AS MUCH MONEY AS POSSIBLE! Is this a target? MORE! More than what? These are not clear targets or goals. A young entrepreneur came to me for advice and told me his five year goal was to work real hard, be totally stressed out, hopelessly in debt and make no money; and he made it! I am not impressed with people who are busy, overworked, underpaid or boast about their latest sales figures. What I admire are organized companies that hit their goals and make the expected return and profit for the risk they take.
The goal in business is NOT to stay in business. The goal of business is to ALWAYS MAKE A PROFIT. Unfortunately, 92% of all business owners reach age 65 with $0 net worth! It’s not how much you MAKE that matters, it’s how much you KEEP (after overhead, job costs, personnel and a fair salary for the owner).
Profitable driven business owners have a vision of what they want. They have goals in many areas including: business, customers, operations, financial, personal and profit. They have precise goals including:
1. Return On Equity
3. Overhead Costs
4. Average Markup
If asked to invest $100,000 in a friend’s new start
To Always Make A Profit, follow this 7 Step Formula:
1. Equity $ 300,000
2. Return On Equity Goal X 20%
3. Net Profit Goal (Pre-Tax) = $ 60,000
4. Annual Overhead Cost + $ 150,000
5. Projected Gross Profit = $ 210,000
6. Average OH & P Markup Goal 15%
7. Annual Revenue Goal (5 / 6) $ 1,400,000
Looking at the example above, the company’s Overhead is projected at $150,000, Equity is $300,000 and its’ Return on Equity Goal is 20%. Based on a Revenue Goal of $1,400,000 and using an average markup of 15%, the company’s annual NET PROFIT GOAL is $60,000. A FIXED NUMBER. Not More! Not as much as possible!
WHAT IS YOUR REVENUE GOAL?
WHAT IS YOUR OVERHEAD GOAL?
WHAT IS YOUR AVERAGE MARKUP GOAL?
WHAT IS YOUR PROFIT GOAL?
Companies without precise profit goals never make enough and often don’t make anything. It’s hard to hit a fuzzy target that doesn’t exist and moves around. Companies that track costs, target profit, control overhead, and watch what they keep, are in-control, organized and one
George Hedley owns a $75 million construction and development company and Hardhat Presentations. He speaks to companies on building profitable businesses, leadership, and loyal customers. He holds 3-day in-depth “Profit-Builder Circles” open to construction company owners in an interactive roundtable format every 3 months. His “Profit-Builder System” includes proven tools to always make a profit, build equity, create wealth, win profitable jobs, motivate your people, and enjoy the benefits of owning a profitable company.