Many businesses are simply surviving.
Scraping by with just enough sales to pay the bills and not much more.
But it doesn't have to be that way.
By focussing on three key elements your business could be profitable and successful.
In order to be successful every business owner, large and small, needs to focus on the following: 1.
Net Profit 2.
Return on Investment 3.
Positive Cash Flow Let's look at these three key elements in a bit more detail: 1.
Net Profit Net Profit is the amount remaining after you take all the money generated by your business and subtract all the expenses of running the operation.
You need to ensure that your expenses are less than your income in order for your business to realise a profit.
This means that business owners need to control and manage the processes and activities that impact Net Profit.
2.
Return On Investment (ROI) Return on Investment is a tells you how efficient your business is.
It is a key element often ignored by small business owners.
It is usually measured by the following calculation: Return on Investment = Net Profit divided by Assets.
As ROI is a measure of how much you get out of your business compared to how much you put into it, business owners should aim to have a ROI that increases over time.
A growing Return On Investment means you are using your resources efficiently.
There are only three ways to increase your ROI.
1.
Growing Net Profit 2.
Reduce your investment in assets 3.
A combination of the above.
It is important to note that a business is not able to generate a profit if your investment in assets is greater than your net profit.
3.
Positive Cash Flow Cash to your business is like oil in your car.
If you don't have enough of either they will come to a grinding halt.
Cash flow is all the cash that flows into and out of your business.
Your goal is to keep as much of it as possible.
A business that is growing will generally be increasing its investment in assets.
But in order to sustain this growth you also need to be growing sales.
Your business cannot grow faster than your cash flow allows, so you need to ensure you have kept sufficient cash in your business to sustain the growth.
and 4.
(Your Free Bonus!) If you want your business to actually make money, you must keep the above elements managed and under control simultaneously to ensure your business is both profitable and successful.
Scraping by with just enough sales to pay the bills and not much more.
But it doesn't have to be that way.
By focussing on three key elements your business could be profitable and successful.
In order to be successful every business owner, large and small, needs to focus on the following: 1.
Net Profit 2.
Return on Investment 3.
Positive Cash Flow Let's look at these three key elements in a bit more detail: 1.
Net Profit Net Profit is the amount remaining after you take all the money generated by your business and subtract all the expenses of running the operation.
You need to ensure that your expenses are less than your income in order for your business to realise a profit.
This means that business owners need to control and manage the processes and activities that impact Net Profit.
2.
Return On Investment (ROI) Return on Investment is a tells you how efficient your business is.
It is a key element often ignored by small business owners.
It is usually measured by the following calculation: Return on Investment = Net Profit divided by Assets.
As ROI is a measure of how much you get out of your business compared to how much you put into it, business owners should aim to have a ROI that increases over time.
A growing Return On Investment means you are using your resources efficiently.
There are only three ways to increase your ROI.
1.
Growing Net Profit 2.
Reduce your investment in assets 3.
A combination of the above.
It is important to note that a business is not able to generate a profit if your investment in assets is greater than your net profit.
3.
Positive Cash Flow Cash to your business is like oil in your car.
If you don't have enough of either they will come to a grinding halt.
Cash flow is all the cash that flows into and out of your business.
Your goal is to keep as much of it as possible.
A business that is growing will generally be increasing its investment in assets.
But in order to sustain this growth you also need to be growing sales.
Your business cannot grow faster than your cash flow allows, so you need to ensure you have kept sufficient cash in your business to sustain the growth.
and 4.
(Your Free Bonus!) If you want your business to actually make money, you must keep the above elements managed and under control simultaneously to ensure your business is both profitable and successful.
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