Getting your head around what profit really is is essential to your business success. Profit is actually far more than the dictionary definition of “The surplus remaining after total costs are deducted from total revenue, and the basis on which tax is computed.”
Profit is more than simply … if I buy something for £1, I sell it for £2, I make £1 profit.
This is what profit really is …
• Profit ensures that you can feed your family
• Profit ensures you can go on holiday
• Profit ensures your staff can go on holiday and you can pay for them while they are not actually working
• Profit ensures you can grow your business organically
• Profit helps you go to the bank and ask for funding with confidence
• Profit provides a buffer to be able to pay expenses, even when you have got no work on at that time.
• Profits increase your employees standards of living through pay rises, performance bonuses, or a few days a year extra holiday.
• Profit will give you the life you’ve always wanted.
Yes, profit is the excess of cash left over from a transaction after sales minus cost of sales. But the above list is really what profit is all about. Getting your head around what profit really is, is one of the most valuable uses of your time … ever.
I have a builder friend, now gone bust, who I remember speaking to just 4 days before his company was wound up and placed into insolvency. He asked me to try and help his business very late in the life of his business, and I remember asking him how many large jobs he had going at that time, and he said 9. I then asked him how many jobs he was making great money on, and he said he was making a little money on just 3 of them, and running at a loss with the other 6!
I asked him why he wasn’t making a profit on all the jobs he went for, and he said with a very glum look … “I quoted so low to ensure I got the job to keep my guys busy but that meant no profit for me.”
So, my friend worked so hard, for no money. His workers were fine and getting paid, but it was just the business owner who lost out. He was in business to satisfy his customers’ desires for cheap (but still great quality) work NOT to make tons of profit, and because of this he lost his business, and his home.
He would have been better off working at McDonalds! That’s the truth of it.
Now, my friend was an amazing builder and really nice bloke too, but he became so focused on keeping his guys employed at all costs and getting every job he went for that he lost sight of the fact that he was in business to make money. If a job is not going to be profitable, don’t take it. Simple.
PROFIT IS NOT A DIRTY WORD
Have a look at 10 of the jobs you have done in the past 3 months. Really get down into the figures and work out as accurately as you possibly can how much each job cost you and how much you earned from the job. When working out your costs don’t forget to add, say, £5 (or whatever) for petrol, £5 as a contribution towards insurances, £150 a day wages and so on.
Be in no doubt your profits are in your numbers, NOT in the number of jobs you complete, how many people you employ or how big your HQ is. ONLY your numbers will tell you whether or not you will be recording a profit or loss at the end of the year.