Coach Your Business Team To Recognise A Profit

After years of paying bills, lodging tax returns, balancing debtors & creditors, doing bank reconciliations and lodging financial returns for your business, it's understandable if you've fallen into the error of thinking that "everyone understands money" and "everyone knows what a profit is!"

Here's a quick reality check for you:

• How many of your team (and particularly the younger ones) think that you get to keep all (or at least most) of the money that comes into the business?

• How many think that your "profit" is the difference between your buying price and your sale price?

• How many believe that "the Gov'mint" pays their Superannuation contribution?

• How many of them think you're rich?

Let's face it, if they are not trained bookkeepers, or if they've not run their own business and paid the bills, what is there in their experience that would lead them to think any differently?

At some point in our relationship I'll usually coach my clients to run an exercise in "financial education" for their team and I've created a simple exercise for the purpose. The goal of the exercise is to educate employees on exactly what a Gross Profit (GP) is; on how GP is affected by such things as costs associated with stock (including breakage, warranty, theft and obsolescence) and unproductive procedures; and on how GP is the only money that can run the business, long-term.

Participants in the exercise come to understand that your suppliers have first claim on the cash you receive from sale of the stock you source from them and that this and the other costs associated with bringing your goods and services to the point of selling make up the "Cost of Sales".

It's a small step from there to lead them to an understanding that once the suppliers are paid there are a host of other expenses - including their wages - to be met, and that the only source of funds for these overheads is your Gross Profit or, if that's inadequate, your personal or borrowed funds!

Having established an understanding that "GP runs the business" we've then developed a unique way of creating an understanding of just what that GP has to pay, and what a delicate balancing act it usually is to ensure that something's left afterwards; in other words, that there is a Net Profit to reward the owner for their risk-taking and investment.

The most common payoffs we see each time we run this exercise are:

1. Firstly, their staff walk around with eyes the size of saucers for a week as they take in the enormity of the business's overhead costs (usually these exceed the value of their own mortgage every month), and we see a real adjustment in behaviour as they accept just how thin and delicate profits really are.

2. Secondly, our clients start to see their team taking a higher degree of responsibility for cost control at all levels.

3. Thirdly, our clients usually report a dramatic increase in the number of ideas volunteered by their team as to how costs might be reduced. (Who would know better how to achieve this than the miners at the coalface?)

4. Fourthly, discounting drops, or stops altogether (we teach an alternative that preserves profits while ensuring that clients experience better value).

5. Fifthly, they see understanding in the eyes of their staff as they adjust their appreciation of just how little of the river of money that flows in through the front door makes its way out the back door and into their boss's private pocket!

If you'd like a copy of the  Profit Reality-Check Template - or to discuss how we can assist you to get this vital concept across to your team of people - then please email info@profitune.com.