The Aim Is Long-Term Profitability
If your business isn’t profitable over the long term, is it really profitable in the short term? Look at it this way: say you’re running a remodeling agency where old properties are refurbished—if you’ve got a house you acquire for $50k, you spend $50k in remodeling, and you successfully sell it for $175k, you’re looking at $75k profit on that property prior taxes.
However, how long does it take you to get to that $75k? If remodel takes six months, involves only two people, and you’re able to sell the property in two months after you’re done, then between the two of you, you’re looking at $36.5k a piece prior taxes for that eight months; or $4,687.50 per person per month. That’s not too bad.
However, if it takes you four years to get the same sort of outcome, you’re each only making $781.25 per month—which isn’t great. However, if you’re both doing four remodels simultaneously that have essentially the same profit, you’re each at $3,125 a month. Not quite as good, but also not bad. So you see, profit can be variable depending on operational scope.
You’re looking for a business model that will sustain you and the needs of those who depend on you for many years. However, with many months between a job’s initiation and its completion, it can take a while to make such determinations. Accordingly, here we’ll briefly cover five indicators that can help you determine if you’re actually making money.
1. Assure You’ve Got Steady, Reliable Cashflow
If you’ve got $30k coming in every month, but $40k going out, then you’re losing $120k a year—that’s not a winning proposition. However, if you’ve got $30k coming in and only $20k going out, then you’re looking at $120k in profit. Now that $30k income is “gross”. The “net” is your profit after expenses; the link goes more in-depth on how cash flow works.
Cash flow should be regular, and you should always have more coming in than going out. However, determining accurate levels of cash flow can sometimes take more time than you may expect.
Some business cycles are only a day, others a week, others a month, others a year, and in financial markets, the cycle could take a decade or more. So know cashflow cycles as well to determine where you’re doing well, and where you’ve got issues.
2. Conducting Employee And Customer Surveys
If you’ve got good cash flow, but employees and customers aren’t happy, you won’t keep that cash flow up long. As customers are important for a business, customer services are important as well! You need to assure that those who work for you, and those you serve, have what levels of satisfaction are possible. Obviously, this will differ per business. People picking up garbage will have a low “ceiling” of satisfaction: they’re probably not going to be ecstatic.
3. Keep Careful Data Pertaining To Daily Operations
Another great idea is using computer programs that collect statistics on operations at varying projects in the “field”—such as Field Pulse. This program can help you have information available for when you need to do a little internal operational research.
4. Using Data To Make The Right Improvements Over Time
When you’ve got the right data, improving operations becomes more straightforward. For example, you may find that contracting to a specific area of your town only allows you to break even. Suddenly you’re unable to profit. Accordingly, you’re just putting “wear and tear”, as it were, on your business. You might tighten your service area in such an instance.
5. High Demand And Statistically Solid Industry Projections
When there’s high demand for your business, and projections for your industry are solid, these are good indicators your field is a successful one. Provided the other factors on this list are positive, such indicators are additional means of determining whether your business is profitable. Such indicators are especially prescient for long profit cycles.
Setting Yourself Up For Sustainable Success In Business
High demand, statistically solid industry projections, using data to help you make improvements over time, keeping careful operational data from the field, conducting surveys of employees, conducting surveys of clientele, and assuring you’ve got good cash flow represents five indicators your business is prospering.
Different businesses tend to have indicators appropriate to their industry, so some of these may not directly apply to you; but for the most part, each of the five things briefly outlined here will have some applicability to your operation.