Simple Numbers, Straight Talk, Big Profits! summary

At some point, every business risks falling into a black hole. We aren’t talking about space travel: A black hole is when a firm’s revenue first surpasses $1 million and there’s an increased demand for staff, but not enough capital to pay for new employees.

At this point, many business leaders will focus on balancing the budget, but that’s not good enough. If you want to escape the black hole, you have to aim for 10- to 15-percent pre-tax profitability.

As we discussed in the previous blink, 10- to 15-percent profitability should be your company goal. But how can you achieve it during that black hole period, when you’ll need to hire new staff to fulfill growing demand?

First, you need to understand the relationship between labor expenses and profitability.

We’ve learned that often you’ll need to focus instead on enhancing the productivity of your existing employees instead of just hiring new staff.

But what does it actually take to increase and maintain labor productivity?

Labor costs aren’t the only thing involved in running a healthy business. If you want to stay solvent, understanding the four forces of cash flow is crucial.

So here they are – the four forces:

As we’ve learned, maintaining 10- to 15-percent profitability is the best way of raising capital.

But couldn’t you also borrow to raise money? If you can avoid it, do so. Debt is dangerous, so it should only be your last resort.

The secrets to your company’s success are already there, they’re just hidden in the data. And that’s why constantly monitoring key measures will help your business thrive.

Don’t overwhelm yourself with too many numbers – find just a few, ones that are important to your company’s survival and positive development and growth.

Once you’re in the habit of regularly monitoring key metrics and looking for trends, you can also implement forecasting to dynamically manage your firm’s growth.

Cash-flow forecasting might sound daunting, but it’s easy to master. Here’s how it works: When you take your profit-and-loss (P&L) statement, you’ll note several future key costs that you can predict with some certainty, like rent. And you’ll see other costs, like labor, over which you have significant control.