Growing Net Profit – The First Goal of Business Plans
Most owners attack business planning by setting revenue targets, but imagine if growing Net Profit was non-negotiable!
I ran one of my Business Coach seminar series last Thursday – The Science of Better Planning. We focussed on setting and growing Net Profit as the first goal in planning, not revenue.
Why, because too often when you visit your accountant, they show you how sales less direct costs and overheads and labour = net profit, but they forget to say to you that net profit is the bit that is left over…
Imagine if you started your planning process with nominating your Net Profit (or owners drawings). Working backwards, what does costs and sales NEED to be, what does it imply for marketing and growth?
To my mind, growing net profit to a nominated amount is a much more powerful statement than starting with usual planning practices of let’s take current revenue, add xx% sales growth, times gross margin (can we save any money), how many people we need to make or deliver the product/revenue, etc
The fault many fall into is that revenue growth of xx% doesn’t allow you to look at your customers and segments strategically. It’s just adding more of the same through price rises, and some new clients. If you MUST deliver a net profit of a set amount, my experience is that you can’t rely on the magical sales growth based formula using historical trends.
Business today is fast moving and change is constant. An experienced business coach should be able to get you thinking why your business does what it does, and not just assume we’ll repeat last year, this year, plus a bit more. For each aspect of building a better business, there are many strategies to adopt to reach your target net profit level.