The Truth About Profits - By Dan Lacy

[Ben McCann]

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Dan Lacy Newsletter May 20, 2010 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

The Truth About Profits A great question came up last week in the seminar I was giving and it revolved around the term "profits". Since the question created a lot of discussion, I thought it would be good for a short article. What is "profit"? Google has 9 different definitions for profit and over 202 million responses to a search for "profit" - no wonder it is an unclear concept. Based on my years of consulting experience, here is my definition - "Profit is best known measure of the success of an enterprise, it is the surplus remaining after total costs are deducted from total revenue." We basically understand this; but do most of us really focus on the "profit" in our business? The answer is NO. We don't focus on profit because we clearly don't understand the value profit has in our business. It is much more than the amount of money we have left over at the end of the year that we have to pay taxes on. So before we get into the discussion about profit and taxes, you need to know what profit does for a business (and only one of them is bad, but it's a good kind of bad): Builds your "cash in the bank" position Used to pay down debt Used to pay payments on term debts Builds equity in the company - improving debt to worth ratio Increases working capital One of the key elements in the ability to grow revenue Increase the company's borrowing ability Increase the value of the company Impacts your ability to increase your personal income from the company Increases peace of mind Now the bad - profit and taxes. Most every business struggles yearly with the tax issues both state and federal. It is really difficult to pay tax dollars to a government that tends to waste more money than it uses effectively. But without profitability (and therefore the taxes that go alone with them), the company can't thrive - poor debt service ability, limited growth in equity, limited growth in working capital, and the inability to grow revenue. So it is really important to have a profit and tax strategy for each year. Overall, profit is a very good thing, it impacts the business in a number of positive ways, and should be something that we place more focus on daily basis in our business. One of the best ways to improve the profit in your business is to have a profit plan for the year. Right now, you should be planning your profit strategy for 2010. What do you do when you want to do this and don't have the time or resources to get it done? Call me - we can help you develop a full financial operating plan that will give you the performance you need. Much of what I do with clients revolves around these concepts in some way. While I have always preached how critical it is to set goals and march toward them, being a sounding board, confidant, and accountability partner is just as important. If you need help in any of these areas, please give me a call or shoot me an email. To Your Business Success: Dan Lacy Growth & Profit Coach, Financial Strategist, Cash Flow Doctor, CEO Mentor P.S. I have received rave reviews for my book - Cracking the Financial Code. This is the most practical book on understanding your financial statements and how to use them in your business ever written (okay, that's just my opinion). Get your copy now for only $15. Go to www.dynastybuilder.com to order now. Here's what others have said about this book: "Cracking the Financial Code removed both the mystery of financial statements and my excuses for not diligently using them. This is a must-read for any business owner wanting to make informed business decisions." Jonathan Arnold, President, Tuitive, Indianapolis, Indiana "In Cracking the Financial Code, Dan has taken difficult financial concepts and made them easy to understand. This is a "must read" for business owners who want to grow their business." Kirk Klabunde, Senior Vice President, First Merchants Bank, Anderson, Indiana "Cracking the Financial Code is a terrific reference source for growing companies to make sure their financial focus is sound." Terry J. Pahls P.E., President and COO, I Power Energy Systems Anderson, Indiana

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