By Barbara Nuss, CPA
Profit Soup
“… I can tell you I don’t have money, but what I do have is a very particular set of skills. Skills I have acquired over a very long career.” Liam Neeson, Taken
The particular set of skills all business leaders need won’t make them action movie heroes, but experience shows us they will become the fastest to grow sales and profits. The best thing about this particular set of skills is that it doesn’t have to take a very long career to master them.
Businesses grow faster when they have a command over what we call “Breakeven PLUS.” They must understand how their costs change as sales grow and master a small amount of math.
What’s our evidence? We hear it from many clients who use our online training to onboard new franchisees and network members. We’ll use one franchise system that conducts water damage restoration services as an example. Their goal was to help new their owners become comfortable with the numbers side of the business. They discovered an added benefit when they required the Breakeven PLUS training for all new franchises. By learning to set growth goals with the volume needed to meet their profit goal in mind, owners were more intentional about sales and profits and grew faster.
Profits are the lifeblood of any business at every stage of its life. You must have enough of it to pay back debt, reinvest in the company, and pay the owner. When you know how much profit you need and understand your cost structure, you can work backward to determine the sales required to yield the profit. Knowing what sales it takes to breakeven is essential, but that’s not the goal. The goal is Breakeven PLUS profit. How much profit? Enough to pay back debt, reinvest in the company, and pay a return on the owner’s investment.
It’s the only logical way to approach revenue goals. It beats the usual method of creating a sales goal of “10% better than last year” and hoping some profit falls to the bottom line.
Something else happened as their new franchisees launched their businesses, applied their new analysis skills, and worked diligently towards their sales and profit goals. More franchises grew quickly.
Our client contact reported, “For the last three consecutive years, a new owner who has completed Profit Soup’s Breakeven PLUS training has achieved enough second-year sales volume to rank in the top 10% of our existing owners.”
It’s impressive that a new franchisee can blow completely past break-even, vaulting over 90% of their more experienced peers in revenue by their second year of business.
What enables some owners to achieve such rapid growth? We believe it’s a powerful combination of what Liam Neeson would call a “very particular set of skills”* combined with a very particular mindset. Here are the six elements that set the stage for early success:
1. They Understand the “Why”
Their financial training instills a mindset that profits are a “need to have,” not just a “nice to have” in their business. They can now predict how much profit they will need to reinvest in their business, pay back the bank, and pay themselves. They know that only profit can fuel their expansion and attract buyers when they exit their business. It’s not just an exercise for them; it’s their immediate and long-term future.
2. They Own Their Sales Target
Once they know their profit goal, they use the Breakeven PLUS formula to calculate the sales that would yield their profit goal. It’s not a number handed to them by their accountant or business coach or based on the experience of other franchisees. They create it, and, more importantly, they own it.
3. They Develop a Sales Plan and Carry it Out
They create a sales plan for leads, conversions, and average ticket and a process to monitor and manage the plan. While they look to their franchise support team for advice and support, they take ownership of their goals, selling activities, and outcomes.
4. They Leave the Gate Strong
They are keenly aware that, as a new business owner, they are in a race to profit. The goal is to surpass breakeven and become consistently profitable before their cash reserves run out. They know this race has two outcomes: winning or losing. Winners make enough profit to keep growing and thriving. Losers run out of cash, and there is no room for “also-rans” in this high-stakes competition. They take this stuff seriously.
5. They Hone Their Profit Maker’s Intuition Early
Understanding how your costs behave and how to determine your Breakeven PLUS is the fastest and most effective way for an owner to hone what we call a “Profit Maker’s Intuition.” Once their intuition is dialed in, they make brilliantly profitable decisions more frequently. Build intuition early, and it only goes up from there.
6. They Make the Team Part of the Discussion
As masters of Breakeven PLUS, new owners know their “Magic Number.” For every dollar they invest or spend in their company, they know how much revenue they need to cover that cost. Many share their Magic Number with their team to support insightful discussions about spending, lifting the Profit Builder’s Intuition of the entire enterprise.
An Investment That Pays Off
The particular set of skills required to master Breakeven Plus serves new owners well through better day-to-day decision-making and long-term planning of their business.
About the Author
Barbara Nuss
Founder and president of Profit Soup. She is a teacher, business advisor, passionate advocate for better business thinking and frequent speaker at franchise and association conventions.