Posts Tagged ‘profit

16
Nov
15

PART TWO: How “Systems” Drive Profit

This will be your last Monday Morning Wake-Up – unless …

When I started writing the MMWUs in January 2008, I was writing it exclusively for salon/spa leaders. Within a few months, I started receiving requests from general business leaders for a MMWU that they could share with their teams that didn’t have the salon/spa verbiage and advertising for salon/spa coaching and training. So, in early 2008, Strategies created a special MMWU for general business.

As many of you know, for over 22 years, Strategies has been providing coaching and training for the salon/spa industry. The general business version of the MMWU has always been the exact same text as the salon/spa MMWU without the salon/spa references and ads.

So after eight years, of sending dual MMWUs, it’s time for the general business version to ride off into the sunset after today.

We went through all the email addresses on this list and moved the all of the addresses we could identify as salon/spa over to our main email list.

IMPORTANT: Click here to continue to receive the Monday Morning Wake-up for salons, spas and medspas. You will read the same MMWU content as always, but with the words “salon/spa” in the title and text.

We hope you continue on as a reader. If not, I thank you for taking the time to read my MMWUs and hope that you found value and inspiration in them.

Neil

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system_gears2Systems bring structure and discipline to the profit creation process. Accuracy and extreme attention to detail is nothing short of non-negotiable. As a business coach, I’ve seen more than my share of “garbage in – garbage out” accounting and financial reports. Blatant errors, improperly posted or categorized entries, expense line items that no one can explain, and huge miscellaneous accounts, are just a sampling of the financial nightmares that regularly occur when poorly designed systems exist. The end result is totally useless financial reports. You just can’t make the best financial decisions with bad data. And with all due respect, sloppiness in the bookkeeping office is a darn good signal that compromise exists at the leadership level. Otherwise, such nonsense would never be tolerated for even a nanosecond.

Profitability systems extend far beyond general bookkeeping. When revenues are generated, there needs to be financial systems in place to ensure proper reporting. And wherever money is spent and purchases made, financial systems must be in place. Checks and balances, there is no other way to control and drive profitability.

Remember, a system is a set of procedures that, when followed, produce a predictable and consistent outcome.

Here is a quick hit list of profitability processes that must be systemized:

  • Proper categorizing of revenue streams
  • Invoice entry and generation (you just can’t have errors on customer invoices)
  • Accurate and timely posting of payables (improperly categorized expenses will make your profit and loss statements useless)
  • Deadly accurate processing of payroll and payroll taxes
  • Purchase Order system to control EVERYTHING that gets purchased (If it’s not in the budget, it doesn’t get spent)
  • System to run weekly financials – complete, accurate and on time
  • Review of weekly “Actual to Budget” comparison reports
  • Weekly accounts payable report (who do you owe money to)
  • Bill paying: What’s the cycle? Who approves what gets paid?
  • Periodic update of cash-flow plan and budget
  • Competitive vendor cost analysis
  • Debt management and reduction
  • Inventory level management
  • Creation of new project budgets
  • Weekly leadership team cash-flow planning meetings (procedures needed to complete the meeting in 30 minutes)
  • Scoreboard updating (daily/weekly/monthly)
  • Financial performance data report distribution to managers and staff
  • Expense reports: Who’s approving them? Are expenses verified and legitimate?
  • Office supplies: What’s the budget, the system, and who’s accountable for it?

Depending on the size of your business, this may come across as totally trivial. It’s not. There are still multitudes of salon/spas that still pay bills and write checks by hand. Today, accounting software like QuickBooks and online bill paying make hand written checks something you’d see on display at the Smithsonian Institution. Hand writing checks may have been fine for Fred Flintstone, but not for anyone doing business in today’s automated world.

Paying bills through your accounting software is a non-negotiable because of the speed and accuracy to financial reporting that computer checks and online payments deliver. Pay a bill by computer and the first thing it asks is, “Who are you paying?” Now you have vendor tracking. Next, it asks, “How much?” Now you have an expense amount. Then it asks, “What expense account should it be allocated to (i.e.: rent, office supplies, cost of goods sold, etc.).” Insert your computer checks and hit “print.” “Cash – Checking Account” on the Balance Sheet is reduced by the amount of the check and the expense is recorded on your Profit and Loss Statement. Out comes the check nicely addressed and ready for a double-window envelope.

I’ve been pounding away at running your financials weekly. The only way to do this is to totally and completely (that means 100%) automate all of your bill paying and accounting procedures. Until this is accomplished, you’re never going to see the whole picture.

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Please share your thoughts with me about today’s Monday Morning Wake-Up. Click below to comment.

Pass this e-mail on to your business colleagues, managers and friends. They will appreciate it.

11
Feb
13

How to turn profit into cash

cash_machineOne of the great mysteries in business is why profit isn’t cash. Well, it’s not really a mystery – profit is more like an abstraction that requires further interpretation to fully understand its meaning. We can all agree that creating profit is a good thing and that negative profit (loss) is a bad thing. However, the mind games begin when there is profit but no money in the checking account. And why don’t you go out of business when your profit and loss statements keep showing negative profit? The answer is simple: profit isn’t cash. Hmmm … perhaps it is a mystery after all.

The most important fact to remember about profit is that it has no connection to how much cash is in the bank. For example, you ring up a sale that’s paid for with a gift card. Your Profit & Loss Statement shows the sale, but the cash from the gift card purchase may be long gone. If you enter an invoice for $5,000, your Profit & Loss Statement shows the sale and resulting net profit, but there isn’t any cash until the invoice is paid. When you make a loan payment, only the interest portion of the payment appears on your Profit & Loss Statement while the principle portion of the transaction occurs on the Balance Sheet. In this case, a portion of profit was used to pay principle. Continue reading ‘How to turn profit into cash’




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