In honor of Canada’s 150th Birthday on July 1st and the Fourth of July Independence Day in the United States, here are the three keys to business freedom.
First, my definition of business freedom: you have a smooth running, profitable, positive cash flow business.
Imagine having option to do what you want, when you want. Your business can give you this freedom.
So what does it take? Three things – customer focus, employee focus, and financial focus.
Customers: The Pareto Principle says that 80% of your revenue comes from 20% of your customers.
• Make a list of your most profitable customers who provide the most revenue for your company. Reward them. ($25 gift cards, thank you letters, etc.)
• Know which customers are costing your company money. Fire these customers. You cannot afford to pay your customers to do their work.
Employees: How are they performing?
• All employees should know how they impact your company’s bottom line. This means teaching them how to read a profit and loss statement and sharing your company’s statement with them. This doesn’t mean that you have to share each and every overhead salary, including yours. They can be in aggregate.
• All employees need job descriptions. Their reviews should be based on their performance of these job duties.
• Track employee productivity. For every dollar you generate, how much are you spending on payroll and payroll taxes? This percentage is calculated: total payroll expenses divided by sales. This ratio should be as low as possible. Start tracking it. Your productivity ratio will decrease and your profits will increase.
Financial: Your business scorecard
• First, if you don’t understand financial statements, get help. They are critical to your business’ freedom. Take a course either at a community college or on line. Read my book, The Courage to be Profitable (www.TheCouragetobeProfitable.com). To have business freedom you must get and understand financial statements.
• Know your break even point every month.
• Get timely, accurate financial statements every month. You receive the previous month’s statements by the 10th and no later than the 15th of each month. Invest 15 minutes to analyze them. You can spot minor issues before they become major crises. You can make good business decisions based on what the numbers are telling you.
When you have these three keys operating properly, then you have choices. You have business freedom.