Profitability in Business: Financial Habits for Success

Prof.it.a.bility (noun): The degree to which a business or activity yields profit or financial gain.

As an entrepreneur, you are a visionary, seeing opportunities where others see only roadblocks. Your business is your passion. You pour your heart and soul into it because you believe in it. You nurture it, grow it, and do what it takes to ensure its success and profitability.

As you drive your vision forward, you may be tempted to push aside some operational responsibilities that come with business ownership, like managing the books – especially if numbers aren’t your strong suit. But whether you plan to stay at the helm of your business or scale it to sell, a healthy company needs a strong financial foundation to flourish and sustain profitability.

Let’s explore a few financial habits that make for healthy profits and a sustainable business model.

ESSENTIALS FOR PROFITABILTY

Profitability in your business begins with an understanding of the numbers. There are three key reports every business owner should review consistently: Income Statement, Statement of Cash Flows and Balance Sheet. Make it a priority in your business to review these essential financial reports monthly:

• Income Statement:  This report – also known as the Profit and Loss Statement – tracks income and expenses in your business over a given period. It reflects your “bottom line,” your net income after deducting expenses. This report is the basis for financial forecasting.
• Statement of Cash Flows: This report provides insight into the financial health and operational efficiency of your business. It shows the cash generated during a certain period and reflects the movement of cash in and out of your business.
• Balance Sheet: This report – also known as a Statement of Financial Position – reflects the company’s total assets and how the assets are financed, either through debt or equity. The Balance Sheet helps owners manage their working capital, assess risk versus reward and helps determine liquidity and solvency.

Another key component for a financially healthy business is process and procedure. Without systems in place, there is no operational clarity. No structure means no organization, which can lead to operational inefficiencies which cause loss profits. Implement standard operating procedures like these in the early growth stage of your business for long-term success:

• Use technology to streamline and simplify: Use financial software to save time and money. Take advantage of the reporting features to generate up-to-date reports that will help you maintain financial clarity in the business.
• Establish financial processes and procedures: Prevent confusion and overspending by creating financial processes in your business. Examples of common best practices are how to manage expenses, implementing consistent financial reviews, monitoring working capital and aging reports, for example.
• Leverage outsourcing to save time and cut costs: Identify opportunities to enlist the expertise of seasoned professionals, particularly in areas of your business that are time-consuming, causing a drain on your business development efforts. Fractional consultants can be beneficial, particularly in the areas of accounting and finance. Consider outsourcing to reduce expenses and free up your time to allow you to focus on what you do best.

The human element plays a significant role in the health and success of a business. In business, an owners’ habits – good or bad – can determine whether the company turns a profit or if it crashes and burns. A successful leader and business owner should model these behaviors, especially as they relate to the company’s financial operations:

• Commitment: It takes commitment to realize the goal of creating a profitable business. Commit to the process of profitability. Engage an accountability partner who will keep you on track and focused.
• Consistency: Sustainable, lasting change begins with commitment and consistency. Keep the vision of a profitable organization in front of you. Stick with it, and don’t forget to celebrate the wins.
• Evaluate (and Re-Evaluate): Financial reporting gives a valuable snapshot of the health of your business. Do your financials reflect healthy business growth, wise use of capital, operational efficiencies? You may have a positive balance in your operating account, but that doesn’t necessarily indicate a profitable business. Use financial reports to identify opportunities to make changes within your company, changes that will lead to more profits.

A financially healthy company is achievable, especially when you implement these habits in your business. Remember that without a solid financial foundation, your entrepreneurial drive and vision will only take the business so far.

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