Home > Featured Articles > 3 Keys to Generating Profit

3 Keys to Generating Profit

By Jeff Sheets

For the past 25 years or so, I have been involved in helping thousands of individuals financially by teaching and personally counseling them on managing their money. I really enjoy the opportunity to work with people one on one and help them take control of their financial lives and hopefully set them up for a brighter future. What attracted me to working with businesses in the first place was seeing that the same principles that work well with the individual work well with businesses too. Many sole proprietors of all sorts of businesses have come to me for help. It has been great to focus on this industry and be more immersed in helping those who are in the OPE world do better in all sorts of ways, but generating profit and managing it for long-term financial health of the business has always been my #1 priority through the years. Let’s take a look at 3 keys to success in generating profits in the OPE business, although this model is generic enough to be used in any business or personal situation.

#1 Increase income

I know increasing income seems to be a no-brainer answer, but sometimes owners forget that they need to do something different in their business to generate more revenue. It might mean increasing your prices, especially on items that are very high in demand. I have recommended for years that owners be more aggressive in their parts pricing because if you have the part available in your store, it is an advantage to you, and people will pay a premium for it, especially if they need it immediately. I recommend not discounting equipment unless you are going to have to pay interest on it or you are going to have to carry it over to next season. You need to make sure you offer discounts to those you need to and that might be people who buy multiple pieces of equipment from you. Lastly, you might need to find another revenue stream that is related to what you are currently doing. I have recommended that rental, in some way, be a part of the mix of what you do. You have the equipment that can be rented, and you have the capability to keep the equipment in good working order with your service department. This is a win-win situation in my book. There are lots of things you can do to produce more revenue. I always suggest looking at other successful OPE dealerships to see what they are doing. Other OPE dealer experiences can help you see opportunities that you might not even know about.

#2 Decrease expenses

There are 3 types of expenses: fixed, variable and periodic. Each one of these can kill your profitability if not looked at critically.

  • Fixed expenses are ones that generally hurt you because you have long-term agreements that you cannot get out of. Fixed expenses may be leases, mortgage payments, and vehicle payments that can be a problem if you don’t do a good job of making sure you keep them as low as possible. My rule of thumb on fixed expenses is never make a decision on these impulsively; walk away from signing on the dotted line for at least 24 hours. This allows you a “cooling off” period to make sure you are critically evaluating the impact of the decision.
  • Variable expenses such as utilities can hurt you because, depending on what happens that month, your expenses can jump dramatically. My goal on variable expenses is to convert them to fixed expenses if possible. For example, utilities can be put on a fixed monthly payment plan to avoid fluctuating costs, which can hurt, especially in down cash flow months.
  • Periodic expenses are ones that you might pay once or twice a year. Taxes and insurance are good examples of periodic expenses. Your goal with periodic expenses is to make sure that you are holding out a certain dollar amount each month, so that you are prepared for the expenses rather than trying to take it out of one month’s expenses and thereby coming up short.

#3 Set up a budget for your business

Establishing a budget is the most important thing that you can do for your business, and if you don’t do it, the results can be disastrous. How do you know how you are doing if you have not attempted to budget your income and expenses based on your previous years? You should have an expectation of where you are going each year and then make adjustments based on income/expense changes that happen from month to month. Only about 35 percent of all U.S. businesses survive past the 10-year mark, according to the U.S. Department of Labor’s Bureau of Labor Statistics, and the reason for that is a lack of profitability. In an article from Inc. magazine, Bill Carmody, CEO of Trepoint, said, “Why do most businesses fail? Because they can’t pay their bills. Most entrepreneurs either are (or start out as) financially illiterate. Unless you are into financial services or accounting, most entrepreneurs don’t go into business because they love numbers.”

Here are some advantages to setting up and following a budget:

  1. It will make you more money!
  2. You will be able to adjust to change much better!
  3. You will make decisions FASTER!
  4. It will help you establish GOALS!

The investment of time in budgeting will help you be one of those businesses that not only survives, but also thrives.

Being an owner of a business is a complicated thing. However, the main goal should be profitability. All of your efforts should be working toward that. You need to evaluate everything you do from procuring vendors and hiring employees to marketing and selling to your customers, and make sure all of it falls in line with your long-term profitability goals. When you don’t think about it and make decisions, then you could force your business into difficult circumstances. I had an owner one time decide he just needed to hire more people without really evaluating the consequences. He ended up having to let most of the people go, and it caused him to nearly go out of business. When you make emotional decisions based on guesswork, you do yourselves and your business a great disservice.

I know that a business is not just about making profits; it is also about serving your customers who keep you in business. But I like what Warren Buffett says about profit. He states, “When forced to choose, I will not trade even a night’s sleep for the chance of extra profits.” You need to take his words to heart and understand that if you are not profitable, you cannot serve your customers in the future. If you lose money or barely break even so you can barely pay yourself, you will soon lose hope and be one of the many that started and failed in their business endeavor. Being profitable is a great goal and should be what you are striving for every day. The question you need to ask yourself every day is: What can I do today to become more profitable tomorrow? The answer to the question will help you see what you need to do to be more successful and among the approximately 35 percent of businesses that celebrate a 10-year anniversary.

Jeff Sheets is the founder and owner of OPE Consulting Services. Whether a business is thriving or struggling to survive, Sheets’ rich experience in both the corporate and not-for-profit sectors allows him to partner with business owners to customize unique strategies for their needs. For the past 11 years, he has worked extensively with hundreds of outdoor power equipment dealers to create best practices in business structure, personnel management and financial profitability. For more information, he may be contacted at opeconsultingservices@gmail.com or (816) 260-5430. You can also follow him on Twitter @opeconsult, connect with him on LinkedIn, and visit his website at www.opeconsultingservices.com.

About snoe