Proactively identifying and addressing profit losses through expense reduction, efficiency improvements, and elimination of unprofitable practices is crucial for maintaining healthy cash flow and achieving financial stability.
Primary Implication
A business either makes the money it should or it doesn’t. Whenever a business falls short of earning what it should, it is either a function of insufficient sales, costs increasing faster than sales, or both.
Solving the sales problem is foundational to the long-term viability of a business. Stopping profit losses from spending too much on direct, indirect, and nonoperating costs is both a profit and cash flow problem. The good news is every time you stop a profit loss, you improve both business profitability and cash flow, so stop the losses to make more money today.
Overview
Every profit dollar you earn is the result of past actions that produced a profitable result. When actions aren’t producing the desired results, the sooner you identify where corrective action is needed, the sooner you will see improvements in your current and future results.
You can be sure that there will never be enough cash from profits whenever there are profit losses. There is no “C” or “P” in CPR if there are losses unless you find a way to stop these unwanted cash drains. Anytime you fail to do BusinessCPR™ Step 4—Stop Your Profit Losses, you place your business at risk through costly profit losses as you run out of cash from operating your business at a loss.
No matter how thoughtfully a profit plan is constructed, no plan is perfect, because the people executing it are human. You compensate for human mistakes by decisively attacking your most unwanted profit losses. Failure to stop your biggest profit losses keeps your business at risk, and it’s the leading contributor to coming up short of your profit plan targets.
Slow cash flow from operations at low gross and operating margins puts your business at immediate risk of cardiac arrest, as seen in the following negative scenarios:
- You’ll have less money today for the bills you’re already past due in paying.
- You’ll waste too much time trying to collect monies owed to you while holding off those to whom you owe money.
- You’ll see sales are suffering because it’s hard to source materials and keep up with COGS and SG&A expenses.
- Your employee’s uncertainty is high, with no one taking any initiative to improve results.
- Your equity as a business owner is diminishing because losses from the P&L Statement are transferring to the Balance Sheet.
Knowing where your business is losing the most money is the fastest way to make more money. You correct for profit losses the same way you reduce the risk of having a heart attack by taking management action to make the necessary changes before it’s too late. Start with reducing expenses, addressing inefficiencies, and ending unprofitable habits that lead to profit loss buildup and declining earnings.
