The business profit progression stage for every business is determined by the effectiveness of management’s decisions and actions in executing the business’s profit model, resulting in either the substantial, stretch, stable, stuck, or survival profit stage.
Primary Implication
Not knowing which business profit progression stage your business is in robs you of the opportunity to appreciate how best to focus management actions if you want out of your current profit stage. Knowing what profit progression stage you are in is how you remain in that profit stage if that’s your goal. Either way, knowing your stage is how you make more money with less stress.
Overview
The effectiveness of past management decisions and actions taken to execute the profit model for their business will place them in one of five stages of business profit progression. The quality of the decisions made and actions taken this year by the current management team will shape whether they stay where they are, evolve to a higher profit stage, or regress.
The evolution of a business is triggered by the profitability, not the age or complexity of a business. What matters is cash flow, sales, and profit management regardless of the age, size, or complexity of the business. Ultimately every business will either become stuck or stable if they haven’t successfully stretched themselves into becoming a substantial business. Business owners who fail their business will not become stable or substantial because they go out of business or become trapped in the stuck stage.
How you manage your business profit model dictates what profit stage your business is in.
The gross, operating, and net profits a business produces, as reported in the P&L Statement, is the best summary of management’s performance. A business that earns profits has a profit model that is working. The lack of profits or lower than planned profits from business operations indicates that there are issues with either your profit model or management’s ability to execute the model.
Through your P&L Statement, you will see an itemization of the revenues and expenses that flow through your profit model, leading to either a profit or loss. Your Profit Model shows you how you intend to make money. Your Profit Plan establishes what you should make, and your P&L Statement shows you what you did make.
A positive difference between actual P&L Statement results and your Profit Plan indicates that you made more money than you planned to make. A negative difference, even if you showed a profit, confirms you aren’t working your profit model as you should as confirmed by your business, making less than you planned.
Big businesses become substantial because they are very good at converting their data into actionable information. They do this to minimize their risk of loss as they put large amounts of money at risk in their business to earn higher sales and profits. Businesses who find themselves in survival mode are just the opposite. They never look at the financial statements because they are too business fighting the fire of the day or trying to chase down cash to make payroll to bother with lighting their path forward with actionable information.
Each of the five stages of business profit represents a profit progression stage that you can either choose to remain in or manage your way into a higher stage of profit performance if this is your goal. Every business moves from one stage to another based on the factors that impact their ability to earn profits from its operations.
