The true measure of business success lies in the gap between actual and potential profits, revealing management effectiveness and financial stability.

Primary Implication

One of the core questions that should be asked when reviewing financial statements is about satisfaction with the results.  I.e., are you satisfied with the amount of money you made last month or year?  If the answer is yes, congratulations, one of the measures of business success is being satisfied with the amount of money you earned from your business.

If the answer is no, you need to learn how to close the gap between what you made and what you wanted to earn.

Overview

The true success of any business is not measured by the money made.  It is measured by the difference between the money made and the money that should have been made but wasn’t.  When the gap between what you actually earned and what you should have earned is close to each other, you know you own a well-managed business.

If the gap between what you made and what you should of is extensive, you have management problems.  The most common cause of making less than you should is a business owner failing their business.  Money is being lost.  Cash is being mismanaged.  Profits aren’t being earned.  All because an owner and their management team aren’t putting their energies where they are needed most.

Even if your business made a profit last year, it doesn’t mean you won’t become one of the many businesses going out of business this year.  Anytime you find yourself drowning in never-ending problems, overdosing on debt, or choking on costly mistakes, your business is at increased risk of failure.