Take the Profit Potential Test!
58 questions that will change the way you do business

How much profit potential does your business have?

To answer that question, you need to understand what’s going on in your business.

Too often, owners forget that they are the captain of the ship. They become over-involved in the day-to-day aspects of running the business and leave profits to grow themselves.

You can get lucky

Sometimes you really don’t have to understand what’s going on in your business. You could, for example, be selling the right products or providing the right service

to the right customers,
at the right price,
at the right time, and
achieving success without doing any planning!

Then again, you may be lucky enough to win the lottery too.

Seriously, though, many business owners do get lucky for a time. Profits show steady growth each year. The problem? You start to think that your profits will continue automatically climbing each year.

But things change. For example, a business I know of was doing $8 million in sales and generating almost $1.2 million in profits one year. The next year they sold just over $11 million but ended up losing around $1.0 million. Ouch!!

Profit improvement takes work, not luck

The profitability of your business can—and should—be carefully managed if you want your business to reach its full potential.

The fact is, as business owners, we are responsible for how much money our businesses bring in. After all, we’re the ones who know the profit levels each of our products and services contribute. We know the impact of inventory turns on our cash flow. We know which of our customers are the most profitable and have identified ways to capitalize on that knowledge.

Right? Right?

It’s never too late

If you don’t have the knowledge you need to start improving your profits today, don’t despair. To get you started, I have assembled a comprehensive list of 58 questions to ask yourself.

The list will help you determine what you really understand about your business.

You’ll have the answers to some questions; others will leave you stumped. Those are the ones to concentrate on.

Information is Power

If you’re like most business owners, you’re not a huge fan of accounting and aren’t involved in the process. You don’t need to be. What you do need is to have the right information to manage the growth of your business.

The dilemma however is most bookkeepers and many accountants do not know what information you need to get the most out of your business.

Information is power, not on its own merit but because of what you can do with it. Your first step in profit improvement is to understand what you don’t understand about your business. Once that’s accomplished you can move on to getting the information you need and then putting that information to work for you.

Improving your business is a journey, not a destination. Look at the answers you do not have as an opportunity for future success and achieving the results you desire and deserve.

Good luck!

Start growing your profits today!

Do you truly know your company’s current profit levels?
Does your company have any significant or distinct profit centers or business segments that impact your bottom line differently?
Do you set financial targets for sales, cost of goods sold, expenses and income and cash flow for the year?
Does your company sell different products or services with different gross margins?
Do you know the amount of sales contributed by each of your products or services?
Do you understand the profit levels contributed by each of your products or services?
Do you know the amount of sales contributed by each of your customers?
Do you know the amount of profits that are contributed by each of your customers?
Can you rank your customers in terms of the profitability generated?
Do you know which of your customers are in the top 10 in terms of profit generated?
Can you identify your top 10 most profitable products or services?
Have you considered charging different prices to different customers for your products or services?
Do you actively choose to avoid doing business with potential customers likely to be less profitable than your current customers?
Do you eliminate non-profitable products or services annually?
Do you understand the impact of price change on your profitability?
Do you know what your company’s average transaction value is?
Do you know what the average transaction value is of each of your company’s major business segments?
Do you know how many jobs or transactions your company processes on an annual basis?
Do you understand the impact increasing your gross margin will have on your profitability?
Do you understand the impact increasing your sales volume will have on your profitability?
Do you know how many customers your business serves each year?
Do you know—on average—how often each of your customers buys from you on an annual basis?
Do you know the impact increasing your average transaction value will have on your bottom line?
Do you know the impact increasing the frequency in which each customer buys will have on your bottom line?
Can you identify any products or services you provide that you should drop or, alternatively, promote?
Can you identify any specific business segments or specific profit centers within your business you should either drop or promote?
Do you know how your business can attract more customers?
Do you understand how your business could raise its prices without losing a significant number of customers?
Do you know what your customers think about your business?
Do you know what your employees think about your business?
Do you have the right people in place doing the right things to increase the profitability of your business?
Do you understand what your existing overhead levels are?
Do you understand which of your overheads are fixed in nature and which vary with sales volumes?
Do you understand the impact of cost increases or decreases on your profitability?
Can you identify any areas or opportunities for cost reduction that will not adversely impact the efficiency of your business?
Do you understand how the activities you are best at doing truly affect the profitability of your business?
Do you know the specific activities your business needs to implement to achieve its desired profit levels?
Do you truly understand how your business is different from that of your competitors?
Do you know how much money it will take to grow the profits of your business to your desired level, and do you have access to this capital?
Does your business have a way of decreasing the amount it pays for its inventory?
Are you currently able to take advantage of all available supplier discounts?
Do you understand the impact of carrying inventory on your company’s cash balances?
Do you know what your inventory turns are and the impact these have on your cash flow?
Does your business have alternate suppliers for its products or services?
If you carry inventory or work-in-progress, do you account for these costs accurately throughout the year?
If you carry inventory or work-in-progress, do you account for these costs accurately at your year-end?
Do you spend more time planning for the growth of your business or more time putting out day-to-day fires?
Do you understand how being more effective and efficient in your business could increase your bottom line?
Have you taken the time to write down your business goals for the next 12 months, 3 years, and 5 years?
Do you know what your accounts receivable turns are and the impact these have on your cash flow?
Does your company have a written marketing plan?
Do you set key performance indicators and track them on an ongoing basis?
Do you have a written action plan that you must implement to achieve your goals?
Do you have a clearly articulated vision for your business?
Do you understand the relationship between the profitability of your business and the ultimate value of your business?
Do you believe in planning the future of your business?
Are you getting the needed information from your accounting or management system to properly manage the growth of your profitability?
Can you identify specific opportunities or strategies for growing your business?