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You’re limiting your profit potential and you don’t even know it.

Our clients didn’t trade their good jobs for entrepreneurship to simply take home a paycheque.  Not only do they want the freedom that comes with being your own boss, but they also are building an asset.

If you can relate, here are 5 ways you could be restricting your profitability:

1. Not matching Capacity with Revenue

Do you know how much revenue you should be doing on a monthly basis given your team size?  Too few firms take the time to calculate their capacity. In order to maximize your profits, your minimum revenue must be at or above your capacity. If you’re unsure how to calculate your capacity, send me an email and I will do it for you. 

2. Understanding Your Performance vs. Drivers of Profitability 

When was the last time you discussed staff cost ratios, revenue/headcount, overhead cost ratios and value pricing with your accountant?

*Cue blank stare. I thought so. 

3. You’re Not Pricing

Too many firms are still costing, vs. pricing. The difference here is that costing considers only the expenses incurred to deliver your service/product. Pricing, on the other hand, focuses on what your customer is willing to pay for your service/product. 

Until you start introducing some pricing into the mix, you are not maximizing your potential. 

4. Cash Accounting 

Cash accounting, recognizes revenue and expenses only when money changes hands. The pitfall here, is that cash accounting fails to recognize revenue when it is earned or expenses when they’re incurred, but not paid. 

What’s the risk? With cash accounting, you actually never have a true picture of your profit. For example, that pre-bill you just sent the client? NOT REVENUE. Actually, it’s a liability. 

5. Absence of a Growth Mindset

Promote the concept of “yet”.  We haven’t landed the $1M client, yet. We haven’t been engaged to work on a national project, yet. We haven’t lowered our economic dependence on our top client, yet. 

Carol Dweck has an excellent Ted Talk on this subject. I encourage you to check it out. 

Once you recognize the long term benefit of a growth mindset for your business, you will be quick to implement.

If your firm is guilty of any of these five practices (or lack thereof) it may be time to consider bringing in someone with a fresh perspective to review your financial practices. We can help with that!