It was no surprise that over-valuations ran rampant, but what I was really glad to see was the care that the sharks took in determining the percent of ownership they would accept.  It was really quite simple.  If the shark thought the concept was profitable enough and the entrepreneur had a good grasp of the critical variables that need to be controlled for the business to succeed, then the shark would accept a 50% ownership share.  If the entrepreneur did not understand their critical variables, the sharks required at least 51% ownership before they would invest.  Obviously, they wanted the controlling interest to protect their investment from the entrepreneur they were partnering with.

In the worst cases, the entrepreneur was not only lacking insight into how their own business would function, but they vigorously defended their ignorance.  In these cases, there was no middle ground for the sharks.  They either wanted nothing to do with the business, or, if the concept had enough value, they would offer to buy 100%, take it or leave it.

So, if you went in front of the shark tank today, with your current business, how would you fare?  Would the sharks be comfortable investing in your business with you calling all the shots?

Maybe they would, maybe not.  If not, it’s because you’re missing some key components that are critical to your level of profitability.  If it’s not good enough for the sharks, don’t let it be good enough for you.

Use these simple steps to gain control of the profits in your business:

1. Identify the critical variables in your business
2. Implement a system to measure those variables
3. Track those measurements
4. Use that information in your decision making

I was affected by this recession just like everyone else.  I experienced reduced sales, reduced income, evaporating profits, higher debt ratios and business losses.  In one case, the losses were enough that I chose to close one of my businesses.  These are not the sort of things I enjoy.

Most mornings I get outside, before the heat gets too intense, to excercise and meditate.  As a regular part of this ritual, I spend some time deliberately focusing on things that I’m grateful for.  Usually its things like my wife, my family, my health, the resources available to me, the friends and mentors in my life, my success, my business.  This morning, as I was going through these things in my mind, really feeling the gratitude growing inside, I started thinking about the recession.  I don’t know where it came from, but as I started thinking about all of the positive outcomes I’ve seen as a result of this recession, I realized there was quite a bit to be grateful for.  Here’s how I started my list.  What am I missing, and what would you add to this list?

I’m Grateful for this Recession because…

1. it prompted me to re-evaluate my priorities, giving me a clearer sense of which things are most important in my life, and helped me to re-focus on those areas.
2. it forced me to look for new opportunities in new places, opportunities I would never have seen otherwise.
3. it gave me a greater appreciation for what I have achieved.
4. it made the weaknesses in my businesses quite apparent, so I could address them.
5. it provided the stimulus I needed to learn and grow in areas where I had become complacent.
6. it reduced the competition in the marketplace, providing greater opportunity than before.

“Every adversity, every failure, every heartache carries with it the seed of an equal or greater benefit.” ~ Napolean Hill

4) I Know Everything I Need by Looking at my Bank Account Balance

It’s amazing how many times I’ve heard this!  Sure, your bank account balance is important, but you can’t manage your business effectively without additional information.  If your balance is getting higher, does that mean you’re more profitable?  Maybe it just means more of your bills are going unpaid, or you’re collecting on more of your past due receivables.  Maybe it’s just a reflection of better payment terms extended from some of your bigger suppliers, or maybe a vendor misplaced a large check you wrote, and you’ll be in deep trouble when they find it and cash it.  A declining bank balance could mean declining sales, but could happen just as easily during strong growth, when you’re spending more on materials to meet increasing demand.  The bottom line is that the bank balance by itself means very little.  To make effective decisions, it must be considered in conjunction with the changes shown in your other assets, liabilities, sales, and projected cash flows at a minimum.  Spend some time getting to know your balance sheet – it’s got your bank balance on it, as well as information on all of your other assets and liabilities.  Once you get comfortable with it, you’ll find it’s twenty times more helpful than your bank balance alone.

5) Watch All My Expenses, I Don’t Need a Budget

When it comes to budgeting, there are only two types of business executives.  One type uses self-adjusting budgets and regular budget variance reports to manage profits at a peak level, and the other type doesn’t understand exactly what this type of budgeting is or what it can do for your bottom line.  Which type are you?

6)      I Can Fix Anything By Increasing My Sales

This is the BIG ONE.  It incorrectly assumes that all sales are profitable, and that all financial problems are related to income.  Think about this for a minute: In the US, most people that win a lottery are broke before they win, and they’re even more broke after they win!  If being broke was an income problem, then the additional income provided by winning the lottery would fix the problem, but it never does.

Don’t get me wrong, increasing sales is usually a great thing.  But if your sales are driving revenue to increase by 20% per year, and your costs are increasing by 40% per year, you’re on the fast track to financial disaster.  Increasing sales will not help production issues, quality control problems, logistical errors, customer satisfaction issues, or a host of other problems, and in most cases, increasing your sales will make these problems worse.

Don’t put the cart before the horse.  As long as you have a reasonable level of sales (maybe not enough to reach your current break-even point, but enough to reach a reasonable break-even point) you need to work on your profitability first.   It’s a lot easier, and less expensive, to do this now and increase sales later than the other way around.

Link to part 1 of this post