Archive for the 'Profitability' Category

I’m a big fan of effective budgeting.  I don’t mean the old “use last year’s numbers and stick it in a drawer until next year” type of budgeting, but real world,  data based, flexible budgeting, the kind your entire profit plan is built around, the kind that, when done right and used effectively, would at least double and often triple the profit levels of most small businesses.  However, I find that many times people get tripped up on their marketing costs.

On one hand, marketing is an expense that needs to be controlled, just like all of your other expenses.  On the other hand, marketing is an investment, and the more you spend, the more you make.  Should your marketing costs be firmly budgeted, or should they be maximized for the greatest amount of sales in the shortest period of time?

I saw the new show Shark Tank the other night, and found it very interesting.  Inventors and entrepreneurs would approach the shark tank, a panel of five venture capitalists, and present their business plans, hoping to negotiate an offer from one of the sharks for the money they needed in exchange for a share of ownership in the company.

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.

Continued from Part 1, posted July 12:

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

It’s amazing how much things can change in a few short years.  Unemployment went from about 4% to over 10%, seemingly overnight.  Businesses are failing in record numbers, only to be replaced by new businesses, in record numbers.  Where people used to graduate from school, get a job, and plan on starting their own business in 5 to 10 years, surveys now show those same people are starting their businesses immediately upon graduation.  Many more people have lost their jobs, only to find a tight job market, with few openings and long lines of qualified applicants.  A lot of these folks have also started their own businesses.