Do you have a way to determine how successful your business is, or are you just happy if you turn a profit? Don’t get me wrong, turning a profit is crucial, but most business owners work too hard to settle for just a meager profit.
Early in my career, I was fortunate to have mentors who taught me that a small percentage of businesses have double-digit profits while most have profits in the low single-digit range, and there were things you could do to get above-average profits.
The business I sold in February of this year went for a premium price because the profits were significantly greater than our peer group. How was that achieved? It wasn’t dumb luck. One of the biggest reasons was that we measured several key metrics and then compared ourselves to the best in the business. How do you get that data? Well, if you belong to one or more trade groups for your industry, most of them publish a cost of doing business study every year. Each year when we got the results, we would compare our results to similar companies and then try to figure out why some did better than us in certain categories.
When we dug into the numbers, we would usually find areas for improvement that had previously been overlooked. We would then look at what we could do to improve our performance in those areas. We were never perfect in every area, but we generally outperformed our competition in most of the metrics we tracked.
Before I sold our company, I spent more time than I would like to admit helping our credit department collect past-due receivables. I found that the real reason many companies paid us late was they weren’t good businesspeople and robbed Peter to pay Paul. They weren’t making much, if any, profit so once they got cut off by us, they would start buying from one of my competitors, until they were cut off by all of my competition and paid me instead of one of my competitors so that they could get materials.
Most business owners have most or all of their net worth tied up in their businesses, and if their business fails, they can lose everything, including their home. This is a tragic outcome I have seen happen too many times. If you are a business owner, you need to become a student of how to run a profitable business because if your business fails, the ramifications will haunt you the rest of your life.
Jim Sobeck is a Greenville-based serial entrepreneur. He most recently was CEO of New South Construction Supply, a distributor of building products he grew from four locations to 11 locations before selling it in February 2023. He is also the author of “The Real Business 101: Lessons From the Trenches,” available on Amazon. He can be reached at jrsobeck@gmail.com.
