Mathematically this formula is the same one we use for GAAP accounting with a little spin. What you may normally see is Sales – Expenses = Profit but throw algebra at it and you come up with the same thing:
Sales – Profit = Expenses
This one simple and remember, mathematically sound bit of manipulation can make all the difference to your business. The reason is the subject of much speculation but the prevailing theory is that looking at your business equation in this way places profit as a higher priority at the subconscious level.
In short: You Get What You Measure
At some point in grad school, I heard a lecture about price controlled economies. Hang in there, it gets better.
It stuck with me because the lecturer described the chaos of elaborate chandeliers crashing to the ground in the ballrooms of the old Soviet Union. I try not to laugh because people could have gotten hurt but I hate the Anna Karenina so much that it makes me chuckle a bit to see the astonished purl clutching OH MY of a chandelier crashing to the marble floor in some posh Russian ballroom. I don’t know what that looks like so maybe the ballrooms of Gone With The Wind.
Investigators determined that chandelier prices were based on the weight of the final product. The builders were doing everything they could to game the system and ended up with chandeliers so heavy that the support beams coun’t support the weight. Some of these things were filled with concrete from what I remember of the story.
Also I do not 100% know if this story is true. I have not verified it but I remember it and now you probably will too.
You get what you measure right?
They measured weight so they ended up with a product that had a lot of weight.
If you start out by measuring profit, you naturally place a higher importance on it and you start to get profit.
This isn’t some “losing is a disease” locker room speech from the Natural, this is something that I have seen work in my own business as well as those of my clients. As a Certified Profit First Professional, I have a network of other accountants who have the same experience as I do. Swing over to Amazon or the book buying site of your choice and read the reviews on the Profit First series of books.
If you want me to send you a couple of chapters to check it out, just let me know. This is all risk free. If you’re willing to put in a little work to set up my system, there are some experiments you can do just to test things out.
I don’t mean to apply undo pressure on you but as a Small Business Owner, you are the backbone of the US Economy. You staying in business and even turning higher profits benefits everyone.
The good news is that you don’t have to go it alone.