“If you don’t know where you are going, you could wind up somewhere else.” Yogi Berra It is one thing to wish everyone a happy and prosperous new year, but quite another to leave the prosperity of your business to well-wishing. It is time to plan. Yes the fortunes of luck do exist-but you don’t have any control over the behavior of “Lady Luck.” So that leaves you and your ability to sense the future and grasp those opportunities that show up at your doorstep. In corporate management jargon, we call it “profit planning.” If this past year was profitable-great! But how profitable, could you have made more money? Are you getting the most out of your time and investment? Check it out; go to your bottom line and compare your profits to your competition. If you haven’t a clue about the earnings of your competition, ask the accounting firm that files your tax returns, they may be able to advise you. If they do not know what the average net for your industry is, ask them to find out with a few phone calls-to fellow professionals or the CPA Institute. You will find the information a scorecard of your performance. If the average is 10 percent and you are making less-you have some work to do. If you find out that you net profit rate is higher than the opposition- congratulations, and keep it up. On the other hand, if you are losing money- now is the time to take stock in the way you run your business. You need to look at your profit-making skills. It is easy to fall into the trap of compliancy and the willingness to accept mediocre results assuming there is little you can do about the situation, but if the fire of success is still burning within you and you are determined to build a better business- unwilling to give up your dreams of castles-use the opportunity of a new year to rethink your methods. Start by copying your most recent income statement to a spread sheet. If you don’t know how, have your accountant, a friend –anyone you trust who is knowledgeable, show you how to insert the date on any one of the computer spreadsheets such as Excel. The beauty of electronic spreadsheets is that with programmed formulas (addition, subtraction, multiplication); you can make changes to such items as sales, expenses, or price levels, and immediately see the effect to your bottom line. It is a wonderful management tool to play “ what if.” For example, what happens if you spend x dollars on advertising to your year end profit? What happens if sales drop by 5 percent? What is the impact of leasing that new truck? When you know the effect of your actions you are a better entrepreneur. As you know, your income statement has three parts; sales, the cost of the service or product you are selling, and your expenses to keep the door open and feed your family. Any change to these components (gross sales- cost of sales- expenses) increases or deceases your bottom line. A spreadsheet can raise havoc with fantasy or wishful thinking about the future of your business. It forces you to look at reality. With that said, and assuming you are unhappy with your profits or losses-start your experiment by increasing your gross sales. If you push up your sales volume by 10 percent (increase your cost of goods by the same percentage), what is the impact on your net profit? Or what will a boost to your gross profit do for you? Find out- increase gross sales-without a change to your cost of goods- your gross profit will increase- pure profit! By the same token, every time you offer special price discounts to boost business you shrink your gross profit. Are you aware that with a gross profit of 50 percent, and you offer a 25 percent discount you must double your sales to earn the same net profit. If you can’t increase sales and you can’t increase your prices – cut expenses. Before you cry foul and put a stake in the ground saying there is no way to cut- thing again. Take out the past five years statements- have expenses grown faster that sales? If so where does the growth come from? What good is growing your business, if the increase in sales goes to support more expenses and little left for you? Expenses have a way of growing in an insidious manner. So insidious that without a constant study of your monthly income statements, you may not even notice the effect until your accountant presents you with your year-end statements. Using your spread sheet, plug in some changes-such as a cut in wages or any other expense-from postage to car leases- what is the effect to your bottom line? When you know how drastic you must pursue cuts in costs and expenses to get rid of the red ink-you can plan your actions. If what I am suggesting is a bit beyond you- get some help-call up your Chamber of Commerce and ask about SCORE- which offers free consulting help. Once you master getting your financial data on spread sheet you will wonder what you did without such a wonderful profit planning tool. Copyright 1999-2003 Paul E Adams Dr Paul E Adams, Professor Emeritus Business, Ramapo College of New Jersey & Retired Entrepreneur, Syndicated Columnist, Host of the access cable TV program "Tri -State Movers and Shakers," and Author of “Fail-Proof Your Business,” Available @ Amazon Dot Com. Comments, questions, or suggestions to: xpaul@pikeonline.net