I can tell you’re conflicted about reading further. But, if you are continuing to read this blog, I am going to assume that your business is poised for growth and you want to explore some “what-ifs.” Let’s get started!
Many business owners that are living through their business’ adolescence find themselves wondering “what if we did this…I wonder how that would impact our profitability?” Then they remember something that requires their attention and they forget about their question until it comes up again, days or weeks later. When this happens enough times, the business owner finds herself a year down the road, no closer to her answers and busier still.
How do you fix this broken cycle? You work through your questions and find the answers you need to either decide to move forward with your plans or move past them. But what if you don’t have the experience preparing projections and forecasts? You’re in the right place!
One of our favorite parts of a Grow Up Consulting engagement is the Profit Projection exercise. It’s one of the more revelatory exercises we undertake in the engagement. Here is a summary of how it works:
• We take your current financial statements and calculate the gross revenue, cost of goods sold (if applicable), gross profit, and fixed expenses. With those figures, we have a good picture of your net operating income.
• Next, we calculate the “what-if” section. Is it more revenue, is it a reduction in costs, or a reduction in fixed expenses? We then calculate the incremental change in net operating income.
• Lastly, we add the current position to the “what-if” and then show you the resulting impact to the P&L.
It's such a monumentally important exercise, and while it sounds simple in this blog, it’s complicated enough to keep business owners from doing it on a regular basis when they have questions about a change to their business. We can help with the complications and information-gathering, then show you a simply designed spreadsheet detailing the impact of your proposed idea.
No one has a crystal ball and no one can precisely predict the future. But entrepreneurs don’t need parlor tricks and Magic Eight Balls. They need actionable data, and this Profit Projection exercise provides just that. If you’re frustrated with your status-quo, or if you’re just curious about whether your idea to increase your profitability can work, our Grow-Up Consulting engagement could be the nudge you need to move forward.