When a crisis hits your business it is time to pull things together and not panic. It is time to institute a business management system called Profit First. During normal times, Profit First makes profit a habit in your business and not a possibility. During a business crisis, Profit First can take you from mere survival to profit through diligent cash flow management and budgeting.
Successful business crisis management requires that you understand the stages of a crisis and respond appropriately. The first thing is to avoid a flight or fight panic response. A smart business owner will take the time to analyze the key issues in the crisis and address each in turn. When a crisis hits your business, sales fall and take profits with them. You may be forced to lay off employees, which may hurt your business efficiency or may end up eliminating hidden costs! Using the Profit First system can help you get through the crisis and on your way to a successful recovery.
Profit First starts by changing the age-old bookkeeping formula. We are taught to look at revenue, subtract expenses, and then count our profit. The weakness in this approach is that we tend to believe that profit may or may not happen and that expenses are inevitable. Profit First rewrites the generally accepted accounting formula to say that revenue minus profit equals expense. You know what your income is and you set an amount of profit to take. The difference is expense. Profit First makes you look closely at your expenses, budgeting, and cash flow.
In the middle of the 20th Century, a British civil servant observed that work to be done tends to expand until it occupies all allotted time. A later observation was that the cost of a project tends to grow until it takes up all budgeted money (or more). Mr. Parkinson’s observation came to be known as Parkinson’s Law and is the bane of many an otherwise successful business. Using the Profit First system a small business does not simply accept Parkinson’s Law as inevitable. Rather the business makes profit inevitable and goes after the hidden costs that so often hurt small businesses.
During normal times Profit First will help your small business and during a business crisis, Profit First is essential. The Profit First system demands that you deposit money into profit, tax, and current accounts twice a month. By doing this it forces you to adjust expenses before they eat up your now-reduced profits during a crisis.
At Exigo Business Solutions we teach our clients how to employ the Profit First system to maximize profits during good times and secure profits when business slows down. This system leads to a business that is better organized, more cost-efficient, and more profitable. If you would like to know more about how Profit First can help your business and especially how it can help with survival during a business crisis, contact us today.