I’m sure you’ve heard many times the old business adage, “Turnover is Vanity, Profit is Sanity, and of course, Cash is Reality.
Clearly running a successful professional advisory business is not just about profits. It’s about all those other things I and others write endlessly about, like delighted clients, committed, motivated and effective employees, having a compelling proposition and standing out in the marketplace.
But all that has to make economic sense. Profit is not a dirty word which is why it remains a surprise that so many advice businesses are still revenue focused. So, here are a few ideas to help you and others in your business focus on profit;
- Do you know where your profits come from? Not just the difference between revenue and expenses, but the key drivers of profit in your business like, new client acquisition, adviser productivity, client selection criteria. Many businesses cannot accurately determine their profitable clients, services and advisers. Can you?
- Don’t think value for money, think “Value for Time”. How much time does it take to produce a financial plan or prepare and deliver a high value client review. How much time do your client relationships require and is this reflected in the revenue each generates. Relationships may look profitable on paper, but unfortunately they are not done on paper, they are done in the real world. Are all your client relationships cost effective and profitable? Is it time to start saying “no” to some clients, new and existing?
- Involve staff . Do your people understand the impact they have on profitability. Do they understand the benefit of “right first time” and the high cost of rework. No need for them to have a Masters in Global Economics, but there are ways to help them understand the scale of your overheads, how much revenue is required each month just to stay open. Staff can be a great source of ideas to reduce waste (they often see it when you can’t), increase efficiency, improve/shorten processes, all of which will improve profitability.
A focus on profit is crucial for any business that is trying to be successful on purpose. And whilst “A business that makes nothing but money is a poor business” (Henry Ford), you do need to make some.