There’s a growing trend in businesses in Australia towards business mentoring. The governments are behind this trend with most states now providing a free business mentoring service, so why would a business consider using a business mentor?
A business mentor is someone who has been where you, the owner is right now. They understand how hard it is to grow a business with constant challenges; such as…
- Lack of time
- Employee issues
- Managing marketing
- Government compliance
A business mentor saves hundreds of hours on the learning curve of growing your business.
How a Business Mentor Can Help Grow Your Business?
A business mentor is typically strong on finances. They understand how to read a Profit and Loss Statement and how to make it more user friendly to understand by reviewing what is important to be in Cost of Sales.
Knowing your margins – i.e. the gross margin and operating profit margin is smart business practices.
Businesses don’t struggle from a lack of revenue, they struggle due to high expenses and a low operating profit margin. When a business has a revenue of $1,000,000 if it has $0 operating profit it will have struggle with cash flow. If a different business with the same revenue has an operating profit of $200,000 it won’t.
Increasing profit margins is where business know-how makes a big difference and that’s where a business mentor can assist business owners.
How efficient a business carries out work is can be seen through its profit margins. ROI or Return On Investment is a way of determining efficiency too. If your business spends $10,000 on advertising but only generates $50,000 in new sales from it then it’s not very efficient. If that $10,000 generated $100,000 or $200,000+ in sales then it is very efficient.
One opportunity available in every business that unlocks hidden profits is measuring. By measuring many different functions of a business obvious ways to improve it are revealed. One example is to track the sources of all inquiries to a business. If they are by phone, ask every caller how they found your business – if they haven’t purchased from it previously. If its by a web form, ask how they found your business by reply email or when phoning them.
When the information is collated then the number of inquiries for the week can reveal interesting and valuable insights into what’s working and what’s not with your marketing and promotions.
A lot of businesses invest in social media posting, which can generate likes and comments, but how many leads are they creating is more important.
Measuring to Increase Margins
Another area of business to introduce measuring is employee tasks, especially in service businesses.
In a service business, an employee is a Cost of Sale as their time and know-how is being sold. Considering the wage cost of a sale and subtracting it can then determine the gross profit. This can be measured with and without any material cost to identify two gross margins. Then the gross margin for each employee and each job can be determined.
In every business, there are variations to the gross margin. Ideally, you want to know what the gross margin is on every sale and then look hard at the low gross margin sales. Ideally you want to increase prices and lower costs of the sale on these sales/jobs. Increasing the gross margins on low margin sales will increase the overall average figure.
Next, when you’ve measured all gross margins look at the high gross margin sales. With these, you want to increase the volume of sales for these and that too will increase the average gross margin in your business.
An increase of 5% on the gross margin flows through to an increase of 5% on the operating profit margin. That may not seem much, but on a $1,000,000 revenue business it equates to $50,000 more in bottom-line, operating or net profit, which is substantial – especially as a pay rise to you, the business owner if you look at it that way.
Measuring is the secret to improvements as it reveals and makes obvious what action needs to be taken. It’s not uncommon to see big losses on sales/jobs when measuring is introduced.
A simple way of determing if a sale or job has made a profit or loss is to look at the expenses on a yearly Profit and Loss Statement and divide the figure into the revenue to determine it as a percentage.
If the revenue was $1,000,000 and the expenses were $600,000 then that would be 60% of the revenue.
If the business had an operating profit of 10% then the gross margin needs to be 70% to maintain that 10% figure.
The gross edge is the rate figure after Cost of Sales. So if the Cost of Sales in this example was $300,000 then the Gross Profit would be $700,000 and therefore 70% of revenue.
By identifying your Gross Margin, Expenses as a percentage and Operating Profit Margin you can now determine if every sale ‘made you money’ or lost you money, by looking at the gross margin on it.
Measuring is a key ingredient of effective management and an area where a good business mentor can greater assist. A lot of businesses generate activity reports from their marketing or jobs or projects however there’s the skill of knowing how to interpret the reports to understand what they are saying where getting some assistance is a wise move. That’s where a business mentor can assist and find ways to increase your business’ profit margins.
Increasing profit margins frees up cash and is like accessing free money that is dormant in your business. When a business mentor achieves this it has cost the business nothing as the margin increase also increases operating profit to pay for the mentor’s costs. That’s a win-win-win outcome for you, the business and the mentor.
You can easily find a good business mentor just by searching for ‘business mentor’ in Google. It’s worth considering if you want to take a shortcut to your success in business.