Profit Mastery is something every business owner should understand

Business was a little slow this month, so I took advantage of the extra time to take a class I’ve been wanting to take for a couple of years now – Profit Mastery – offered by the University of Alaska’s Small Business Development Center. The class was developed by Steve LeFever of Business Resource Services in Seattle.

If you are a business owner, manager, banker or anyone who has a say in the finances of a business, small or large – you need to take this class. I can’t believe that even the most savvy finance gurus wouldn’t get a lot out of this class. It’s a combination of videos, hands-on calculating and reading in your workbook and some discussion packed into four – 3 ½ hour classes. Your head will be spinning before it’s over – but wow is it worth it. I’m still digesting all that I’ve learned and can’t wait to start applying my newly-acquired financial management skills to my business.

Here are some of the most important things I learned:

• Seven of 10 businesses fail in the first five years.

• Most business owners and employees believe that if a business is not successful, all it needs to do is increase sales and profitability will go up. Not true. As sales increase, cash often goes down, not up.

• Every business owner should know their yearly fixed and variable costs, contribution margin percentage and “break even” point. Without these, you can’t set profit goals Think of profit as a fixed cost.

• Know how to do financial gap analysis so that you can understand the costs and related consequences of growth. Make sure the financial house is in order now so that as you grow, decreasing efficiencies will have a lower negative financial impact.

• Don’t borrow if you can’t pay it back.

• A business is typically worth what it can raise in cash flow.

• Every business needs a transition plan (this one hurt-I hadn’t given much thought to this).

Some of the main things you’ll learn in this class are how to use financial statements as management tools for your business; how to implement effective costing and pricing strategies; understanding, predicting and controlling patterns of cash flow; effectively managing growth; and, dealing successfully with a bank-if your business model requires a loan. I know, most of us don’t even want to think about this stuff. Math can be scary. When it comes to business ownership, for some reason we convince ourselves it’s better not to know.

But get this — 80 percent of the people running businesses today do not understand the general principles of profit mastery. If they did, just think how many more successful businesses there would be-and the impact that would have on our economy.