“The concept of profitability is one of the most overwhelming, frustrating, and confusing topics that faces entrepreneurs.”
Welcome to the Expensive Advice podcast. Adam Rundle, the podcast host, is founder and owner of ABR Consulting, a strategic advisory firm focused on helping service-based entrepreneurs measure, predict, and grow profitability in their businesses.
Adam and his firm have had the opportunity to work with the full range of businesses, from startup ventures to multi-million dollar agencies. If you are a coach, consultant, creator, influencer, entrepreneur, or business owner who is looking to add value to clients and dive deep into the inner workings of profitability, you have come to the right place.
Each week, Adam will be discussing topics and intentionally creating conversations to help you more fully understand the technicalities of how businesses work financially. You can expect to hear stories from entrepreneurs and learn what drives some of the most successful businesses in the world.
“We may know what profitability is, and why it’s important, but unless we understand what drives it, we will never be able to make the decisions to actually drive profitability.” (2:28)
When discussing business finances, and profitability, there are so many factors that seem elusive and immensely frustrating. Payroll. Overhead. Cashflow. How much we pay ourselves. Do you feel your anxiety rising? In the realm of business and finances, knowledge really is power. If you want to equip your business for profitability, a future measure of business success, growing in your understanding of finance is key. Let’s start with profitability.
What is profitability?
Too often, accountants try to complicate profitability. Simply put, profitability is the measure of efficiency for our business. It is a future-focused measure, to determine the trajectory of the financial aspect of our business. In order to create a successful, sustainable business we need to ensure that the output exceeds the input. This entails utilizing a Profit and Loss Statement to break down how efficiently our business works.
Profitability: Income - Expenses = Efficiency.
Why is profitability so important? Profitability is a future measure of business success. Bottom line, if your input is greater than your output, you WILL run out of money. This may feel like common sense, but there are businesses around the world closing because they have failed to take this into account. There are a million different factors that greatly affect profitability. However, our ability to pay ourselves and the cash we have on hand are two of the most significant.
What drives profitability? When analyzing profitability, this is the most important aspect to understand. We can know what profitability is, and why it is important, but understanding the drivers of profitability will give the focus needed to lead to profitability.
Four Key Drivers of Profitability
Marketing. Without revenue, we cannot be efficient. Unless we can successfully get people to consistently give us money, we will not succeed in our business.
Labor. Without labor, we have no way to fulfill the promises we are making to our clients. Building a long-term scalable business is dependent on effective labor.
Overheads. The overheads are expenses that allow our business to operate efficiently.
How we pay ourselves and factor in taxes. Both of these drivers are fundamentally important to profitability in your business.
“Profitability is the mechanism that enables us to actually pay ourselves a proper salary while ensuring that our business succeeds long term.” (8:42)
None of us started a business to simply ‘not fail.’ The desire was to pursue a passion, a dream, a big idea, and find great success. Have you found yourself settling for less than your potential? Are you paying yourself what you’re worth? Are you running a profitable business? Are you ready to dig deep into the inner workings of your business, gain a greater understanding of finance, and move your business forward? It’s time to take things to the next level. Let the Expensive Advice podcast help.
Some Topics we talk about in this episode:
Introduction - 0:00
What is Profitability - 2:52
Why is Profitability So Important? - 5:58
What Drives Profitability? - 13:20
Wrap-up and Takeaways - 20:02
How to get involved
If you would like more information about ABR, and the success businesses have gained through their work with the firm, visit their website.
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