There are two ways to creating a profitable business.
- Choose your own path after trial and error.
- Follow the footprints of those who have been there.
The second approach seems more reasonable and is generally known as the best practice approach. The idea is to choose the best-proven practices and follow them to turn your business into a profitable and successful entity.
The rule is simple.
If you wish to have a profitable business, develop the habits of a highly profitable business.
Here are some of them.
They forecast and plan
The profitable businesses have the habit of forecasting and planning ahead of time. They adopt a proactive approach to business, marketing, and pretty much everything they do.
The reactive approach seems to be more business and accounting-friendly and it is less risky because you get ample time to react to the situation.
The proactive approach, on the other hand, is riskier because you do not have enough numbers and time to support your decision. You just have to do it.
You have to scan external environment for micro and macro changes and must develop a plan for all the changes. If something is expected to happen in another part of the world (that may impact your business), you should plan for it today.
To be proactive, you must keep a close eye on everything including your competitors, politics, laws, macro factors, and more.
Profitable businesses have this habit of diversifying everything ranging from bank accounts to products to investment and more. For example, instead of creating one big blog, some create mini niche blogs.
They also look for business ideas that require a low investment.
They never put their eggs in a single basket.
For example, they will create different bank accounts. One for salaries, one for expenses, and a separate account for taxes.
Similarly, they invest their savings in different ways instead of putting all the money in a single stock. Same goes true for everything else.
Diversification is crucial for two main reasons.
- It keeps things transparent.
- It reduces risk.
Imagine having your money invested in a single product development and it turns out to be a failure. What if the product is rejected by your target market?
They create and reward teams
Businesses cannot exist in isolation. You need a team to support you and your business.
You cannot manage your business single-handedly for too long.
If you look at the successful businesses, they invest money in human resource. They spend money on building teams (no matter how small). They don’t hesitate to a pay high salary to experienced employees. They do not hesitate to fire bad hires. As soon as they realize that they have hired a wrong person who is a mismatch, they will fire him immediately.
Do you have these habits when it comes to hiring and firing?
Most of the small businesses do not have the courage to make decisions quickly. Instead of firing inappropriate employees, they train them, and drag them for a few months in a hope that they will eventually start performing.
On the same note, they hesitate paying a high salary to the best candidates.
You should build a strong team with the right skillset and experience. Pay them well. Get rid of the people who you do not need.
Above all, be quick with human resource decisions. You are not dealing here with machines, you deal with people and delays can be suicidal. You might lose a perfect candidate just because you prolonged the selection process.
Once you have created a winning team, retain it. Reward your team. Empower them.
They are not afraid of taking risks
You cannot do business without risk.
The only difference between profitable and non-profitable businesses is that former take risk while later refrain from taking risks.
Every wrong decision is a new learning.
Though you should try minimizing risks but there comes a time when your business has to take critical risky decisions. That is the decisive moment.
Will you prefer investing in a new technology that is expected to take the world by storm in near future or will you step back and let the first movers jump to it and based on the results, you will decide to invest in it?
The rule is simple, you cannot learn without taking the risk.
You cannot earn without taking risks.
They monitor the numbers every month
Profitable businesses monitor their financial statements, objectives, and reports at least once a month. Some businesses do it weekly.
Since they plan proactively, therefore, they monitor their business closely to monitor the difference between what they forecasted and what actually happened.
There are several benefits of constantly monitoring financial statements and plan of action on regular intervals.
- You can take corrective measures on time before things get out of control.
- It gives you a nice idea of where the business is moving and how well (or poor) the progress is.
- You know how much cash you have in hand, what are the expected cash outflows and inflows for the next month. This helps a lot of planning.
- Above all, it helps identify loopholes and mistakes that have been made in forecasting and planning.
They say No
Successful businesses have the courage to say ‘No’ even to their customers.
There are times when you have to decline a customer order or when you have decline a partnership offer because you know that it is not in the good interest of your business. Businesses, just like people, hesitate to say no.
But to be a profitable and successful business, you should clearly but politely say no where it is necessary.
Be open. Be honest. Say whatever you have to including no.
Developing these habits of profitable businesses is not easy. It will not happen overnight. These are business-wide habits that must be incorporated into the business culture and must be communicated to your entire team.
It will need time.