How do you support such a large population? In Canada, the government provides services such as health care, education, infrastructure, and, very importantly, efficient tax collection.

In India, only 3% of the residents file personal tax returns, according to onemint.com. That presents a huge tax collection problem that results in there being very little money to fund education, health care, infrastructure or any thing else that a democratic government could be doing for its people.

In India, according to my employee, Dinesh Sharma, who has lived in Canada for almost three years, there are many subtle but important differences between Canada and India (besides the weather, he adds):

1. Indian’s pay for vehicle registration once. In Canada, we pay an annual license fee.
2. Indian’s pay property tax once, upon initial acquisition value. Canadian’s pay property taxes every year.
3. When the government sends water bills to the residents in India, the residents protest and the government cancels the bills. In Canada, no pay, no flow.
4. In India, people pay for electricity, like in Canada.
5. India’s residents pay to educate their children. In Canada, which has a superior education system, according to Dinesh, education up to and including high school, is free.
6. Health care is paid for by Indian residents. There is no free ride, like in Canada. If you are seriously ill and don’t have money, you “stay home and pray” or borrow money from lenders to pay for the hospital.

Dinesh loves his future in Canada because of the future for his kids, Diksha and Ishan.

Diksha and Ishan

Dinesh also feels that India’s challenges are mostly self-inflicted because many people just don’t want to pay taxes of any kind.

We all hope that the world’s largest democracy will make progress in becoming more self-sustaining and tax efficient.

As Canadians, perhaps we sometimes take things for granted, complain about government inefficiency and taxes, and grumble about our winters. Hopefully, next time to send your kids to school or visit someone in the hospital, you will appreciate our tax dollars being spent to improve our standard of living.

Copyright 2012. Phil Symchych. All rights reserved.

Where Is Your Gold?

This article will help you to identify your most profitable products, services, customers and employees.

Phil’s Profit Points™ in Brief:

• Your gold is the gross profits generated by your most profitable products, services, customers and employees.
• You can evaluate your gold by measuring the revenues — by type — against the direct expenses such as materials and direct labor, thus generating gross profit.
• The volume of gold is measured by the gross profit dollars and the gross margin percentage.
• Gross profit and gross margin are used interchangeably. I’ve attached ‘percentage’ to the gross margin to distinguish them. You can do whatever works for you.
• Converting your gold to cash means that you need to collect on the sale.

The Symco Gold Formula

Do you know where the gold is hiding in your own company?

Most accounting systems that I’ve seen, from Simply Accounting and QuickBooks to more robust applications like Sage’s Business Visions and QuickBooks Enterprise, which are the grown-up versions of the former, can be set up to report revenues and costs of sales by product and service line. This structure is created in your general ledger. You can export the information to a spreadsheet to analyze the data. The best business systems, like SAP Business One, can be set up to generate this information automatically. (Full disclosure, we recently implemented SAP Business One for our companies).

You know your general ledger is set up poorly if the only detailed revenue report that you can generate shows revenues on one line. Major revenue types should have their own account categories for both revenues and cost of sales so that you can create a gross profit analysis and discover which products and services are the best (and worst) performers.

Here is a weak structure, which I call “Level 1-Little League”:

Here is a good structure, which I call “Level 2-Semi-pros”:

Tip: you can also compare the vertical percentage of each column as a percentage of their sales.

Here is a great structure, which adds to the above information, and which I call “Level 3-The Professionals”:

Analyzing your customers by the framework in Level 3 will provide powerful information. A huge customer that takes forever to pay may be costing you money. Small customers that pay quickly might be your golden nuggets.

You can maximize your profits, the value of your business, and your personal wealth by analyzing your business using this framework and by making decisions that ensure that you are allocating your resources of time, people and money to your most profitable products, services, customers and employees.

Your accounting department should be able to create the Level 3 information for you in a couple of hours, depending on the existing structure. You’ll need to help them with the assumptions and allocations of overhead, employees and capital. You can do that in different ways.

The main point is to not constrain your management team to your existing accounting system or the information that your accountants prepare for you. If you ask for the “Level 3-The Pros” financial information from your accounting department, they should be able to build it for you.

Resources

See our video on Knowing Your Numbers here.

You can use the templates above as a quick checklist. Which ones do you receive each month? If you would like a complimentary assessment of your internal financial reports, call us at 1-306-569-9111.

Conclusion

Level 3-the Pros will provide very useful information for your entire management team. It’s powerful because it’s based on facts buried in your accounting and business data. You, literally, have gold hidden in your financial information.

Tough Question

Your best customers are probably subsidizing your worst customers. How do you (and they) feel about that?

From The Piggy Bank

Focusing on cash flow, which comes from margins and velocity and volume, will provide fuel to dramatically accelerate your profitable growth and business valuation.

Have a profitable week!

Phil Symchych, C.A., M.B.A., is the president of SYMCO & CO., author of Phil’s Profit Points^™, and owner, or part-owner, of four businesses.

Share the Wealth

If you find this information valuable, please feel free to forward it to a fellow entrepreneur, friend, customer, supplier, banker, advisor or business associate. We are improving entrepreneurs’ lives and strengthening our economies. Thanks!

You may subscribe and encourage others to subscribe by clicking here.

We are now on iTunes! Check out our podcast series called Phil’s Profit Points.

This week’s impetus: Pruning for Growth

My gardening experts tell me that we need to prune the flowers so that the strong ones can get enough sunlight and nutrients to grow. If there are too many plants in one area, none of them grow well.

What are the things that need pruning in your business or personal life that are using up or wasting resources that could be better served helping the best parts to grow even stronger?

Monday Minute: Focusing on quality first will help you to grow your business faster than focusing on quantity.

Privacy statement: Our subscriber list is never sold, rented or shared with any other party.

Contact information: info@symcoandco.com

http://www.businesssuccessforlife.com/

http://www.symcoandco.com/

Copyright 2012. Phil Symchych. All rights reserved.

Thanks for all the times you drove me to the rink and even watched me play or referee hockey games, even though you never liked hockey, or standing in cold rinks, or drinking bad coffee.

Thanks for all of the times that you and Dad drove Mark and me home in separate cars after I refereed one of his hockey games.

Thanks for letting us play hockey and football in the house when you weren’t home. Sorry about the bent lampshades and broken couch.

Thanks for making perogies, teaching my girls how to make perogies, and then making more perogies; because we could eat a couple of dozen at a time.

Thanks for teaching me how to run a business, by demonstrating how much you cared about each and every guest at Clear Lake Lodge.

Thanks for making our education a priority. I’m still thinking of getting my Ph.D. one of these days.

Thanks for all the sacrifices that you made so that we could have better lives.

We love you, Mom.

Mom goes to Disney World

Hope that you have a great Mother’s Day, Mom.

We are sending special Mother’s Day wishes to Granny, Aunt Leona, Aunt Norma, Auntie Laura, Auntie Colleen, Auntie Sheila, Babi, Baba and Didi.

Best wishes to all Mothers, Grandmothers, cool aunts and all of you who have played a comforting and encouraging role in someone’s life.

Copyright 2012. Phil Symchych. All rights reserved.

Well, if you have, here’s an improvement over the old way, from the Sheraton Hotels.

I wonder if they first came up with this idea on the back of a napkin?

Where do you come up with your best ideas? How do you capture them? How do you build them into something useful for your business or your customers?

Coming up with ideas is easy for some people. Implementing them, learning from your mistakes, and adjusting along the way is what creates value and wealth.

Copyright 2012. Phil Symchych. All rights reserved.

I Don’t Drive 55

This article will help you to accelerate your business growth.

Phil’s Profit Points™ in Brief:

• We can follow the speed limit and everyone else’s rules or we can create our own rules for business success.
• Our business speed depends on our purpose, our ability to drive our business, on our people that help drive it, and on the resources that keep it running.
• Processes can help us to automate many routine things so that we can increase speed, distance and performance.

The Symco Performance Plan

The song “I Don’t Drive 55″ by Sammy Hagar is one of my favorites because it’s about someone who recognizes the limitations of other’s rules. As an entrepreneur, you need to make your own rules, adapt some other good rules, and discard the ‘you should’ rules from people who have not been there and not done that (this includes family).

Most successful entrepreneurs that I know are strong, independent people who take action based on their knowledge, experience and faith in themselves to recognize and pursue an opportunity. There is no single rule book for entrepreneurial success; they created their own.

However, there are lots of people who will give us rules along the way; some are great and some aren’t. If you borrow money from a banker, there are necessary rules to follow to make sure that you use the money to grow your business. Some people don’t understand the bank’s requirements for regular financial reporting. This, in my opinion, is one of the bank’s best rules. Too often, an entrepreneur who is borrowing to fund growth has not had regular, detailed reporting before. Does your banker know more about your company’s financial performance than you do? They shouldn’t.

Now, let’s discuss the model: purpose, people, and process.

What’s the purpose of your business? If you can articulate how you help your customers to be more successful, this will attract more customers.

What kind of people do you need to help you to grow your business? Do you need people with a high attention to detail or who are comfortable with ambiguity and can troubleshoot problems under pressure? Knowing how people perform can help you to hire better people.

People who are positive and optimistic usually get more done. Optimistic people, according to Martin Seligman, are more productive than pessimists because they expect difficulties and are prepared to work through them. Pessimists, according to Seligman, throw in the towel and give up too early.

Enthusiasm is contagious. You can always train the technical details of your business; but it’s difficult (OK, impossible) to train enthusiasm. Any one who has raised kids knows that. Are your people open to new ideas and looking for ways to build on your ideas, or are they saying why things won’t work? Are your people more concerned about your business success or their own egos?

Process helps you to systematize 80% of your business so that you can humanize the remaining 20%. It’s about developing standards for performance so that everyone knows what is expected, what is accepted, and what is not. This makes training and managing much easier. One of the main reasons that franchises have more success than non-franchised businesses is because their systems and processes are documented, they usually measure everything, and managers get accurate information quickly so they can take corrective action. Even management and decision-making are processes that can be systematized.

Focusing on your purpose, your people and your processes can help you to grow your business. You won’t be constrained to someone else’s arbitrary 55 miles per hour speed limit. You’ll be able to set your own.

Resources

See our outline on the “Four Steps to Profitable Growth” here.

If you would like more information on how to accelerate your profits and growth, call 1-306-569-9111 for a complimentary consultation.

Tough Question

Can your people clearly articulate the purpose of your business, in three sentences or less? Are your people a good fit for your business purpose? And, do you have the processes to support them deliver on the purpose?

From The Piggy Bank

The first ski lesson that I told our kids was to “Always ski under control.” For entrepreneurs: “Always keep your business under control by managing your strategy, your people and your cash.”

Have a profitable week!

Phil Symchych, C.A., M.B.A., is the president of SYMCO & CO., author of Phil’s Profit Points^™, and owner, or part-owner, of four businesses.

Share the Wealth

If you find this information valuable, please feel free to forward it to a fellow entrepreneur, friend, customer, supplier, banker, advisor or business associate. We are improving entrepreneurs’ lives and strengthening our economies. Thanks!

You may subscribe and encourage others to subscribe by clicking here.

We are now on iTunes! Check out our podcast series called Phil’s Profit Points.

If you find a great opportunity, then the timing may not be right, or you have other priorities, or you don’t have the resources to pursue the opportunity.

If the stars are lining up and the timing is perfect to start that business that you’ve always wanted to, then do you have the opportunity? In other words, you may have capital and even courage, but do you have customers?

The opportunity is more important than the timing. Lots of companies have been scrambling to create their versions of a tablet, while Apple has recently released version three.

Create your own opportunity and take advantage of the lack of timing that faces everyone else, especially your customers and your competitors.

Copyright 2012. Phil Symchych. All rights reserved.

This week’s impetus: Spring Cleaning

When the migrating birds arrived back for spring, they were busy building new nests. The early ones took first claim to the vacant bird house on the fence. They cleaned some of the old contents and built up a new nest.

For our spring cleaning, we’ve cleaned out the basement. It’s amazing how much we can accumulate just because we have the space.

To complicate matters, we had some basement renovations last fall to float the walls. It may come as a shock to you but not all of the renovations were completed. Our contractor completed the walls and is finished with us but the job isn’t finished. The door trim isn’t reinstalled and two doors need to be rehung.

Apparently, the birds are more diligent than we are at getting the nest in order.

Monday Minute: It’s better to finish what we start than to start something new.

Privacy statement: Our subscriber list is never sold, rented or shared with any other party.

Contact information: info@symcoandco.com

http://www.businesssuccessforlife.com/

http://www.symcoandco.com/

Copyright 2012. Phil Symchych. All rights reserved.

Focus on Value

This article will help you to identify and communicate your most valuable business outcomes for your customers.

Phil’s Profit Points™ in Brief:

• We can all help our customers but we need to explain it from our customer’s perspective, not from our perspective.
• Our customers don’t care what we’re good at; they only care about their results.
• Customer results include financial, non-financial, business and personal results.
• Your marketing messages need to be aligned with the results that you generate.
• Focusing on results instead of inputs can maximize your prices and profits.

The purpose of your business is to create results and value for your customers. They probably don’t care how you do it, as long as you do it consistently, quickly and cost-effectively. However, there is an art and a science to analyzing those results. As you improve your understanding of the results that you deliver, in the language of your customers, you can enhance your marketing and improve your profits.

The Symco Value Matrix sets up the four factors: financial, non-financial, business and personal results, to help you analyze your value. It’s probably higher than you think.

Financial results include obvious things such as profit and cash flow. Less obvious but even more important factors include the specifics of cash flow:

• Margins — the profit on every transaction, job or sale.
• Velocity — the speed at which you collect cash, total days to cash, days of sales in receivables, days in accounts payable.
• Volumes — the specific production and sales quantities of discrete product/service lines to individual customers.

The faster that you collect your cash, the less you need to borrow and the higher your profits, EBITDA and business valuation will be.

Speed creates wealth.

Non-financial results are very important and include: market share, market awareness and accessibility, branding, customer relationships and loyalty, attracting and retaining talent, operational capacity and efficiency, policies and procedures, management strength, industry knowledge, company culture and everything else that doesn’t have a dollar sign attached to it.

Business results focus on the value that the company, as a distinct entity, receives. These are different than the personal results that your customer, as an individual, receives from doing business with you. Personal results include respect, titles, promotions, bonuses and other emotional benefits.

For example, if you provide industrial repair services to a large company, the following Symco Value Matrix^™ represents the potential results and value to your customers.

Resources

To assess your company’s strategy, use our assessment here.

If you would like more information on how to maximize the value to your customers so that you can increase your profits, call 1-306-569-9111 for a complimentary consultation.

Tough Question

What impact does the value matrix have on your marketing strategies, sales tactics, prices and profits?

From The Piggy Bank

Everyone in your company should be able to articulate customer value so that they understand the importance of what they do and why they do it.

Have a profitable week!

Phil Symchych, C.A., M.B.A., is the president of SYMCO & CO., author of Phil’s Profit Points^™, and owner, or part-owner, of four businesses.

Share the Wealth

If you find this information valuable, please feel free to forward it to a fellow entrepreneur, friend, customer, supplier, banker, advisor or business associate. We are improving entrepreneurs’ lives and strengthening our economies. Thanks!

You may subscribe and encourage others to subscribe by clicking here.

We are now on iTunes! Check out our podcast series called Phil’s Profit Points.

This week’s impetus: It’s Tax Time

Today is the deadline for filing and paying your taxes in Canada. Now, nobody likes paying taxes, but its unavoidable. The good news is that we live in a country that puts its tax dollars to good use. We have accessible health care, good education, most of the roads are in pretty good shape, and the majority of places in Canada are very safe.

In fact, Canada is one of the easiest and best places to start-up a business. In the U.S., many start-ups must fund a portion of their employees health care costs. Since start-ups don’t have extra capital, funding health care is sometimes not possible and this prevents the company from attracting and retaining great people.

Canadians should leverage their natural resources–which includes our courage, our health care and our tax-efficient systems–to start and build more companies. The more wealth we create, the more taxes we pay, and the better our lifestyle.

Monday Minute: “Paying taxes is better than not paying taxes because it proves that you made a profit.” Phil Symchych.

Privacy statement: Our subscriber list is never sold, rented or shared with any other party.

Contact information: info@symcoandco.com

http://www.businesssuccessforlife.com/

http://www.symcoandco.com/

Copyright 2012. Phil Symchych. All rights reserved.

Here is my advice on how to retain key people:

1. Leverage your strengths of a small business: family culture, flexible work environment, opportunities to learn the entire business, building relationships with customers and suppliers, making a difference in your community.
2. While you have unique advantages from being small and knowing everyone’s names, make sure that you run your business like a real company: clear strategy, measuring performance and results, plans and budgets, giving honest and effective feedback, and holding people accountable.
3. Build relationships with your employees so that you understand what makes them tick, how they learn, whether they perform well under pressure or need one goal at a time.
4. Be specific and ask for what you want.
5. Focus on speed and responsiveness in customer service. Compare yourself against the big companies and show your people how you’re better than the big guys. This will give them more confidence and help them sell more.
6. Give people real responsibility for results, for hiring, for spending money and for managing others.
7. With every pair of hands, you get a free brain and a free heart. Make sure you’re utilizing the entire person by getting them excited about your vision and caring about your customers.
8. Utilize your employees natural strengths for the benefit of your customers and your business.
9. Develop an organizational chart and make sure everyone respects the reporting structure.
10. As the owner, don’t meddle or contradict your managers. This destroys their credibility, confuses your employees and will cause long-term damage to your business potential.
11. Compensate people at or above average rates. Provide benefits and training. If you can’t afford to compensate at higher rates, fix your business model and increase your profits.
12. Compensate them, in part (ideally, at least 20% or more), based on results that align with your company strategy and overall business profits.
13. If you reward individual results over company results, you may create hoarding and destroy teamwork.
14. If they’re not excited about your vision and don’t care about your customers, let them go. They’re in the way and preventing your from hiring a better person.
15. If they don’t play well with others, upset your employees, and are regularly giving you grief, let them go. If you don’t let them go, and they’re behaving badly, then the other employees with think that you endorse and approve this bad behavior. The next thing to happen is that the good employees will either leave (and you’re stuck with the lousy ones) or the good ones will start behaving badly.
16. Share financial information for business unit or product line margins.
17. Share the full financial statements with your senior people so they understand working capital, cash flow, leverage, margins, and why a low margin sale to a slow paying customer is worse than no sale at all.
18. Don’t tell them how to do things. That’s micro-managing and probably a waste of your time. However, you need to have documented policies and procedures so that you have work standards and other people can be responsible for training.
19. If you, as the business owner, need to control everything, then you probably shouldn’t be a business owner. Because, you can’t control everything unless you want to stay small.
20. If you want to grow, then hire smart people who know more about certain things than you do. Give them resources and encouragement to take risks and hit the occasional home run. Sure, they’ll strike out, but they will learn something.

Retaining talent is about engaging people and giving them opportunities to utilize their talents to help your customers. A happy employee will create a happy customer. And, happy customers will help you to grow your business and provide more opportunities for your employees. Eventually, your business can run itself. You will be able to put your manager’s hat away and just enjoy ownership: dividends without the hours. Good luck. If you need help making this happen, call an expert.

Copyright 2012. Phil Symchych. All rights reserved.

Profit Blueprint

This article will help you to develop a profit blueprint to maximize the profitability — and value — of your company.

Phil’s Profit Points™ in Brief:

• The most profitable point in business is where you align your customers’ needs and wants with your intentional business strategy and the effective use of your internal resources.
• The best strategies are externally focused on providing as much value to your customers as possible.
• Customers can vary from strategic partnerships to price-driven commodity buyers with no loyalty or logic.
• Internal resources include: your people, attracting and retaining customers, performing operations and consuming and generating financial resources.

Profit does not come from the accounting department. It comes from providing valuable products and services to your customers who are willing to pay you a fair price that represents the value they receive. The price, obviously, needs to exceed your costs.

Strategy is the intentional alignment of your people and resources in order to provide maximum value to your customers. Therefore, if you can’t provide maximum value, and charge a good fee, then maybe you shouldn’t be doing the work. I remember working with a small business that didn’t know its cost of operations. We determined that it would be cheaper to give a new customer a twenty dollar bill and send them elsewhere than it would to service and retain the customer, because the company was losing money on this product.

The most important part of strategy is your customers. Have you identified or created a need for them that you can meet and generate sufficient profits? Strategy needs to be driven from the outside-in by your customers, and not necessarily from the inside-out by your methodologies. Ask your customers how they benefit from your service.

Your resources includes your knowledge, information, historical data, understanding of your customers, as well as you people, assets, equipment, capacity and financial resources. One of the most powerful resources is your relationships: with customers, suppliers, peers, associates, competitors and your own people. You can convert these resources into profits by proactively seeking information from all of them, identifying or creating opportunities, and taking action, quickly.

Blueprint Example (you would do this for each of the customer’s specified needs)

If water can cut steel, when it’s focused at 60,000 pounds per square inch of pressure, then imagine what your company can achieve when all of your resources are focused on your customers through an intentional and aligned strategy.

Tough Question

What are the most valuable products and services that you offer, according to your customers?

From The Piggy Bank

Everyone in your company should be able to articulate your strategy. Otherwise, they may not be aligned or focused on providing value to your customers.

Resources

For more information on strategy, go here.

If you would like more information on our strategy development services, please go here, or give me a call at 1-306-569-9111 for a complimentary consultation.

Have a profitable week!

Phil Symchych, C.A., M.B.A., is the president of SYMCO & CO., author of Phil’s Profit Points^™, and owner, or part-owner, of four businesses.

Share the Wealth

If you find this information valuable, please feel free to forward it to a fellow entrepreneur, friend, customer, supplier, banker, advisor or business associate. We are improving entrepreneurs’ lives and strengthening our economies. Thanks!

You may subscribe and encourage others to subscribe by clicking here.

We are now on iTunes! Check out our podcast series called Phil’s Profit Points.

This week’s impetus: Dance Competitions

Our dancing daughters just completed another weekend-the second of four in a row-of dance competitions. It’s pretty amazing to watch these kids put on multiple performances in tap, jazz, ballet and lyrical, often in one day.

Since it’s a competition, there is judging involved. Granted, judging dance to the untrained eye may seem as scientific as the Olympic judging of figure skating. It’s open to interpretation; unlikely hockey, which has a clear winner. However, my kids are teaching me that choreography, timing, stage presence, execution, emotion, enthusiasm and even hand positions are very important. I wonder if we give our employees that much information for our expectations of great performance?

Judging at this Candance, a Canadian dance organization, event was conducted rapidly by several judges who adjudicated each performance, recorded their observations and allocated marks. At the end of a session, the judges handed out awards and everyone received a bronze, silver, gold, platinum or diamond award based on their group or solo performance. In other words, all three contestants could receive gold. Everyone got rapid feedback. If the group was large enough, than there was a ranking for first, second and third places.

In business, do we give immediate feedback and praise to all of our employees? Does everyone get a chance to win a gold medal?

Monday Minute: “I do not try to dance better than anyone else. I only try to dance better than myself.” Mikhail Baryshnikov.

Privacy statement: Our subscriber list is never sold, rented or shared with any other party.

Contact information: info@symcoandco.com

http://www.businesssuccessforlife.com/

http://www.symcoandco.com/

Copyright 2012. Phil Symchych. All rights reserved.

Has this happened to you? You reluctantly hit “unsubscribe” while hoping this doesn’t automatically drain your bank account and share your personal identification?

Here are some specific examples from this week.

Why is Neena ignoring my unsubscribe request?

Persistence at its worst

Why does it take Golf Town up to ten days to unsubscribe my email address?

High-tech at low speed

Our Barracuda email filters do a great job of blocking most of the unsolicited email. For the occasional few that get through,  I am now just blocking the senders and preventing their intrusions.

How are you handling the intrusions?

Copyright 2012. Phil Symchych. All rights reserved.

1. Start-up cash. Make sure you have enough cash to get the business into orbit. We recommend at least four month’s of operating expenses including wages and materials.
2. Find customers fast. Customers will generate more cash. We offered discounts for prompt payment and deferred slower paying business until we could carry it ourselves.
3. Make friends with all of your suppliers and negotiate favorable terms.
4. Keep all of your commitments that you make to your customers, suppliers and investors. The most important thing to build is your credibility.
5. Ask for help. There are lots of experts who have seen, and lived through, many business cycles and seasons. Our lawyer has multiple business interests and understands what it’s like to be an entrepreneur.
6. Keep a tight grip on cash. We measure cash to the penny, by the minute. We have more accurate data than one of our suppliers, a huge company, because we have a better focus.
7. Attract and retain good people. Get them excited about the future while explaining the road may be bumpy.
8. Set up a good administrative system so that you can quickly record revenues, issue invoices, track expenses, measure profits on jobs, and instantly show your cash balance and burn rate.
9. Don’t burn out. Don’t run out of cash. Juggle your jobs so that you get paid quickly and can invoice by the cut-off.
10. Have fun. Focus on attracting great people and customers. Focus on providing value. The cash will come in. And, with a good system, you will know exactly when the cash will come in.

Running a start-up requires courage, faith, and a disciplined approach to business. Don’t be greedy, be helpful.

Copyright 2012. Phil Symchych and Daphne Fiorante. All rights reserved.

Return On Investment

This article will help you to analyze your business results and strategic investment decisions.

Phil’s Profit Points™ in Brief:

• The single most powerful financial measure in business is Return On Investment because it compares the results and position of both your income statement and your balance sheet.
• Return On Investment can be used to analyze business units within a company, companies, industries and even countries.
• Return On Investment presents the economic reality that is contained in your financial statements.

Welcome to issue #52 which celebrates our first year of Phil’s Profit Points. In this segment, we’ll look at how you can measure your Return On Investment.

So that we’re all on the same page, here is the formula:
Returns (revenues minus expenses) / Equity (assets minus liabilities) = ROI, expressed as a percentage.

First, I want to expand and improve upon this highly useful financial metric. In finance, Return On Investment simply means that you calculate the financial returns and divide by the investment. Here’s a simple example: If you have net income after tax of $2 million and you have equity on your balance sheet of $4 million, then you have a Return On Investment of 50%. If you pulled out half of your equity by paying yourself dividends and parking the money in your holding company or some other safe investment outside of your operating company, your Return On Investment would be $2 million / ($4m-$2m) = 100%. That’s even better.

The main goal is to maximize your returns while you minimize your investment…since the investment in your business carries risk.

Ironically, many people minimize their returns by taking aggressive tax minimization strategies that reduce profits—those are your returns—in order to reduce taxes. This is very harmful if you are trying to grow your business and/or you are using debt to help you grow your business. Make sure that you tell your tax professional that you are trying to maximize your wealth, not just minimize your taxes.

Remember, the net income earned in the current year is added to your retained earnings and creates the equity base that supports financial leverage such as debt.

That’s why you always want a strong and healthy balance sheet with lots of equity to support debt or dividends and lots of earnings and positive cash flow to fund the debt servicing and dividend payments.

It’s important to know that there is no magic number. The optimal Return On Investment for your company depends on what you are trying to do and what position your business—and you—are in, such as: start-up, growth, plateau, decline, exit (hopefully, not in that order, in fact, never in that order!). Hint, growth is good, always.

The most powerful way to use Return On Investment is to look at your business divisions or profit-centers in this way. This forces you to create a balance sheet and an income statement for each division, just like large, public companies or conglomerates do. You can’t possibly know which divisions or even product or service lines are the most profitable or are losing you money if your income statement lumps all the revenues in one line. That’s just about negligent, if you ask me. Management needs detailed information to evaluate results and improve them in the future.

Let’s take the Return On Investment concept even further. Returns can include financial and non-financial benefits. If you are a business owner and hire your first full-time general manager, this investment will reduce your net income and will reduce your Return On Investment. However, this should provide you with much freedom to work on more strategic things that will grow your business or, more importantly, freedom to work less.

The most important concept of Return On Investment is to identify the factors that actually improve your business and your life.

Tough Question

What are the most important returns that you want from your business?

From The Piggy Bank

The best entrepreneurs spend as much time improving their personal return on investment as they do on their business return on investment.

Resources

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Have a profitable week!

Phil Symchych, C.A., M.B.A., is the president of SYMCO & CO., author of Phil’s Profit Points^™, and owner, or part-owner, of four businesses.

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This week’s impetus: The ROI of Ego vs. Heart vs. Wallet

How do you measure the outcomes of your business decisions? Do you look at the financial benefit or the emotional benefit…or both?

Return on Investment (ROI) is one of the most powerful metrics in business because it measures the results as a proportion of the original investment. However, ROI is typically restricted to financial measures and directly impacts our wallet.

Often, we expect an emotional outcome as well. After all, isn’t that why we’re in business in the first place: to provide a better life for ourselves and our clients?

An increase in revenue or profit can result in an increase in a dividend to an owner which can be invested in a retirement fund and this provides emotional and financial security. Or, you can use the money to take the family on a vacation and provide a personal experience that strengthens relationships and makes us feel great.

Sometimes, we just need to invest in ourselves so that we feel better. When we feel better, we perform better. When we perform better, we aim higher and eventually earn a higher ROI.

Understanding the desired outcome, whether financial or personal, will help us to make better decisions. Usually, the best outcomes are related and aligned to improve our lives.

Monday Minute: “The best decisions generate a positive return on ego, heart and wallet.” Phil Symchych.

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