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Why just looking at your bottom line isn’t enough

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When I first ask a business owner about their monthly financial process the response is usually something like this:

“I pull a profit and loss from my accounting software and if the bottom line is lower than last month, I know I need to work harder, if the bottom line is higher than last month then I know I need to work hard to maintain and get it higher. “

Is that really the goal? To work harder and then work harder and then work harder still? I sure hope not. When we look at the just the bottom line, we are missing information that could change our profitably drastically for the better:

o   The bottom line does not clearly tell you how efficient your staff is and whether they are becoming more (or less) efficient over time.

o   The bottom line does not tell you if you are appropriately leveraged and have enough cash to buy that large piece of equipment.

o   The bottom line does not tell you which of your products/services are most profitable.

o   The bottom line does not get close to telling you which of your products/services are eating the profits of others?  And it sure doesn’t tell you which products/services are money mints that you could expand.

o   The bottom line does not help you determine the cost of acquisition from each of your marketing streams so that you can do more of what is most efficient.

With the correct metrics you can know all of these about your business and use them to effect profitable change. Uncover the magic of your numbers today and you will be paid dividends for the life of your business.

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