2013 has arrived, and we have another last minute bill from Congress that continues to avoid the real issue: you cannot spend more than you make. For the entrepreneurs I advise, my message is pretty simple: “Succeed Anyway!”
Labor productivity is still the key to your profitability, and this will be the year you will need to set new targets of productivity to offset tax increases and the impact of ObamaCare.
For example, my recommendation for pre-tax net income for S-Corporations and LLC’s is 15% of real revenue. To remain equal in net outcome under a 5% tax increase, your new target needs to be 16.365%. To the folks in Washington who have never run a business, they may think “what’s the big deal?” However, those of us that grind out profitability to build wealth all know it is not that easy.
In a market this tough, you won’t find extra margin to let you get to 16.365%, so your next option is growing to beat it. To take that approach, you will need to increase revenue (while keeping all of your costs ratable) by 9.1%. For a $5 million revenue business, that means increasing revenues by $455,000.
Congratulations! All of your growth you had planned for this year will just get you back to even.
Click here for the math behind the examples.
Here are my Top 5 steps to Succeed Anyway!
- Continue to fine tune your labor productivity. No business can afford to overpay for performance. If you do not currently do so, measure productivity by customer, by line of business, by location and/or by person whenever data is available.
- Look for opportunities to increase prices. The market ultimately sets the price, but many of your competitors will be looking for a way to get some back through price increases.
- Set new sales targets and quotas. Make sure your salespeople know that the first 9.1% of sales growth has to go towards getting back to where you were.
- Look for new opportunities to expand. Jack Welch said “look for the train wrecks and that is where the opportunities are.”
- Continue to build wealth by not consuming your business after-tax profits. The companies with piles of cash and no debt will have great opportunities in the next two years.