The Taxman Cometh

Now that tax day is over, how did you do? Did you pay substantial taxes on your profit? Or wasn't there much profit?

Invest an hour today to analyze your current profitability and strengthen your company for the coming year.

First, obtain the following statistics for the past three years. If you don't already have them at your fingertips, your accountant should be able to provide the information:

• Total revenue
• Total expenses
• Operating profit
• Sales representatives ranked by production

Start by looking at the trends

Revenue and profit should both be increasing. Calculate the percentage increases. Revenue and profit should be growing at about the same rate. Are they?

Now look at expenses

They should be growing at a slower rate than revenue – and, optimally, slower than profit. Calculate percentage increases for all the major expense categories. Which categories are growing the fastest? Are those temporary investments or is that rate of growth likely to continue? Finally, look at production levels for your sales force over the past couple years. Calculate percentage increases again. Are they fairly constant? Although significant improvements in productivity might seem like a positive, they often cause financial problems.

How does everything look?

Did you see anything that surprises you? A quick profitability analysis like this can provide a great deal of insight into your business.

Most business owners focus more intensively on cash flow than on profitability, but sustainable profitability determines the long-term value of your company and is the best predictor of its future survival. It makes sense to take an hour a couple times a year to perform this analysis and make sure your company remains on track.