Profit is not a bad word, but what should pet care businesses focus on when it comes to their financial statements? What is a healthy margin? Is it ok to focus on the money?
Dog trainers listen up - profit is not a bad word. Many entrepreneurs do not understand profit and view it as corporate greed or something they do not need to worry about. I was the same way and have evolved as my business has grown. I recognized that I needed to have a solid understanding of financials and how they impact my business. Without making a profit, you have a hobby, not a business.
Dog training is more like a passion project at first and we are thrilled to be doing what we love. Many of us struggle with cash flow and/or work-life balance. I don’t know many trainers that like to talk about the financial side of their business. Most choose to ignore it - often only paying attention to the money being deposited in the bank account and then submitting materials to an accountant at the end of the year for taxes. We then only glance over the financial statements. There is a good chance we are making a profit, but do we really know what that means?
Profit is critical for any business. Many dog trainers are over-worked, feel like they are stuck in the hamster wheel and struggle getting their business to a point that they can have financial freedom and more time to themselves. Understanding and increasing profit allows us to do that, which in turn leads to the ability to provide more for our clients and team. You can still run a meaningful business and make money. But first, we need to understand what profit is.
prof·it | \ ˈprä-fət \
Money that is earned in trade or business after paying the costs of producing/selling goods and services
In simple terms, profit is the amount of money you have left from the revenue you received after you pay out your expenses. Expenses include everything you pay to run your business - continuing education, salary and wages, training supplies, equipment, professional fees, software and more. Too many of us only pay attention to sales; the revenue that gets deposited in our bank account. When we spend and take on additional expenses without paying attention to how it impacts our profit, we put the business at risk. It also prevents us from getting off the hamster wheel. Profit is not about greed; it is about providing the best and gaining more freedom through our business.
One of the most important financial reports you should understand for your business is the profit and loss statement. This gives you a summary of the revenues, costs and expenses incurred during a specific period. It provides information about your business’s ability, or inability, to generate profit. You can generate more profit by reducing your costs and/or increasing your revenues. Through this report, you can also determine your profit margin.
A general rule of thumb is that 10-15% is a healthy profit margin for a business. Anything less, needs improvement. A loss means your business is costing you money. Anything more, and you are running a successful and profitable business.
Profit provides you the ability to invest in the growth and innovation for your business. It enables you to take care of yourself and your team. It ensures you can endure any shocks to the business (most of the businesses that shut down early in the pandemic were likely operating at very low profit margins or at losses). A healthy profit margin helps you to receive financing. As an owner, you can benefit financially through profit and gain more freedom to work on vs in the business. Profit enables you to grow and flourish.
Account for every hour of work you put into your business based on your hourly rate. Consider this as part of your expenses. Many trainers get stuck in the hamster wheel because they only think of the money coming in and the hard expenses. We don’t consider our time spent on all the work we put into the business each week. By tracking this, we can recognize areas where we need to improve processes, outsource, or automate (you’d be surprised at how much a program like BusyPaws can automate your processes and reduce admin work). Compare the costs of outsourcing a skill you are not good at or procrastinate on. Often the cost of our time is much higher than the cost of outsourcing this work to an expert. This also frees up our time and enables us to work on areas of the business where we can see greater results to improve profitability.
No matter what stage you are in your business or how new this information is for you, I highly recommend the book, Profit First by Mike Michalowicz. This is an easily digestible book with a simple system that makes it easy to track and invest your profit. I’ve used this system for years and it was the first thing that allowed me to manage my cash flow effectively.
I know finances may not seem like a fun topic and something you want to focus on. The best advice for any entrepreneur is to hire an accountant and understand your financial statements. The time spent is an important investment for your business and will have a tremendous impact on preventing burnout. You will know what steps to take in your business, the impact of decisions or new programs and gain clarity on what’s needed to get your business to where you want it. I’ll come back to finances on some upcoming posts. For now, take the time to understand the profitability of your business to gain more freedom and success. I promise it’ll be worth it and it may even be fun!
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