I grew up in a really great little county seat town by the name of Dallas, Ga., a community 32 miles northwest of Atlanta. I grew up in the 1950s when economic times were a lot like they are today – challenging. Many of the folks who lived “out in the country” were farmers who had to work 12 to 14 hours a day to barely scratch out a living. In those days, many farmers didn’t own a car or truck, so it was not unusual for them to ride into Dallas on a farm tractor or in a wagon hitched to a workhorse to pick up provisions for the coming week.
To give you more of an idea of what economic conditions were like back then, the minimum wage was about $1 per hour. A worker would toil eight-to-ten-hours a day in the local cotton mill for $40 to $50 a week. Yet in my hometown and in other communities scattered around the nation, there were individuals and businesses that were doing extremely well. They bucked the economic trend. Isn’t it like that right here in our community? There are businesses on the verge of bankruptcy, but there are also businesses that always seem to do well regardless of economic conditions.
I’m reminded of a famous quote from Wal-Mart’s founder, Sam Walton: “If there’s a recession coming, I’ve decided that I won’t participate.”
Walton is also well known for another applicable quote: “High expectations are the key to everything.”
Every entrepreneur I ever read about seemed to rank high expectations way up there when commenting on how they achieved such lofty levels of success. When I started Lee Resources in 1987, I remember sitting down and writing a BIG number on the bottom line of my profit plan for 1988. It was more than double the amount I earned in my last year as a corporate officer in my former company.
It even scared me a bit staring at such a BIG bottom line number, but I put my fear aside and moved on to the next step: planning how many billing days I needed to sell and how much I had to generate in product sales to make the profit plan come true. The final step was coming up with what marketing activities I would implement to sell the billing days I needed to meet my income goal. It was actually a fun process. Then came the hard part: implementing my plan, which required a lot of personal discipline.
At the end of 1988, I exceeded my income goal by about 20 percent. Wow! This planning stuff really works, I thought. That experience gave me the confidence I needed to convince my clients to follow a similar profit planning process. Now, 2012 is just around the corner and I am still following the same process. How about you? What are your expectations for 2012? Have you developed a game plan? Although the economy predicted to be lackluster, are you going to use the economy as an excuse for a less than sterling performance or are you going to buck the trend and figure out how to get a larger share of your market? It’s time to begin thinking about 2012. I recommend that you follow the following Profit Planning Process in your business:
Step #1: Begin with putting on paper the amount of pretax profit you want your business to earn in 2012.
Step #2: Ask your salespeople to list each existing customer and each prospective customer on a spreadsheet and predict how much they believe they will sell these customers and prospects in 2012.
Step#3: When planning operating expenses, begin by listing each of your people vertically on a spreadsheet. In the next column, list how much they earn now and in the next column, how much you plan pay each employee in 2012. And for the employees you plan to give a raise in pay, plug in the new level of pay in the month the raise will go into effect. If you plan to hire new employees in 2012, insert them and their estimated income.
Step #4: Review total operating expenses from what you already know about 2011 and estimate how much you will spend in each expense category in 2012.
Step #5: Now back in to gross margin. In other words, if you know how much you are planning to earn, how much you’re planning to sell and how much you’re planning to spend, how gross margin will you have to have to make your profit plan come true.
Yes, there is something magic about high expectations. I don’t totally understand it, but when you think big, bigger things happen to you than when you think small. I believe one of the biggest deterrents to success in life is down deep inside not believing you deserve success. Or that you are destined to struggle financially. Or that double digit profit margins are for other business owners and managers, but not for you.
I speak about this planning process from firsthand experience. I guess this is why David Schwartz entitled his famous book, “The Magic of Thinking Big.”