Quality Magazine

Almost Half of All Small Businesses Having Profitability Issues

July 14, 2009

PARK RIDGE, IL-The number one reason that small businesses are not profitable is waste. Yet all too often, business owners procrastinate or become too complacent with the operations of their business and look to blame almost anything other than themselves, according to George S. May International, a management consulting firm.

A new survey of 1,000 small business owners across the United States by the consulting firm found that 45% of respondents said their businesses are not profitable. Sixty percent of all respondents cited the economy as the number one reason they are not profitable or as profitable as they could be.

Aside from the economy, 29% of respondents cited competition within their industry as the one number reason they are not profitable, while 10% cited company inefficiencies in sales, finance, operations or labor and 1% cited management.

“There will always be new and improved innovations, tools and techniques; however, they are no replacement for management,” says Paul Rauseo, managing director of the George S. May International Co. “The right business systems with management will produce results predictably, on time and on budget. For small business owners, the choice is theirs. They can continue doing what they have always done and hope that things will turn out differently or choose to manage.”

Rauseo says that a planned profit model that establishes profitability at income levels can help businesses ensure success. This model requires organizations to look in depth at three components-revenue, profit and expenses-and adjust each for profit. The model is: Revenue – Profit = Expenses.

“The equation is a basic assessment of the three major components of any business: expenses, revenues, and what’s left over,” says Rauseo. “In the past, this model placed profit as the outcome number, and many times it is negative or lower than expected. With profit as a fixed input variable, the amount is decided on and controlled in advance. Too many businesses use an old model, with profit as the result, and don’t realize how much money they have generated (or lost) until their accountant delivers/explains the P&L.”

For more information, visit www.georgesmay.com.