1. Turnover is not profits
– many business houses and business men concentrate on turn over
rather than on profits. They think that they have grown in a big
way if the turn over increases. I found in most cases that increase
in volume of business is not profits. For example there was a
horlicks dealer who sold his goods less than the company price.
I warned him that he will get into the debt trap. He looked at
me and said “people give money quickly and fast rotation is there”.
Within one year he got into a huge problem with the company who
demanded payment.
2. Book value is not real profit
value- take the case of net working site like
face book etc. They have huge base. Does it get translated in
to money? The answer is no. This means if the site does not make
profits what is the use of paper profits or simply talking on
values. Therefore many companies in capitalistic economy do not
make real profits. They fudge numbers which looks like profits
in books. I know a huge company in Chennai who showed profits
by selling a land.
3. Wrong cycles-
Many of these people run unprofitable business and they try to
make profits when they sell the business to someone. They project
the brand value. For example one of my client from Canada has
sub way store. He was losing money and now they want to sell the
store to someone and get out. Nothing wrong in this approach.
Too many people trying to do is not good for business.
4. Borrowing money
can solve problems in short run but in the long run it creates
lot of unfavorable condition in business. For example many people
borrow money from banks and private lenders and hope one day to
make profits. This cycle gets extended for many years before they
realize they are in debt trap
5. If you do not make money now, you do not make money later-
this was my policy. In fact in sify.com they asked whether I wanted
money or publicity. I always said I wanted money. I also used
to ask uncomfortable question like when this will make profits.
They used to feel uncomfortable with these questions. Many of
the dot com shut down because they could never make profits. They
built customer base etc but then they never made profits. This
is same case with face book or any net working site or email service
which in the long run made losses.
6. Brand value is not profits-
many business men who talk about brand value which they have created.
I found that in real terms they never make profits. For example
Lehman brothers who closed their business forgot this simple rule.
7.
Longer the business cycle less
you make money – in the initial stages of a product,
people have huge margins and make huge profits. When more and
more people venture into the business then everyone make less
and less money. One person told me that when stabilizer was sold
during his father’s time had profit of Rs. 300- 550 per piece.
Now they could hardly make 50 -100 rs. Therefore do not wait to
make profits because as the cycle gets longer one will lose lot
of margins.
8. One bad customer
can wipe away your profits. For example if one person sells one
lakh and makes profit of 10,000 or 10%. When one customer cheats
the person and has Rs.10 lakhs to recover then it takes 10 times
to wipe the losses.
9. Number of employees
or number of products does not mean people make money. Only 20%
of the employees are productive in most of the organization. The
rest are simple flotsam and jetsam crowd. I have seen in many
companies one division will make money and other divisions do
not make money. This reality is never accepted by company. The
balance sheet normally does not tell the real story.
10. Swanky office
does not mean the company is making profits- in fact I met a very
successful sardarji who advised me as follows “remember to keep
your cost low. Do not go in for offices which are posh. It took
20 years for me to make my office air conditioned”. Many people
concentrate on swanky offices and lose lot of money. Office must
be last in the agenda. When customer is created due to place then
make swanky office. Take case of sarvana stores who makes more
profits than the so called mega malls. Saravana store in normal
standard is not so posh. The resident of Chennai know well of
sarvana store which is in ranganathan street.
11. Price is king and profit is
the queen – if we miss this simple point then
we do not make profits. Many people who have problems in business
forget this simple rule. No one wants quality in the long run.
When the price is cheap and comes for short term people are very
happy. Therefore keeping price lower than the competitors helps
a lot. Investing quality is a good idea provided it is not expensive.
In fact many business men sell lower than the competitors and
lose lots of money
12. It is better to sell few and
make money – many people sell a lot of products.
They lose money in some gain in few and everything leads only
to breakeven. So the remedy is to eliminate the products which
have not made money in last three years.
13. Bigger the name lesser the profits
you make- many feel that people who take government
tenders make money. In variably one person gets subsisted and
most of the earlier guys go broke. Same thing with Hyundai and
car factory the subsidiary industry never makes money. The suppliers
lose money. Slowly many suppliers come to the realization that
they never made money in the last three years and then they try
to get out. So it is actually reverse. Big names means you make
less money from them. See rich men, they never help poor people.
They help people who help them.
The American capitalistic economy and noble prize winner have
forgotten the simple rule of business which is profits. This is
forgotten in all theory and grand plan of so called analysis.
Remember if one is not making profits in real cash sense then
work for some one. At least you will have good karma.
One day lady told me “if you apply such a parameter then most
business houses do not make profits. They have to shut their business.”
Marcum ccoomark the founder of IMG sporting company writes in
his book “most people are fit for working for others. They should
not start business”.
It is sad story which requires severe correction and attitudinal
change. These are few reason why the capitalistic economy fails
when simple rule of profits making is in the real sense not in
paper profits.
