#381 Profitability Obsession; why you need a 20% profit mindset

Hi there, I hope you’re having a great week so far.

Last week I talked about obsession #1 - liquidity. Did you look at your own liquidity?? Have you got your taxes and 3 month buffer set aside?

Good. Now let’s talk about the next key to business success: profitability - making and keeping enough profit to feed and grow your cash flow.

What is profit?

That might seem like a dumb question, but it’s useful to know that it can be defined in different ways.

Profit is simply income minus expenses over a specific period. But it’s important to make sure your revenue and costs are correctly recorded—revenue recognition is an area where agencies often go wrong, leading to misleading profit figures.

Whether you call it net profit, trading profit, operational profit or EBIT, you need to understand what it includes. Most clients I’ve worked with weren’t clear on what their profit included and got a shock when they found out.

And you MUST make sure your dividends are included. Don’t kid yourself into thinking you’re making 20% profit if you’re not including your dividends—they’re effectively your salary and should be treated as a business cost.

Profit Matters

?Profit isn’t just a nice-to-have—it’s what fuels your growth, stability, and future success. It gives you the cash to invest, innovate, and market.

A profitable business survives long-term, attracts the best talent, and gives you the stability to weather challenges like economic downturns, client loss, or wage increases.

Why 20% Should Be Your Target)

That’s the level where acquirers get interested. It shows your business is efficient, consistent, and well-run.

Hitting 20% means you're doing a lot of things right—buyers want a well-managed business that generates strong returns and can withstand future risks.

• Financial resilience and stability - a 20% profit provides a buffer against client loss, economic shifts, and unexpected costs, plus it improves your credit rating

• Build personal wealth; a highly profitable company can pay you well and fund your pension so you build wealth along the way

• Market Position: a 20% margin reflects strong pricing, quality services, and brand power.

• Competitive advantage: profit gives you the cash for investing, attracting the best talent, innovating and marketing

• Exit strategy:? 20% attracts the best buyers and gets you the best valuation?
• Operational Efficiency: A business at 20% profit shows controlled costs and no over-reliance on any single client.

• Plan strategically; stop the fire-fighting and knee jerk reactions - profit lets you plan ahead without distraction

Most importantly - it helps you sleep at night. Profit and cash in the bank make running your business less stressful and help you be at your best.

Why you need a 20% profit mindset and focus

We’re not just talking about this for a future sale. Even if you’re not planning an exit, this absolutely applies to you.

Every reason acquirers want 20% applies to making your business stronger now.

Harvard and McKinsey studies show that companies with high profitability have a failure rate of less than 1%, navigate challenging markets more easily, and invest more readily in innovation, marketing, and talent, and build strong financial foundations for long term success.?

Why wouldn’t you want that!

Get into the 20% profit mindset

No matter where your profitability stands right now, set your sights on 20%.?

Look at your business with fresh eyes, start questioning everything, why your gross margin isn’t higher, why your billables are too low, why your overheads are eating into your profit.?

Dig into your management information and KPIs? - the answers will all be there. (Well if your MI is good enough they will! If it isn’t, talk to me)

The higher you aim, the more strategic decisions you’ll start making—and that’s how you build a 20% profit business.

And I definitely promise it’s worth it!

Obviously there are many industries where 20% just isn’t realistic due to the cost base; if your business falls into this category then find out what excellent is in your industry (never align with average) and set your focus there.

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Your actions for this week

• Find out what your profit figure includes, and what costs are below the line
• Get clear on your current profitability?
• Set your focus on hitting 20% profit - t’ll change how you look at your business, and it’ll change your results

What’s next?

Next week, I’ll continue the profit conversation and tackle one of the biggest mistakes I see—trying to grow into your overhead.?

It doesn’t lead to 20%, and I’ll explain why…..

Have a great week

Serena

xxx