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Your Business Model—The Profit Formula

In the latest edition of his Smart Strategy Insights Series, Wayne Lynn explains how to devise and then test the assumptions you make in gauging profitability.

Wednesday, January 22, 2025

Make sure your assumptions about the numbers are clear and make sense. Let them guide you as you run and grow your business.

Need to know: Your strategy makes explicit how your business will create value. Profitability follows value creation. Your profit formula outlines how your profits will be derived. It has four components:

Why it matters: Even with the best research combined with experience to support your assumptions, you are still building a profit formula based on multiple assumptions. Once you have a starting point set of assumptions, you should test those assumptions to be sure they yield proforma financial statements that hold up to scrutiny, i.e., they yield projections that are consistent with all your assumptions. If they don’t, figure out where they are inconsistent and fix your assumptions. Then check to see if the proforma statements yield your goal level profits. Nasty surprises, not predicted by your models, a few months down the road can spell doom for your business.


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About Wayne Lynn

Wayne Lynn is an advocate of the adage that "you can't manage what you can't measure".  Combining his considerable strengths in leadership, economics, and strategy with broad experience in both public and private companies, he brings focus and discipline to the task of creating and sustaining success in today's chaotic environment.

Wayne has managed businesses ranging in size from $5 million to $500million in annual sales.  He has guided those organizations through a number of diverse market sectors including magazines, catalogs, inserts, direct mail, and general commercial printing.

A student as well as a practitioner of the fine art of business, Wayne's latest focus is on helping business leaders make their companies more viable economically, more relevant in the market place, more adaptive to constant change, and more durable in the long haul.  It's about people, what they know, and how well they execute on what they know.

Wayne can be reached at 704-516-7787 or at [email protected].

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