6 out of 10 small business owners I consult with are not making a profit.
That’s the place they’re in when we first begin our coaching relationship. Time & time again, I meet with hard working, highly talented owners who are struggling to make ends meet. Before you start thinking “The economy is tough! Of course they’re having a hard time making ends meet,” I want to point out that there are many businesses actually making money in this hard economic climate. In fact, there are many who are experiencing their best times ever!
What mistakes are the majority making? Why isn’t there any money left over at the end of the month? Below, is a list of common mistakes I see being made over and over again. Before you blame it on the economy (and numerous other things) examine the list below and control what you can control.
1. They think ‘profit’ is a bad word.
I have had several clients say they want to be fair and not rip people off. That’s nice of them, but these are the same people who are losing money each month. Do you think that’s fair? If you find yourself thinking profit is a bad thing or something that isn’t that important remember my definition of the word: “Profit is the reward you get for taking on the risk of owning a business, losing sleep over the multiple issues you face and being the one who pays for anything that goes wrong.” You deserve to make a profit. Also, profit is NOT your salary. It is what is left after you and all expenses are paid. That money enables you to stand behind your work or product, invest in needed equipment or infrastructure and realize your financial dreams. Make sure you’re being rewarded for your efforts. If you’re not, then maybe it’s time to get a job.
2. They don’t know their math.
Sadly, I sit with many owners who don’t know their true costs. They’re not sure what they should charge or what their break even point is. Ask them about what their cost per lead or gross profit is and a blank stare follows close behind. If you want to improve your financial situation & quality of life then master the math of your business. Know how many jobs you need to do (or widgets you need to sell), know your costs, know how many leads you need and then set goals and attack them.
3. They forget they are in control.
Newsflash! You’re the boss. If something is messed up, change it. If your costs are too high change your model. One client of mine changed the compensation structure of their business late last year. The result? 15% higher gross profits and the employees are making more money. Why? The owner took control, got creative, talked with his team and found a way to lower his labor costs. On the flip side of that I have worked with owners who are not paying themselves but are keeping unproductive employees. You’re in control, nobody else.
4. They don’t have a marketing plan.
The phone rings so you think everything is great. Then it stops and you are desperate for work, so you lower your prices to keep busy. That act alone keeps you from making a profit. What’s the answer? Create a solid marketing philosophy and plan and then implement it. This will keep a steady flow of leads and sales coming into the company…and if you know your math you’ll be able to navigate the leaner times.
5. They fail to hold their team accountable.
I know a contractor who was being held hostage by his workers. They had the entitlement mentality thing down pat! They fought every initiative the owner tried to implement. They consistently ran over budget on jobs and had bad attitudes. After a few years (and losing tens of thousands of dollars) of this, the owner finally stepped up and got rid of anyone who didn’t perform up to the company standards. NOTE TO THOSE WHO WORK FOR SOMEONE ELSE: If you don’t perform the task at hand within budget and in a manner that meets the quality standards of your company…there will be no profit…then no raise that I’m sure you feel you deserve…then after operating at a loss for a period of time there will be no more job for you. Please do your job. Actually, do more than your job. NOTE TO EMPLOYERS: Fire those not doing their jobs immediately. Then, reward those who are. You won’t miss the one’s you showed the door to. I promise.
6. They think they’re special.
If you’re like me you will think you’re above all these mistakes. You’ll hear the advice of others who have been there and learned tough lessons and say “I know, but I’m different.” That’s what I said years ago and it cost me. You are not special. You are not exempt from getting numbers 1-5 in order. Be humble and learn. Be a sponge. Be an implementer. In the end you will build a solid and profitable business!