Small business owners often lament the fact that they are working harder and longer, but no matter what they do, there is no money left in the bank account at the end of the week. Where does it all go? The real question is what can we do about it?
Unfortunately most of us follow a very predictable path. We obsess about increasing turnover, certain that if we can get more money in we will end up with more in the bank once all of the bills are paid. It rarely happens.
This cycle can go on for years, in fact I know a surprising number of businesses that really make no money, yet they keep doing the same things and stay in the same crazy cycle, year after year, certain that when their turnover reaches a certain level they will end up with a pile of money in the bank.
I used to have a marketing company that had about 10 employees. It turned over $1.5 million per year and made very little net profit but everyone was really busy working as hard as they could.
Over the space of two years I downsized this business to the point where there were only four employees. Turnover dropped by half but profitability went through the roof. Now I had a business that was actually making good money, even though it felt counter intuitive to get smaller to make more money.
There were a lot of other upsides associated with this change. I didn’t have to work anywhere near as hard managing my staff of ten people and project managing them and their various tasks. I didn’t need to do as much business development. I didn’t need to spend as much time chasing money and administering the business. Overall, I was much happier, healthier and wealthier.
The point I really want to make here is that it isn’t about how much you turnover, it is about how much you make. Most businesses can tell you how much they turnover, but few can tell you how much profit they make.
Today I spend a lot of time working with businesses to actually decrease their income. Sounds strange I know. But what we do is get rid of unprofitable projects, clients and income streams and then reduce the operating costs accordingly. From here, the business can be rebuilt on much more solid foundations that are based on profitability, not just a never ending drive to increase income.
Sometimes we really do need to get smaller to get bigger.