I thought I would start out my first post at the beginning. I know most you of reading this are either a small business owner already or someone that hopes to be in the near future. I have talked with hundreds of small business owners over the years. I could have been talking to a client of my painting business that started an investment firm that brought in billions of dollars, a tech company that he sold to the government or a magazine owner that sold out to her partner.
Or maybe during my consulting days when I helped a hardwood floor contractor, a graphic designer, or a franchisee. Or interviewing a guest on my Small Business Naked podcast such as the founder of 99designs co-founder Matt Mickiewicz, Billy-Bob-Teeth founder Jonah White, or the ever so funny queen of comedy and owner of Comedy Works, Wende Curtis, they all have a few things in common in order to stay in it for the long haul. They know how to make money. If you watch Shark Tank on NBC/CNBC, you are familiar with Mr. Wonderful, Kevin O’Leary. He is famous for saying: “It’s all about the money.” But I don’t think most people know what that really means.
To be a success you need to first, have a product or service that someone else wants to buy. If it is very main-stream, you will have a lot of competition. If it is too niche, than it may be hard to find customers. Then, once you have that product or service, you need to get the word out. Spend too much money on marketing, and you will have no money left over at the end of the day. So it is all well and good to build a better mousetrap, but you need to have customers that are willing and able to spend their hard earned dollars on what you have to sell.
If you figure out what to sell, and how to sell it, then, you need to know how you are going to provide it or produce it. Many entrepreneurs start out by producing and servicing their customers themselves. Either they are a single operator, solopreneur, or mom and pop shop. This is a dangerous long-term place to be, and where many small business owners go to die a slow death. If you are the pin that makes everything happen, than nothing gets done without you, and there is no real business. You just have a job. The REAL power in owning a business happens when you build a system of creating value for your clients. You create the system, then you manage the system, or even better, you have others manage the system. You will need a system for sales, a system for production, a system for accounting, a system for payroll, a system for marketing, and a system for quality control. Without these systems, you do not have a business. You just own a JOB, and it will be the worst job you have ever had, because you will end up working for pennies, long hours, and will most likely not have customers that are excited to do business with you on a long term basis.
BUT, the most important part of all of this, and this is something that most business owners forget to worry about. I have left it until last because it IS the most important, and I want you to remember it. THE MOST IMPORTANT THNG IN BUSINESS IS PROFIT. Hard to believe, but it is the one thing that is almost an afterthought with most small business owners. Profit is NOT a four letter word, and without it, you should not be in business. So what is it you ask? Profit is what is left after you deduct t all your expenses for doing business. This should include your overhead (rent, telephones, marketing, etc.), all of your direct costs (cost of goods sold, labor, sales commissions, etc.), and the one thing most small business owners forget…their salary. Most small business owners forget to pay themselves first. What you take home, is not necessarily profit. You can take home profit, but it should be after you have paid everything else. A health small business should pay the owners for the work that they do, and should be able to pay out 5-10% in profit. Now that money can also be invested back into the business for growth, but only after the owner has taken a salary.
For the first year or two, a business may not be able to pay out much of a salary to the owner, but that is why it is so key critical to keep expenses low, and to focus on providing the owner with an income as soon as possible. Things that can negatively affect this are: rent, loan payments, capital purchases, and marketing. Watch these areas like a hawk. And think, for every $1 you spend in this area, it most likely needs $4-5 in gross sales. So, watch the numbers close, and keep it simple.