The myth most business owners believe: Most business owners think that if they just bring in more sales that profits will take care of themselves.
The truth successful business owners learn the hard way: You can increase sales dramatically and still end up going broke. Many new business owners are talented sales people and get their business off to a fast start. But, a successful business owner quickly learns that in addition to marketing they must also be good at finances and management.
Consider each of these as one leg of a three legged stool – if one leg of your stool is much longer than the other two you will quickly find yourself on the floor. But, keeping the three legs even is a never ending battle for the small business owners. Almost all business owners end up following the same pattern:
1. New business owners, by necessity, start off concentrating on getting customers. A business without customers is called a hobby.
2. Soon they realize that they must work on their finances. At this stage, the business owner often realizes that even though they have built up their sales, their business is running out of control. They frequently complain to me at this stage that they don’t know what they have in the bank, who owes them money, who they owe money to, what products are their best sellers and who are their most profitable customers. Then they end up being surprised by how much income taxes they owe.
At this stage, the business owner has to seriously improve their bookkeeping and management reporting. Also, they often need to improve their banking relations in order to obtain financing in order to even out cash flow fluctuations.
3. The next hurdle that a business owner typically hits is that they now have more employees than they can easily manage. So now they must concentrate on implementing management systems in order to ensure that their customer has a consistent experience.
At this stage the business owner also often realizes that the demands on their time are multiplying. Successful business owners become experts at delegating and time management.
4. After working on all three legs the business owner often thinks that they are done. But, they quickly find out that they are never done. At this stage they often have to revisit their marketing leg. In the beginning sales was the only thing the business owner concentrated on. Now, they find that their time is split between all three legs and the marketing leg now needs work. In place of 100% of the owner’s time they now must create a formalized marketing plan, marketing systems and measurement systems. Once again they are lengthening the short leg of the stool.
Lesson learned: Increasing sales does not guarantee increased profits. Also, what you don’t know can bankrupt you.