Money isn’t everything, but it does tend to keep a business running. Unfortunately, many small business owners struggle to become profitable without knowing why. They just can’t figure out why they aren’t having financial success.
According to Inc.com, 96 percent of businesses fail within ten years because they can’t pay their bills. The problem is businesses focus heavily on profits, and while that sounds logical, profit is somewhat of a theory.
Having a profit and loss income statement that shows big profits may not paint an accurate picture of your current situation. If your books show high profits, but that cash isn’t available in the bank to take out and pay your bills, you’re not actually profitable.
Why the discrepancy between ledgers and tangible cash?
Part of the problem small businesses face is they often pay their vendors on time, but have to sit back and wait for clients to pay up. This puts a huge squeeze on available cash flow.
While your books might show a $10,000 profit for last month, if your clients haven’t actually paid up yet, and you’ve already paid all your vendors, the profit isn’t tangible. In other words, there’s no money to take out of the bank.
If this cycle continues, you’ll eventually fall behind on bills and you’ll have no choice but to shut down.
If you want to put tangible, financial success in your sight without having to struggle with theoretical profit, here are some tips you can use to make it happen:
Define what financial success looks like in measurable terms
Financial success is more than just money in your bank account. Even if that’s all you want from your business, you still need to be specific about what that looks like or you’ll never know when you’ve achieved it.
Success is one of the more subtle things many business owners fail to define. Chasing the vagueness of success is the best way to keep yourself stuck in a rut – always in pursuit, yet never achieving true success.
Success should be measured in terms of meeting a specific goal you set out to achieve. That goal could be anything. Success might be selling a certain number of products, reaching a specific sales target, or receiving letters from people all over the world who have been transformed by your work. It doesn’t need to be financial.
When you define success in terms of achieving specific goals, you not only force yourself to set goals, you set yourself up for perpetual success. As a business owner, you’re always going to have goals, and that means you get to celebrate every time you achieve them.
It’s all right if you don’t know what success looks like to you yet. Keep inquiring until you can define it. Don’t blindly wander around in search of success until you can pin it down.
Create milestones and tasks connected to each goal
If you haven’t heard of SMART goals, it’s time to dive in. A SMART goal is designed to help you reach your goals more efficiently and stop wasting time and energy spinning your wheels.
SMART is an acronym that stands for “Specific, Measurable, Attainable, Relevant, and Time-Based.” What this translates to is a methodical, fool-proof system for achieving goals.
- Means clearly defining the objectives you want to reach. They’re not vague in the least. For example, a specific goal might be to double your profits by the end of this year. It’s simple but specific. Once you’ve determined your specific goal, you can identify milestones to reach along the way that will show you’re reaching your goal. Milestones are created by working backwards, starting from the goal, and asking yourself what needs to happen to reach that goal.
- Means creating milestones that you can tangibly track and say, with certainty, have been accomplished. For example, a measurable milestone based on the goal to double your yearly profits might be to double your sales each month. In this case, you’ll have a milestone to reach by the end of each month that will tell you if you’re on track.
- Means your goal is realistic. That doesn’t mean you can’t stretch your imagination or throw your hat over the fence to work magic. The definition of realistic is relative to each individual, and will vary greatly in every market. If your goal is to be the recognized authority in your market, it might be challenging but it’s definitely attainable. If your goal is to be the next Richard Branson, you may need to rethink that one.
- Means your goal matches your business model. For example, if you’re a massage therapist and your goal is to increase your client base by 5 new patients per month, your goal is relevant because your business model centers on building client relationships. However, if your goal is to build an authority website on massage therapy, that might be a worthy project, but it’s not relevant because it’s not going to bring clients.
- Means you’ve established a specific deadline to meet your goal. For example, you might set your goal to obtain 20 new clients by March 10th, or to have the first draft of your book in your editor’s hands by April 26th.
Bank with local banks and credit unions
Local banks and credit unions aren’t average financial institutions. They’re actually structured to serve the people in the community.
Being profitable requires, in part, saving money wherever you can. Banks are notorious for charging high fees for just about everything. Most credit unions have an extremely low minimum deposit to open an account ($25-$50), and don’t charge a monthly fee. There are many local banks that don’t even charge overdraft fees, proving that they exist to serve the consumer first.
When you’re a small business, every penny counts. One unexpected returned check for an expensive service or product can put a huge dent in your profits.
Accept alternative, digital payment methods
Companies like Square have made it easier for you to accept payments wherever you go, but there are still fees.
Not everyone has a credit card, but nearly everyone has a bank card attached to their checking account with a Visa or Mastercard logo, allowing them to use the card like any regular credit card. This makes purchases easier, but there’s a more convenient form of currency gaining popularity among consumers: Bitcoin.
There are numerous reasons to join over 36,000 companies accepting Bitcoin as a payment method, including lower transaction fees. Using virtual currency can save you between 3-5 percent of the revenue you’d otherwise dump into debit and credit card fees.
For example, Coinbase doesn’t charge fees to establish an account, nor does it charge termination fees. Once you reach $1,000,000 USD in merchant processing, they’ll only charge you a flat 1 percent per transaction to convert your Bitcoin payments to your local currency.
This completely bypasses the ridiculous processing fees imposed on merchants by credit card companies.
Accepting Bitcoin payments is also a great way to prevent fraud. Your customers can pay you without providing personal information like their name, address, or billing information. This makes the digital transaction safer.
Bitcoin also makes it possible to have more cash on hand because most Bitcoin payment processors put the money in your account within a couple of business days. On the other hand, credit card companies often hold your funds for an entire week to ensure there won’t be any disputes.
Be realistic about your financial success
You’ve heard about entrepreneurs who found financial success and bootstrapped their business working 80 hours per week, right? That doesn’t mean they had to do it forever.
When you first launch a business, you might have to work long, odd hours to get things started but if you’re making wise decisions, you should be delegating your tasks and automating many of your processes.
If working 80 hours per week is the only reason you’re generating a profit, and it would all crumble if you stepped away, then your business isn’t really profitable.
Be realistic about where you are and what you can handle. Some businesses can get up and running in less than a year, but if you need more time because you’re raising a family or completing your degree, be easy on yourself. Instead of pushing to keep up with other people, stay focused on your own process.
Remember, slow and steady wins the race. If you burn out from trying to do too much at once, you won’t make it far.
Remember that time is money
To be truly profitable, you need to make sure you’re not over-exerting yourself when it comes to your time. A business working 80 hours per week isn’t profitable. If you’re constantly performing tasks that prevent you from executing your duties, you may want to re-evaluate.
In the beginning, you probably had to do most of the work. As time goes on, however, the small tasks should be delegated to others, once you know what you need.
I recommend, creating a standard protocol for how you’d like those tasks to be completed. At some point, you’ll have to let go of perfection and accept that others may not do things exactly as you would, but good enough is good enough.