As a business owner, you have worked really hard to open and keep open your business. But does it matter? Do you think it’s successful or is it really successful? How is that quantitatively measured? Here’s how to test…
People evaluate success in different ways but having a successful for-profit business depends on having more income than expenses over the long run at the very least.
You should also be able to enjoy life away from work without having to work 80-hour work weeks for the rest of your life so the quality of life is also something that should be taken into account when taking into account profitability (i.e. being able to pay yourself).
After all, if you find yourself working long, tiring hours just to keep your head above water, news flash: you’re doing it wrong. Being a business owner means you work on the business, not in the business. Working long hours is fine but only if you’re focused on the mission of the organization. If you’re doing menial tasks, you pay as well be an employee.
You should ask yourself the following questions to measure the profitability of your business in both terms of dollars and cents and in the quality of your life.
It’s worth noting early on that when you’re running a business, you need to take into account the money you would be doing otherwise. For instance, if your business earns $100,000, you’re not really making $100,000 per year. How much do you set aside to reinvest into the business? Say 50%. How much goes towards taxes? How much would you be making if you were working for someone else?
As you can see, it takes a lot of money to be successful in business. If you’ve never heard the phrase, “You’ll matter at a million.” it’s something to keep in mind. It often takes at least a million dollars in revenue per year to really make an impact on an industry.
How Do You Compare To Your Competitors?
There is always someone trying to take your clients. You need to be conscious of what is going on in your market and rivals to make sure that you offer the best products or solutions to your clients.
This can be carried out by regularly identifying how you compare against your rivals in the areas of market share, sales growth, client growth and marketing response rates. Marketing response rates should be reviewed by each advertising type such as monthly website visitors, pay-per-click marketing, magazines ads and other kinds of marketing.
Understand that if they are doing well, it’s important to make sure you’re doing even better. No excuses. There’s always a wave to bob and weave and strike in business that it’s always possible to get ahead of your competition.
Are You Able to Pay Your Bills?
Let’s hope so.
This should be a simple computation if you have the right techniques and procedures in position. You should not have to depend on your accounting firm to tell you if you are profitable. You need to have something in place that tells you throughout the month how you are doing such as a business dashboard that tracks the most important drivers of your business.
This dashboard will allow you to quickly make adjustments to your business if needed to improve business results.
If you are not successful or are not reaching your earnings objectives, then you should (1) evaluate current operations and find ways to make them more profitable by making your back office more efficient and less expensive, (2) evaluate all costs and remove needless ones or find less costly choices such as switching insurance carriers or telephone providers and (3) create new income sources or increase number of clients through new marketing initiatives.
Make sure also that you’re thinking long-term. Being in business is about controlling your destiny. This means you’ll know if you’ll be profitable in the future.
Are You Able to Perfectly Pay Yourself?
You are important.
There are many factors why you became a business owner. Maybe one reason was to sustain or better your way of life.
You should be able to comfortably pay yourself from the profits of the company. If you are having difficulties with paying yourself, then you need to perform some of the suggestions previously mentioned to improve income and reduce costs.
Remember what we discussed earlier? You’d still be making a certain amount of money working for someone else. So don’t let the day-to-day numbers of your business make you think you’re actually pocketing a lot of money.
Be sure you’re really able to pay yourself a good salary. One smart way of doing that is to open an individual 401(k) and put the approximately $55,000 in there as both the employer and employee.
Putting $55,000 towards retirement per year is a pretty cool opportunity anyway.
Are You Still Satisfied Being an Entrepreneur?
Given the stress and pressure of having your own small business, you need to do a gut check and make sure you still really like what you are doing. You need to make sure the effort is worth what you are getting out of it both financially and emotionally.
If daily you dislike what you are doing, it’s time to make a change. You may find out you like the marketing aspect but not running the whole thing. It is up to you to understand what makes you tick.
There are many ways to evaluate success, but this will get you started on understanding both emotionally and financially so that you can decide whether this business is worth further developing or you should just close shop.
Whatever you end up choosing, make sure it is the right choice for you.
Business owners have the right to think of themselves too. After all, a happy you is a productive you. And a productive you helps people. Put simply, you must be happy in order to help people. Many people think they’ll be happy after they begin helping people in business. But as Tony Robbins and many other insightful humans will tell you, deciding to be happy is the first step in everything.