The purpose of this post is to help business owners get control of their business. This is a straightforward (simple but not easy) explanation of why many business owners struggle with revenue, profit and how to really make money over time.

“Many small businesses, medium businesses, and even some big ones are barely surviving. The guy driving the new Tesla, whose children go to private school via chauffeur and who lives in a massive house and runs a three million-dollar company, is one bad month from declaring bankruptcy. I should know; he’s my neighbor.”

“Today is the day you make your business (and your life in the process) financially strong. Permanently.”

Pretty much every business owner is interested in growing their business. There is an inherent belief that Bigger is Better and if things are tight on the financial side, you can grow your way out of it. Revenue solves a lot of problems. Unfortunately, revenue also masks a lot of problems, when money is coming in easily most people don’t worry about the details or even how much they are spending.

“One day I learned that no amount of talent, or ingenuity, or passion, or skill would change the fact that cash is still king. I learned that a nine-year-old can master the essence of financial security: save your money and block access to it so it doesn’t get stolen by you.”

What are the Challenges:

1. Focus on Top Line Revenue – it doesn’t matter how big your business is, it matters how healthy it is and top line revenue can’t tell you anything about health. In fact, a bigger business that’s not healthy is a much bigger risk.

2. Human nature – We’re inherently wired to spend what we have, eat what’s in front of us. When we make more money (revenue) we will spend more money, which doesn’t leave anything for profits.

It ties back to how we look at the game of business – the old business class equation is:

SalesExpenses = Profits

Using this approach, this mindset means that Profits are what is left over, but human nature drives us to spend what is in front of us, therefore Expenses end up cancelling out Sales, often leaving us with NO Profits.

What if you were to change the equation?

SalesProfits = Expenses

Mathematically it is still the same equation but in terms of how you think and operate your business, it is vastly different. If you take your profit out first, then your expenses are now left over – forcing you to be creative and challenged on how to keep the doors open. The end result might be the same as you feel today but at least in this case you are taking money home.

Taming the Beast (Your Business is a Monster)

Like Dr. Frankenstein, you brought your creation (your business) to life with nothing more than imagination and hard work. At first it was a miraculous thing that you created but as it grew, it became stronger and hungrier. It’s hungry for your time, your hard work, and mostly hungry for your money.

The answer isn’t more growth. When you continue to spend what you make, more isn’t better. The bigger your monster gets, the more it takes to feed it. Payroll goes up, capital expenses, rent, marketing costs, things you need, things you may not need but think you need – all of it costs more and more money. Therefore, you scramble to sell and to collect just so you can cover this week’s costs (and feed the monster).

That’s when you fall into the Survival Trap. You get creative on how to find more money just to cover this month, but most of the time those efforts take you away from your long-term vision, so next month you are even farther away from where you wanted to be then you were before.

Here are some Keys to Success

• Your mindset: If you really want to lose weight and keep it off, it requires more than a temporary diet change…it requires you to adopt a healthy lifestyle. That is what this method is all about. You must go into it with the idea that you are fundamentally approaching your business differently.

Cut Debt and Expenses: You must get your costs under control which may require extraordinary efforts at first. You may have to lay off employees, get rid of services, and re-negotiate for better pricing. If you don’t get your costs under control, you will not generate a profit and you can’t just ‘grow your way’ out of it. Learn to enjoy a cost-cutting, frugal mindset.

• Create efficiency: Find a way to make things as repeatable and systematized as possible. Challenge yourself to get 2X the results with ½ the costs. By thinking big, you are more likely to uncover a breakthrough in efficiency vs. saving just a little bit of time here and there.

• Get some Accountability: It will be difficult to build up new habits and exceptionally easy to fall back into bad, old habits. One proven way to mitigate that risk is find someone to help hold you accountable. That could be a coach, a peer group, or a partner.

How do you escape the Survival Trap?

Next week we will cover How This Method Works