Before I started my first small business I was working as a loans officer at a bank. My decision to work at a bank was mostly determined by the fact that I would have access to a phone so I could call my business partners as we developed our business. Hey, I was young and it made sense to me at the time.
This is back in the late 1980’s and early 1990’s. While working at the bank I was promoted to a commercial loans officer. As part of the training I was sent away for a week to learn what makes a business a good investment for the bank.
As I was building up my own business in the background I realised this was an ideal learning opportunity for me and my new business.
Here are the top three things I learned during that week. These tips have helped me throughout my 25 years to have a sustainable and enjoyable business.
1. Profit trumps turnover
It’s easy to equate bigger jobs and more money with doing well. Many times I have had the chance to grow my business. However I have paused and reviewed the situation. Often it became apparent that the outcome would be more stress and more turnover, but less profit.
The promise of big dollars can be mesmerising. It can interfere with our logic. We get excited and reckless. Work through the numbers and be clear on just how much of that turnover will end up in your pocket at the end of the day.
Work through the numbers and be clear on just how much of that turnover will end up in your pocket at the end of the day.
With new opportunities that promise significant growth, stop and check – what is the best case scenario of that new business partnership, or new stream of business? And what is the worst case? And where in the scale are you likely to end up?
The trick is to ensure growth remains profitable. Bigger jobs inherently should have bigger payouts but they also come with bigger risks. The risk needs to be worth the reward and vice versa.
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2. Have a broad client base
It is very tempting to latch onto that golden client that provides 90% of your income. You love them, they love you. It’s brilliant. But what if there is a management change? What if you become complacent and drop the ball? What if your key contact moves on? Suddenly your entire business is on fragile ground.
An entrepreneur considers one source of income as a risky situation.
Your gravy train has just run out of steam. When I was at the bank, having all the eggs in one basket was a red flag. It was risky. An entrepreneur considers one source of income as a risky situation. An employee considers it safe.
This doesn’t mean you can’t niche your services. It just means you don’t have one major client for your business. A broad client base will help sustain your business through the highs and lows. And if you can cover a few different industries, you can ride cycles as they occur.
3. Know your numbers
The number one reason for business failure is because the owners aren’t on top of their numbers. On this course I learnt to read a balance sheet and a profit and loss statement. These days your accounting package gives you a dashboard that quickly summarises your situation.
As a business owner you need to understand your accounts.
As a business owner you need to understand your accounts. You should set yourself goals each month and break that down to a easy number or two. For me I understand my margins so by looking at my turnover I can tell how well I am tracking. That makes it simple to set an monthly (and weekly) target.
The value of this is mostly when you miss the target. Because I know what I should be getting, when I’m short of the target, it reminds me to ramp up the marketing; makes some calls; follow up some clients. Without having this reference I could cruise along oblivious to the oncoming iceberg.
It’s funny where the lessons of business (big and small) and life come from. It never occurred to me the value I would receive from that short term job all those years ago!
What are the key lessons that sustain your business? Tell us in the comments below