Friends of mine who are business owners and my clients alike struggle with this question when I pose it. Not because it’s necessarily complex, but rather because its not something they want to face.
Typically, it is their busy season and cash is everywhere. They are feeling sharp…they are rolling along happy as can be. “So…are you making money?” I ask. “Well yah” they will reply.
How do you know?
“We’re busy as hell, the phone’s ringing off the hook and I need to find more staff! Its going GREAT”
Are you making a PROFIT?
Then there’s that moment…
First they look a little lost. Then, they look a little confrontational. Then, it shifts to the “I want to swallow my head and get out of here!” look
Plowing along, simply living and operating on cashflow doesn’t mean you are profitable. It might. But, quite often, it just means you’re flush with cash and, if you’re fortunate, you can just keep it churning along. BUT… eventually the frenetic action stops, the phones die down, the smoke from the treadmill you’re on clears and reality needs to step in.
With my clients, this is the point at which I sit them down and ask them a ton of questions, almost all of them relating to what it costs to deliver their widget or their service. Once they’ve given me that information I probe even deeper for the stuff they just didn’t realize has to be factored in (and believe me I dig in on this)!
Then I go away and I play on my trusty Excel spreadsheet and I paint the real picture of what it costs to deliver each of the services or widgets they sell. Then we have a sit down together. A lot of the time this isn’t a fun chat. The sprawling tentacles of expenses, fees, tools, operating costs, rent, inventory, admin, leases, insurance, shipping costs, repairs, taxes etc. etc. are laid bare. Hmmm…. That particular service doesn’t actually make us ANY money.
Ya, this happens alot. Just because you take an unprofitable service or widget and you sell it 7000 times
DOES NOT MAKE IT PROFITABLE!
YOU HAVE TO CONTROL YOUR COSTS, INCREASE THE PRICE OR TOSS THE SERVICE
And this is when YOU, as the owner, must be willing to accept that the numbers are real and true and do something about it. You’ll now know what DOES make money and what doesn’t. Keep and leverage the ones that do and get rid of (or significantly tweak) the ones that don’t.
To make that whole painful process happen, you need someone who:
- Knows the questions to ask you
- Will push you for your REAL expenses
- Has the tools to then illustrate what each service or widget actually costs you to deliver
- Will help you make the necessary adjustments
If you think your business might be living on cashflow, please reach out. If you don’t address it the cashflow treadmill, upon which you have been merrily skipping, will eventually toss you off.