Have you ever wondered why some small businesses are successful and others aren’t? Is it based on luck? How hard you work? The current economy?
If you are trying to start your own business or even re-evaluating your current business model here are some things to consider.
The goal of any small business is to come up with a business model that is ready for market and also able to support itself (after initial funding). A business that can’t support itself long term is either a hobby or will turn into a money pit for owners/investors. A quality business model will turn into the foundation for a successful business that can grow into whatever you like.
So, what does creating a successful business model look like? Or, what should you evaluate your existing business model for to ensure success?
A modern, knowledge-based business. All you need to get started is a computer, some internet, expertise in some area, and a desire to use that expertise to help people in need of it.
A well-defined product or service offering. In order to one day grow, your business will need the ability to produce and sell beyond the capacity of a single owner. By creating a well-defined set of products and services, you can ensure that you can hire or train staff to fulfill that need. Additionally, while it is tempting to branch out and take on every possible project/client when you are first starting out, custom work, changes to workflows, and learning new topics takes valuable time away from simply finding MORE of your ideal client for which you already have a product/service offering built out. In short, the more time it takes to fulfill, the smaller your profit.
A repeatable sales process for each and every product or service you offer. This ties back into the point above. By having #2, you can now build #3. This minimizes the time spent to fulfill a request/order, allows you to easily hire for growth, and maximizes the profit of each product/service. Build these processes into everything you do when you are first starting out, document everything, tweak your workflows to perfection so that as things ramp up, you are not scrambling.
Market fit. A business needs enough momentum via the product/service offering to generate steady, reliable revenue. This steady revenue stream is what separates “freelancers” who are always looking for the next “gig” to keep the revenue stream going, from successful businesses with the ability to grow. Basically, make/do something people want. Steady sales and revenue are a good indicator that you’ve established a product/service offering that your market wants and is willing to pay for.
Positive cash flow. Cash flow is like oxygen - your business can’t survive without it. If your business is unable to get to this step, you need to re-evaluate #1-#4. If you feel like you’ve achieved #1-#4, then it is time to scrutinize your expenses and figure out where you can cut or reduce costs.
While a lot of businesses are able to achieve #1-#4, a lot of small businesses have trouble figuring out #5 - positive cash flow. This requires that you do regular bookkeeping and are tracking your profit to expense ratio. Obviously, bookkeeping is a last priority for many small business owners as it costs time and doesn’t directly produce revenue, but until you have your books caught up and are keeping up with them regularly, you’ll never be able to fully understand and analyze your business’s cash flow. If this is something your small business struggles with, reach out to us today for help!