Many of my clients tell me that they want their business to be more profitable. They want to make more money. They want to see more money left at the end of the day. So we take some time to look at what they can do to improve the profitability of their business and there is always a common issue.
I don’t mean that they’re not working hard enough. In fact, many are working too hard for little to no reward. They also have accountants looking after their books, but the poor things are always working in the past and having to deal with what is been and done.
Many of them run their business like their own personal bank
I first came across this before I even ran my own business. I had friends who did and I was envious of how they were able to live their lives. They had the best of everything while I scrimped and saved to buy a few luxuries. Then their businesses went bankrupt.
Even though they had accountants supporting them, the business owners were treating every cent as their own and spending it (and then some).
Too often I see business owners relying on the prospect of better days to come, along with a flush business bank account (or overdraft), to justify to themselves that they can spend away.
While we toil away for the money the business earns, and technically every dollar of profit a sole trader makes is theirs, it sadly doesn’t make the business a personal bank.
Having been through taxation and financial statement audits, I am fully aware of how personal use of business funds is seen by regulators. While we may have worked hard for the dollar, sadly it’s not always ours to spend and the business (or authorities) may have earmarked for something else.
Not knowing what they need to earn to live the life they want and engineering their business to provide it.
Following on from running their business like a bank comes not knowing how much they need to earn to live. I’m not sure which feeds what but they often go hand in hand.
Look, running a personal budget is about as fun as watching paint dry or grass grow but that’s not what I’m leaning towards. This is quite literally how much money does it cost you to live the life you currently have, or the one you want, for one whole year and what does that mean you need to earn from the business (after expenses) to make this happen.
How do you do this? Go through your bills, statements, emails and add it all up. Then divide it by 12 for a monthly amount, by 26 for a fortnightly amount, or work out how many hours a week you want to work in a year and then divide it by that. Don’t forget to add some money into the budget for fun, emergencies, and savings.
The key is being honest and ruthless. Include the takeaway coffees and home-delivered meals. Include the haircuts, shoes, parties, birthdays, Christmas catering, and holidays away. Yes, you do have to be honest with the amount you spend on alcohol, cigarettes, and other vices.
If you’re not honest with how much you personally spend then you can’t expect an honest amount from your business or to make your way out of personal debt, using the business like a piggy bank, or becoming profitable.
Sabotaging their business activities so they aren’t profitable
I have to say that sabotaging the profitability of a business takes many forms. I find it heartbreaking to watch as a business coach. In the end, it comes down to fear and imposter syndrome – business owners are either afraid of success or failure, or they believe that they don’t deserve to be profitable.
These beliefs can come from a number of stories they play in their head. The fear of success can come from being told we would never be a success, that it’s bad, that it will somehow have a negative impact. The fear of failure can come from shame, being shamed, being in a highly competitive environment. Imposter Syndrome stems from what we believe others’ expectations are of us, being high achieving, holding ourselves to unrealistic standards, having been singled out as a tall poppy. These are just some of the most common stories I come across and it’s not conclusive.
I’ve known business owners who won’t open bills or bank statements hoping that they can avoid the reality of their failing business. I’ve known others who won’t post on social media, even though they have the skills because they are stymied by Imposter Syndrome and the fear of being called out. Others won’t send emails requesting payment or make calls to do the same for fear of upsetting the other person. Others refuse to send proposals for fear of rejection. Added to the previous two behaviours, plus countless others, there are many ways that business owners sabotage the ability of their business to be profitable or remain profitable.
How to solve these business profitability problems
There are a few things I do, over and above what I’ve already described, to help solve these profitability problems.
In the first instance, I have to get the business owner to take an honest look at what is happening financially, in their business and personally, so we can look at where we can minimise the loss and make the business more profitable.
I then have them look at their behaviour, or lack, to see what it is that they are doing that is impacting on the profitability of the business.
If their story around fear or imposter syndrome is an issue, then we need to address the story.
I have them look at their personal and business drivers & look at where they are not behaving in alignment to achieving them and how they can use an understanding of what drives them, and ultimately their business, to become and remain profitable.
Finally, and if they are ongoing clients, it’s my job to hold them accountable, remind them of the work they’ve done so far, the difference it has made, and encourage them to progress and make their business more profitable. I’m also there to help them when they slip and stumble, and they mostly do, so that they don’t add to any story and can progress with the business they always knew was possible.
I hope this article has helped with some sneaky ways I see business owners kill a profitable business. Please contact me if you want to discuss anything further.