For anyone who has started a new business after a lot of hard work and effort, and is now getting revenue into the till, there’s a moment where a new reality sets in, and you hit an inflection point where the focus shifts from “How do I get this thing started and keep the bills paid?” to “How do I make a profit?”.
“Profit”, in the small business world, is essentially putting yourself, as the leader and owner, in a position where the business generates enough cash to not only sustain itself, but sustain you.
That is, you’re drawing a fair and reasonable salary that properly reflects all the work you are putting into it, as well as having a positive bottom line that includes that salary on the expense line.
How can you lead your small business to that “real” profit?
I’ve had the opportunity over the past year to be a part of an executive team of a small business here in Portland, Oregon, Tender Loving Empire, (TLE) that is on our way to get over that hump, and we’ve focused on 5 things that have made a big difference for us:
- Hire precisely and meticulously – I know, that sounds impossible, right? It’s really not if you put the time and effort into it. DEFINE your jobs and their responsibilities ahead of time. Think through the kind of person, and personality, that would fit that job. Document it thoroughly, then once the job is posted and the resumes come in, screen them carefully, and use a tool that can help you hit the target precisely – we use a tool called the Predictive Index. Then, take the time to do personal interviews of at least 30 minutes. Hiring right is critical!
- Get the books done by real bookkeepers – So many small biz owners take on the accounting stuff themselves even though it’s clearly not their area of expertise. And so, the books can get jumbled enough to where the path to profit is hard to discern. Once you can afford a bookkeeper, or an outside accountant, or better still, both, don’t waste your time, and hire them. And get a good well priced accounting software – my fav is Quickbooks Online.
- Do line by line budgets and forecasts – I can’t tell you how valuable of an exercise this is – to sit down and literally analyze (and predict the future of) every single aspect of your business. What will happen is that your depth of knowledge of the business will expand greatly, and you’ll get a much better sense of which line items (I call them the “moving parts”) mean more than the others. Do it for at least the next 12 months, and then compare how you actually did against it.
- Track and track and track, and then predict, your cash – Cash management is not a lot of fun; who’s ever loved balancing their checkbooks every month? But do it we must. Those bank statements reveal the heartbeat of the business, and setting up your own spreadsheets to track (and then predict into the future) inflows and outflows on a weekly basis is one of the best exercises you could ever sit down and do. What it reveals are the predictable rhythms and cadences of cash flow, and the more you have your ear to them, the more savvy you will be in managing this most precious resource.
- Stick to your values and culture – There is never a more urgent need for a more human leader than during this time of great change and transition. The values you set up on the day you opened for business have to still ring true and loud, even when you have grown to over 30 employees in multiple locations (as we’ve done at Tender Loving Empire). As I’ve said many times when I talk about my 8 Principles of More Human Leadership, values are “the glue that hold all of us together“. At TLE we are dedicated to “provide opportunity for artists to be seen and heard, thereby empowering the community we live in”, and it’s been a constant from day 1. If you want to “see” what all this looks like, visit our TLE website and spend a few moments there and you’ll see what I mean.
Then focus on all of these 5 things yourself and for your business, and get to that profit.
Lead (your small biz) well!