In January of 2015, I stumbled onto the “Economic Outlook” survey from Kabbage. The first time I used the information from the survey in a training, I was focused only on one statistic, however, the results take on a whole new meaning to me now.
So now that we’re close to starting the new year, and you’re hopefully thinking about your new goals for 2016, it’s important that you understand the true meaning behind the survey results, which I outline below.
When I see these results, I see insanity. Small business owners, which mostly means self employed which actually means job owner, are stuck in this thought process that is leading them to repeat the same efforts year after year, getting them the same results.
In my own business, I made a goal that every year I would double my revenues from the year before. And after about year 3 in business, I successfully doubled my revenues for about 6 years.
Here is what I didn’t realize until recently, when I got the right information, 1. profits and revenues aren’t the same thing, 2. although I was increasing my revenues every year, I wasn’t always increasing my profits, in fact, most of the time, profits were the same or slightly higher, and 3. if I didn’t change the way I was growing my business, I’d always get the same results.
When I review the results of the survey, I see a bunch of people who have been trained to be “job owners” not “business owners”.
What’s the difference, a “job owner” has to show up everyday in order to get paid, a “business owner” leverages a system that works even when he doesn’t.
I was a “job owner”, which meant I had to put in twice as much work year after year to reach my goal of doubling my revenues. Which leads to another difference between “business owners” and “job owners”, systemization, which I’ll talk about in another article.
Hopefully I can use the survey results to help you think differently about your goals for 2016.
The survey starts by putting focus on the fact that in 2014, 7 out of 10 businesses experienced revenue growth.
From the surface this sounds great. However, thats until we realize, revenue growth and profit growth are two different things.
You can increase your revenues without increasing your profits, and in some case while decreasing them.
How does this happen? I’ll touch on that after we review the rest of the stats.
Half of those surveyed were expecting to grow by 20% in 2015. While an overall 95% expected some level of growth.
Only 40% said they were expecting to make fewer personal sacrifices in 2015. Things like, forgoing vacations, using personal savings to fund the business, reducing personal expenses to keep more money in the business, etc.
Does anybody else see anything wrong with that? Isn’t the goal of business ownership to provide for a good lifestyle? Ah, did you notice I said, “business ownership”?
If your lifestyle is suffering at the expense of your business, you’ve done something seriously wrong. And you might even be fighting too hard to keep a sunk ship from sinking.
The majority, 70%, plan to grow through product and/or service expansion.
Which means they’ll add new products/services or build upon those products/services they already provide.
Others, 52%, say they will invest more into marketing.
Meaning they’ll start using social media, search engine optimization, blogging, you know all the things we’ve been told to do for years now. In fact 50% said they will invest specifically in social media marketing.
It’s depressing enough to read that 52% of business owners currently work 60+ hours a week, but to see that 30% plan to work even more hours, this is not a strategy, this is business and relationship suicide.
I’m all for working hard and putting in the effort required for success, but when somebody tells me they’re working 60+ hours a week, it’s usually because they lack focus, resulting in low productivity, and they’re most likely “wearing too many hats” (sales, marketing, accountant, operator, customer services, etc).
Primary Concerns for 2015
This was the icing on the cake.
Cash flow and access to capital were the top concerns for business owners in 2015.
With the expectation of growth, 48% said they are concerned about being able to get capital to fund the growth. The majority will have to rely on alternative funding solutions like bootstrapping and crowd funding.
Here is what I hear, and honestly, when I work with business owners, it’s what I see.
Cash flow is a problem because while their revenues are up, so are their costs. And because they cant get access to seed money (capital) they’re using more of the cash flow to fund the upfront costs of their growth.
If a business cant get funding, it’s generally because they are at break even or in the red, and they’re likely already leveraging debt, making them too great a liability. Additionally, most small businesses, don’t have enough, or any, assets that a lender could use has collateral.
In my experience, the businesses with financial problems, don’t have bookkeepers and accounts, and have no financial education or understanding.
How to Increase Profits
I mentioned earlier, we’d talk about how you can increase revenues and lose profits, so here it is.
There are three questions that you have to be able to answer as a business owner; and once you know these answers, you make your decisions from there.
- What makes you the most money?
- What cost you the most money?
- What keeps your doors open?
Now don’t try to fool yourself, because I know, only about 15% of “business owners” know the answers to these questions.
Here’s why these questions are so crucial and how not knowing the answers can result in plateaued or decreased profits.
Remember from the survey, 70% of participants said that they were going to expand their products or service offerings.
If you don’t know which of your products/services cost you the most and which makes you the most, you most likely will pick the one the produces the most revenues. Which isn’t always the one producing the most profit.
If you expand the product/service that cost you the most, yes, your revenues increase, but so do your costs.
Depending on the type of business you have, will determine whether profits stay the same or decrease.
For example, if you’re expanding a service that cost the most money, that requires a level of expertise and you have to hire another person to help handle the increased business, you’ve added additional cost in another salary. If you’re expanding a product that cost the most, and requires an upfront investment to get through production, you’ll breakeven as long as the product sells.
Sit down and figure out the answer to those three questions right now!
Don’t repeat another year focused on revenue, create a plan to increase your profits, and then dump those profits back into the business for the first year.