At some point every entrepreneur will have a sleepless night because they won’t know how they are going to make their next payroll. By the time these thoughts are passing through their mind they would have already missed some warning signs along the way. While this is a very tough moment to get through, it is also a very important moment. Any entrepreneur that is doing something worthwhile will eventually reach the edge of a chasm that they will need to get across in order to succeed. There is no greater pressure point than having to face the people on your team who pay for their life with the job your business provides.
“So what you’re telling me is that we have never made money?”
This was an actual statement from an actual entrepreneur that was not happy with our conversation. Everything I was saying was not making sense to an entrepreneur that had money in the bank, a house, cars and investments all paid for by his business. The problem was his business had never actually made any money. The business owed more to creditors that it was expecting to receive from customers and had negative equity on its balance sheet. Basically, all the personal wealth that this entrepreneur had was from the creditors in his business including the government, vendors and his bank. Cash flow does not mean profit and this entrepreneur was about to discover how big a hole he had dug.
“If you don’t know how much money you make, how can you possibly be calling the government tomorrow with a plan on how you are going to pay them?”
I received a call this week from an entrepreneur that was 24 hours away from having to call the government and give them a plan for how the business was going to catch up on missed payroll and tax remittances. This is a very frequent conversation I have on a weekly basis with entrepreneurs that find themselves in a tough spot. It is very easy to end up backwards with the government and other creditors but your ability to understand how your business actually makes money can be the difference between your business surviving, thriving or dying.
The greatest opportunities come from the most difficult moments
It’s easy to start a business. Some may argue it’s easy to grow a business. The truth is that every entrepreneur will experience a difficult moment (or many) that will lead them to one of two decisions: close down the business OR lean in and create real value. Tough times are where real lesson are learnt and experience is gained.
Humans are about creativity – machines are about productivity
There is a lot of talk these days about the impact that computers are having in the workplace. Similar to robots taking the jobs of assembly line workers we are witnessing computers take the jobs of administrators, bookkeepers and any one else whose primary task is to move information around. This evolution shouldn’t surprise us and yet many entrepreneurs are not taking advantage of these changes to easily grow their business. I think there is a simple reason for this and it’s based on a principle that at one time needed to be taught and now is simply baked into every business that offers a product or service to the market.
“A business will make money in a down market and collect it in an up market”
Running a business isn’t easy. Every day there are challenges, opportunities, tasks and issues that all contribute to where a business finds itself at any given time. To help get through the daily grind an entrepreneur will use business coaches, consultants, webinars, training sessions and many other tools to ensure they are building their business properly. While these tools are very helpful there are certain principles that an entrepreneur can follow to guide their efforts each day. One of those principles is understanding what your business is fundamentally trying to do each day – is it learning how to make money or is it collecting money and reinvesting the results? This may seem like a strange concept but your ability to understand it can have a profound change in how you approach the daily grind of your business.
It’s not unusual for an entrepreneur to remind me that they are not experts at financial “stuff” and simply know their product or service really well. The brave and confident ones tell me that they may not even know their product or service really well but that they can sell. Whatever the case may be I have discovered there is really only one formula that matters when it comes to business: