We’ve all heard the statistics: 7 out of 10 new employer firms survive at least two years, and about half survive five years. According to the SBA statistic reported by SCORE in 2008 there were 627,200 new businesses, 595,600 business closures and 43,546 bankruptcies.
What can you do to avoid being on the wrong side of these statistics?
Here are 4 Key objectives to focus your attention to have a profitable business that come from the foundation stage and help you get to the survival stage of the business growth model.
So what are these 4 objectives?
- assure enough cash to meet financial needs
- prove a market exists by getting enough customers to survive
- provide service well enough to be create customer loyalty
- complete the necessary proper legal structure for the company
Even more important is understanding how focusing on these objectives will move your company to the next stage of business growth.
Assure enough cash
This objective a profitable business would seem to be self-explanatory, but if it is then why do so many companies go under because of lack of cash? It’s because many people starting in business don’t understand the concept of cash flow. Cash flow means money “in hand to pay bills. A signed contract or an invoice out the door doesn’t qualify. Depending on how long it takes you to deliver what was contracted and the terms and conditions of your order it could take you months before you see your money.
Do you have enough cash from when you started to carry you through this timeframe? What if your plan doesn’t go exactly as you think it will, then what. That’s why it is important to always look at a best case and a worst case scenario. While the worst case may not happen at least you know the range of possibilities and can plan accordingly financially.
Get enough customers to survive
While this objective for a profitable business also would seem quite obvious, do you really understand this objective well enough? How many customers do you need to break even every month? That is, how many customers do you need to keep the doors to your business open? If you don’t know this number then you are “flying blind” and your success is left to chance.
Remember the last objective – “get enough cash.” Once you know that target, then you must understand how many sales you need to make each month to hit that target. Your picture becomes clearer now and you know how much work it will take to keep the doors open. Add in what you want to make in profit and voila you have your goal to make it to the survival stage of the small business growth model.
Create customer loyalty
Now that you are getting customers you need to do whatever it takes to keep these customers coming back and bring other customers to you. This objective for a profitable business is your operational focus at the foundation stage. What does it take to make people say “wow, I want some more please!”
When you get your business to this point you don’t have to find new customers every month. Either they’ll come back for more or send others to you. Now, you get some part of your last objective accomplished without working at it. That doesn’t mean slow down your sales and marketing. It means the same amount of sales and marketing effort actual allows your company to grow and that growth mean moving to the next stage of the small business growth model.
Proper legal structure
Finally, we get to the administrative objective. A proper legal structure is more important than for just taxes and legal purposes. It also demonstrates that you are a real business that is serious about what you do. Many companies check a business’ status before they will place an order or even spend time talking with them. If you are serious about your business make sure you demonstrate all the traits of a serious business that means putting the proper legal structure in place.
Additionally, there are tax and legal obligations that come with doing business. Not having the proper legal structure creates risk and exposure to you and your family. The tax and legal obligations will eventually catch up with you. Understand what they are up front so you can plan appropriately. If you don’t they can kill your business later or at least slow down your growth for a time.
So, are you focused on having a profitable business?
If you do not have your eye on any one of these 4 key objectives then you are leaving your company’s success to chance. I am not saying you won’t be successful, just that the chance are less and that it may take you much longer to realize that success. By having a lack of attention to these 4 key objectives you lower your chance of having a profitable business.
I’d like to hear from those of you who have not been focused on one of these objectives for a period and then when you did focus on the objective how everything started clicking for your business. Share your story. Others are in a similar situation and your guidance could put them on the path to success.
Great points, Dino.
However, I think you’ve left out some important factors. A strategy, for one, is absolutely necessary before you even begin to produce. Will you be the low-cost leader or the differentiated competitor? Without that you’ll be struggling to move-ahead for lack of direction and market position. Especially in a highly-competitive market, your competition will destroy you if you don’t have proper position and standing as a competitor
Secondly, in my experience running a store your location and overhead are everything from a profitability standpoint in the retail, manufacturing and even service sectors. I’m thinking from a lean standpoint.
Good article,
Jeff
Jeff,
Thank you for the comment, and while I agree with you regading strategy and differenitiation, these are secondary objectives. Too frequently businesses get distracted by all the secondary issues and don’t take care of the primary objective.
This article as well many of the recent posts are from my research regarding small business growth. The Harvard Business Reviews study on this topic provide a wealth of infomation that was very insightful. I plan to make it the focus of discussion for much of the upcoming posts. So, stay tuned for more!!!
Thanks again for your comment.
– Dino Eliadis
Great information, but there is a 5th cricial element also. You must diffenentiate your company from the competition.
Bill,
Thanks for the comment. While I agree that differentiation is critical to marketing a small business according Harvard Business Review whitepaper entitled The Five Stages of Business Growth by Neil C. Churchill and Virginia L. Lewis the items I posted here are the primary items necessary. (See my reply to Jeff as well above.)
Thanks again Bill for your comment
– Dino Eliadis
[…] you want to accelerate startup growth. A while back I wrote an article title 4 Key to Creating a Profitable Business. In it I covered the specific objectives critical to startup companies getting out of the […]