Did you know that almost all businesses in the U.S. are small businesses? It’s true! But here’s the not-so-great part: only a tiny 7% of them manage to make a million dollars in revenue.
Why do so many small businesses struggle? Well, it often comes down to one big mistake. Most of the time, the problem is that the business owner doesn’t handle the finances at the basic, individual level—like how much money each unit of the business is making and spending.
So, what does this mean for you if you’re trying to build a successful business? Well, before dreaming about huge success, you need to focus on getting things right at the smallest level possible. It’s like building the perfect business that makes a hundred thousand dollars before thinking about making a million.
Don’t fall into the trap of thinking, “I’ll worry about making a profit when my business is bigger.” Start by getting things right when your business is small, or maybe it’s better to walk away early before you waste time and money on something that won’t work.
Not sure how to do it? Don’t worry; we’re here to help. We’ll guide you through checking your business’s basic financial health right now, using a landscape maintenance company as an example.
First things first, identify what your unit-level economics are. In our example, it’s the costs and income for one truck, a two-person crew, and the equipment needed for the job. Now, build a simple formula to see if your business can bring in enough money to cover its basic costs and still make a decent profit.
Remember, this formula focuses on the money directly related to running the business and doesn’t include other expenses. Add up the costs, subtract them from the revenue, and see if there’s enough left over for profit.
But, there are always variables to consider. Things like fuel costs, worker expenses, and the money you spend on equipment can change. You need to keep a close eye on these things to make sure your business stays financially healthy.
Once you’ve got this small-scale formula right, you can figure out how to make your business grow. For example, if your goal is a million dollars in revenue, divide that by how much one unit of your business makes. This gives you an idea of how many units (like trucks and crews) you’ll need to reach your target.
In the end, the key is to perfect your business’s financial health at the smallest level. Nail that, and you’ll have a much better chance of joining the 7% of businesses that hit the million-dollar mark. Get it wrong, or ignore it because you think success is all about size, and your business might not make it at all.
