If there’s one thing nearly all entrepreneurs have in common, it’s a deep desire for freedom. We want to be our own boss, set our own hours, take time off when we want it.
Your business can totally get you the freedom you crave. But for that to happen, it’s got to be profitable. Your business runs on CASH, not warm fuzzy feelings.
There are two ways to make your business more profitable: increase revenue and decrease expenses. You’ve got inflow and outflow. It’s kind of like a water tank, with a whole bunch of pipes and valves and meters and fittings attached to it.
So you can see you do have a lot of control over your profitability. But you’ve got to watch out for the leaks.
Profit leaks can ruin your business just as surely as plumbing leaks can ruin your home. But profit leaks are WAY more common, and most business owners aren’t aware of these little freedom suckers.
Here are the top 10 most common small business profit leaks. Which ones can you recognize in your business?
1. Lack of Clarity
Most people are really unclear about all sorts of things in their business. I always start with clarity before we ever lay out a strategy for a client.
That is why my clients call me the Profit Hunter. One of the things I do when I work with a client is look for untapped market potential and find innovative ways to fix the leaks and generate profit.
For instance I worked with one woman who was selling online programs. She was frustrated because she wasn’t getting the kind of response she wanted. I made a few suggestions to package her products differently, and she went from $40K in sales over one month to $68K in 3 days, just by repositioning her already existing courses.
Lack of clarity is such a deadly profit killer, because if you don’t know where you’re going you go in circles. You can waste a tremendous amount of time and money getting nowhere. Or you can miss out on amazing opportunities because you don’t even know what to look for.
If you suspect – even a little bit – that you ‘re not 100% clear about what’s going in in your business I highly recommend taking my Profit-preneur™ Quiz. It will help you get the clarity you need to stop those profit leaks in their tracks.
2. Lack of Strategy
You would never go on a road trip without putting a destination in your GPS and figuring out the best way from A to B in the way you like to travel. But I see entrepreneurs doing that with their businesses all the time.
You might know where you want to go without knowing the best route to get there. And we’ve all heard coaches with the battle cry of “Just Get Into Action!”… So you start doing stuff.
And doing, and doing, and doing…
But wait – what ever happened to freedom?
Few people know the art of working strategically. And operating without strategy is a recipe for slaving away. It’s the expensive route.
But it’s definitely not first class travel. It’s like trying to move a pile of cinder blocks by lugging them across your yard one at a time, instead of simply filling a wheelbarrow (or better yet, a pickup truck.)
Unless you plan ahead you plan to fail.
Can you see how your strategy depends on clarity? (Go ahead – take my Profit-preneur™ Quiz. You won’t be sorry.)
3. Poor Project Management Strategy
Even if your overall strategy rocks, you can still leak away profits if you can’t execute it smoothly. You need a well-defined project management plan to make sure everything gets done timely and correctly.
If you think of your overall strategy as a road map to get you where you want to go, your project management strategy is the plan for using that road map effectively.
For example, if you want to make LA to New York City in 5 days, you have to log so many miles per day, or you’re not going to make it in time. You’ll probably want to set goals to reach a certain city each night to make sure you stay on track.
This is the very same reason we use milestones in project planning. That way if you don’t meet them you know you’re falling behind – and you can take steps to figure out why and fix the situation.
4. Marketing to the Wrong Clients
One of the biggest profit sucks ever is marketing to people who don’t value you and/or don’t have the money to pay your fees.
I see this a lot with business owners who are in the mode of wanting to help people. How many people will you help if your business fails? Not many.
The other place I see this is with business owners using fire hose methodology to try to market to everyone. It clogs their sales channels. Imagine Mercedes trying to market to the every person on the planet. How stupid would that be? It would just be a waste of time and money.
My marketing strategy is designed to weed un-ideal clients out. Much better to find the absolute sweet spot in your market and focus on that. Better for you, and better for your clients, too.
5. Trying to Do Everything Yourself
Here’s another huge trap people fall in. They’re either unwilling to make the investment to outsource competent staff, or they fall into the mindset that it’s simpler to do everything by themselves.
Take a step back and look at the big picture. Putting profit first means focusing on high payoff activities and outsourcing everything else. Invest strategically in hiring the right people who will get it done better and/or faster than you could yourself.
Remember, just because you can, doesn’t mean you should. (And if you can’t, you definitely shouldn’t.)
If you really want freedom in your business it’s important for you to put yourself in the fastest path to cash. The longer it takes you to get done what you need to get done the more time and money you waste. What activities bring you the highest return? Do those, and outsource the rest.
If you’re not sure what your highest payoff activities are, consider taking my Profit-preneur™ Quiz. It will reveal your Profit-preneur™ Type so you can better assess where your profitability sweet spots are.
6. Hiring the Wrong Team
Outsourcing is a great idea. But it’s of paramount importance that you only hire and employ the right people for the job.
I personally learned this the very hard and very expensive way. When I first started outsourcing I had really low standards and no clue how to hire the right people, and it cost me big time.
I’ve seen it with clients, too. I worked with one client who had a staff member I could see right away was bad news. But the client didn’t want to let her go. We spend untold hours trying to coach and train this woman, wasting huge amounts of time and jacking up expenses for my client. But that’s not the worst of it. When we finally got rid of her we found out she had been taking cash receipts, then pocketing the cash after “refunding” to patients.
The wrong team ultimately creates more stress and is a major profit leak.
But having a rock star team is a total profit accelerator.
7. Not Effectively Leading and Managing Your Team
There’s a difference between delegation and relinquishment. Everyone requires leadership, most require management. Unless you’re hiring C level executives, just saying “let me know when it’s done” and walking away is a recipe for disaster. It can delay your project and potentially cost you huge amounts of money.
There’s a difference, too, between a leader and a manager. A leader’s job is to inspire the mission and make sure everyone is enrolled in that mission and vision. Managers make sure everyone is on task and the project proceeds on time and on budget. The same person can be both, but don’t automatically expect a person who is good at one to be good at the other.
You need a manager to run the project execution. Whether that manager is you or someone else, depends largely on your personality and Profit-preneur™ type. (Click here to take the Quiz.)
8. Indecision (A.K.A Lack of Making Committed Decisions)
A committed decision shows up in two places: your calendar and your wallet.
One client I consulted with was scared to take the leap and rent the office space she needed when the perfect, affordable space became available. Someone else ended up snagging the space. Her hesitation has cost her over a quarter of a million so far in higher rent and lost opportunity.
The inability to make committed decisions usually comes from fear. Fear and indecision stifle innovation. Indecision in a leader is also the #1 killer of company morale. When innovation is blocked and your team is not 100% behind you, you leak profits like a sieve.
9. Inefficient Operations
Wherever you can put systems into place to cut inefficiencies you’ll come out way ahead.
I am a huge fan of automation. Trying to do things manually takes way longer, invites mistakes, lengthens your sales cycle, and like all the other profit leaks costs you time and money.
There are technologies we can use to automate. I’ll give you an example from my own business. I used to pay a team member to handle my calendar. It was costly, slow and cumbersome – it could sometimes take someone a week to get scheduled. Simply integrating my calendar with an automated scheduling system saves me $1,500 – $2,200 per month and is so much easier for me and my clients. Plus, the software I use integrates with my conference line and sends follow up messages to ensure my appointments show up. It’s all automated and provides for an exceptional client experience. And it saved me about $20,000 a year!
I’ve switched to automated systems wherever possible in my own business. I suggest you do, too.
10. Not knowing your numbers
I had a DJ biz come to me in a panic. I asked them to show me their P&L, and they didn’t have one. They were simply paying their bills when they saw money in their bank account.
So I took 10 minutes and ran their numbers. It was actually costing them $90 to serve a client. Every time they signed up a client at the price point they’d set it was putting them further and further in debt.
This kind of thing happens all the time.
Not knowing your numbers is like trying to follow a recipe by randomly eyeballing the ingredients. It could turn out OK, or it could ruin the recipe. You don’t know.
You have to plan for profitability in your business. You have to pay yourself and you have to charge accordingly for your business model to be profitable, or there’s zero point in doing it.
The Next Step to Freedom
If you’ve gotten this far and haven’t identified one or more profit leaks that are keeping you enslaved to your business, you’re either lying to yourself or you’re already rolling in money and opportunity.
In fact, I have yet to come across a business that’s absolutely free of profit leaks. Even if you’re already doing well, chances are you’ve still got a ton of profits lying latent in your business just waiting to be unlocked. (It is one of my greatest joys to help companies find them!)
But whether you’re satisfied or struggling, one thing you do have is control over your actions.
What will you do next to plug those profitability leaks and start living up to your ideals of what you want your business and your life to look like?
My recommendation: if you haven’t already, take my Profit-preneur™ Quiz [insert url] to discover your Profit-preneur Type. Knowing your type will help you gain a ton of clarity you can leverage into profits.
Then, visit us to see how we can help you accelerate your path to profit and freedom.
To accelerating your path to freedom and profitability,