Ok, so 2014 is behind us. But how many times in the last year have you said something like this?
– If only I could get more money for my business.
– I have too much debt, but my business needs cash.
– Where am I going to find funds to meet overhead and payroll next month?
In investing, Warren Buffet is famous for the quote “Rule 1: Never lose money, Rule 2: Never forget rule #1.” Maybe we need to start treating our business more like an investment!
Money is one of the top reasons that marriages and businesses fail. And if you are an entrepreneur AND married, you know all too well that the money lines between business and home overlap….big time!
So let’s get on the solution side of this. In general terms there are only two ways to fix the money problem.
1. Bring more money into your business.
2. Have less money go out of your business.
Ok, ok…I can hear you saying “Gee, that’s brilliant!” But stay with me on this and we’ll break these down so they make sense.
#1 – Bring more money into your business
Debt is certainly a possibility for getting an influx of cash to your business and should be researched. But debt should be a last resort when possible.
There are different kinds of debt, with different risks and costs.
Signature loans: You usually have access to smaller amounts with a signature loan. Rates may be based on your credit and generally higher than collateral backed loans.
Small Business Loans: You might qualify for an SBA loan or home equity line of credit. Both ways generally require a significant amount of documentation showing the ability to repay the loan or, in the case of a HELOC, you risk putting your personal home up for collateral.
Crowdfunding: This is the latest in the funding world and entire articles have been written on the subject. It boils down to you giving up a percentage of your business to a group or individual investing in your company.
This might seem like a “no-brainer”. But do your due diligence here as well. It’s a huge undertaking bringing on partners. No matter how you attract them, where they live or how involved in the business they will be, know everything you can about them and the particulars of the partnership.
Fundraising: This might be considered a cousin of crowdfunding. With hundreds of sites like www.kickstarter.com you can enlist strangers to support your company, usually in lieu of a small gift or special pricing on your product or services. Just be sure you can afford to provide what you promise.
You do not give up any percentage of your business here, but you do need to design a campaign that will draw in people and get them to support you. While this might be easy for friends and family, you will also need to be attractive to strangers viewing your campaign.
Go to several funding sites and see what you are drawn to and what turns you off. To do these effectively, it needs to be more than a “please help me” program. You need to answer the “What’s in it for me?” perspective of potential supporters.
Personal saving or credit cards: Chances are you have maxed out this form of funding already. But if not, be sure to look at it from a holistic point of view. Just because you have available credit on a credit card, doesn’t mean you can afford it.
If you deplete all of your savings, what will you have to fall back on for yourself or family?
If you are considering debt as a way to get cash into your business, be careful and research all your options with an open mind.
Instead of additional debt, you should look at how to best increase sales.
Where/how are you making sales now? What can be done to do more of that? It might sound simple. But look at what works and see how you can replicate that.
What isn’t working? If you are spending money on marketing that is not bringing in sales. Stop. Focus on something different. You might need to test and try to see what works best. But don’t hang on to a marketing tactic that is not working out.
Talk to your existing customers. Find out why they chose you. What attracted them and what would make them recommend you to someone else. Existing customers are a goldmine. After all, they paid you money! Find out why. But you will need to ask them. They won’t come running to you for your marketing answers.
If you talk/email/survey your customers, be sure to ask the right questions. Generally you will want to ask “why” as opposed to yes or no type questions. Follow up to thank them or address any problems or comments you found helpful in their responses.
Once you have a customer, what else can you do for them? Are there complimentary services you can offer at the time of the sale or in the near future?
The dealership where I bought my car sent me a coupon for 10 oil changes for $149. Not only is that a good price for me, but it keeps me coming back to them every few months. Creating opportunities like that will keep you in front of the customer for referrals purchases or repairs in the future.
Put yourself in the position of the customer. What might they need next because of your product or service? Is that something you can provide? At some point I will need tires on my car. While I’m in for an oil change would be a great time to offer me new tires.
Margins are important
Of the sales you are making, which ones bring the most profit? Why? You’ve probably heard that 80% of your income comes from 20% of your customers. How can you better cater to those 20%?
What if 80% of your problems or costs come from the bottom 20% of you customers? Can you fire a customer? YES. It might seem counterintuitive. But letting customers go that are costing you money might be needed from time to time.
What does it cost to attract, sell to and keep a customer? If you can’t answer those questions, you need to do some work. Spend the time dealing with and researching your current customer base. It is the least expensive way to increase sales.
#2 – Have less money go out of your business
This is the bootstrapping part of your business. Maybe you feel you are doing this already. But it warrants a second look.
If you don’t have a budget, get one…now! Just like you should for your personal finances, a business needs a budget too. If you don’t know where the money is going or why it is going there, you could be in trouble.
Ask “why?” to all your expenses. Are some of them things you do without or cut back on?
Some items are directly related to your sales and some are not. For instance, if you are a plumber, the truck you drive is probably needed to make calls and therefore is quite important to bringing in sales.
Conversely, having cable TV in your office probably won’t increase your sales in any way.
No one likes to cut jobs. But make sure that anyone you hire in your business is necessary to make or increase sales. If you go out of business because you can’t afford your staff, everyone suffers.
Start 2015 off right by knowing your numbers. Get a budget. Follow it. Research your customers and interact with them more often. Find ways to provide value for them that will produce additional or recurring revenue.
Bottom Line: Get serious and ask “Why?” to all your expenses, features, benefits and pricing.