Last time we were together, I told you about things you need to put ahead of and behind profit in your business. Let’s call it good, as far as knowing what should remain central. God, family, healthy marriage, people you care about (like our online mastermind groups for me), your team - they need to be front and center … and keeping the government happy by paying taxes.
You also know who needed to not only get off the bus, but eat a mouthful of dust as you hit the accelerator - pride and greed. Well, now we’re going to talk about two dangers with your business’ revenue. One’s obvious, the other one’s not. For reference, I want to recommend you pick up a copy of Profit First by Mike Michalowicz. We’re studying it intensely in our masterminds online this month. It’s how we teach all our members to properly manage business income.
You might say your business is on an “ascending spiral.” This is a spiritual term that describes how we operate - never perfectly, always at risk of spiraling backwards down the hill. Always needing to learn new things, always wrestling with maturity issues. Since business is a human activity, it’s going to have similar problems. It’s one reason we recommend investing in business coaching services or mastermind groups. If you’re looking for the day you no longer need extra eyes on what you’re doing … that dog won’t hunt.
This is the easier danger to spot, for obvious reasons. At a basic level, the CPA definition of “profit” does matter. A business without income, or sufficient income to cover its operating costs is as poor as a church mouse. You have to be earning more than you’re spending for your business to do what it’s supposed to do at a basic level - provide you with money to live on.
Entrepreneurs get into trouble if they have too many eggs in one basket, like relying on one single client for 80 percent of their revenue. If that relationship fails, all kinds of things get compromised. Mike points out in his book that a lot of business owners operate on a check-to-check basis and think, “All we need to do is keep increasing sales, and the money will take care of itself.”
Well I don’t need to tell you, that’s some fuzzy math. Do we need to revisit how many earth-shaking economic events we’ve had, just in the past ten years? I hope you haven’t forgotten the mortgage crisis of 2008 and what that did to the unemployment rolls for the early part of the decade. But if it slipped your mind, I’m willing to bet the coronavirus scare brought things back into perspective.
When events like those happen, something happens to sales. One of the men in our mastermind groups told me even “good things” that make the world better have consequences. If you’re old enough to remember the 1980s, you may have heard of the “oil price collapse” in 1986. The price plummeted because of global political maneuvers by President Reagan to win the Cold War against the Soviet Union. He persuaded countries in the Middle East to ramp up oil production, which flooded the marketplace with cheaper gas.
So far, so good, right? Well, yes … but many people in the petroleum industry had some adjustments to make. Our member’s dad did business with oil giants in the Canadian province of Alberta, where they canceled his account to trim expenses during the price adjustment. Because that client represented over three quarters of his business’ income, he got wiped out in the undertow. You can’t argue that defeating the Soviet Union was a bad thing, but I certainly see that decisions and actions well beyond our control affect our sales.
This is what I mean when I say “the danger behind.” It means that your sales drop, but it also refers to things you aren’t really paying attention to. There are businesses that thrive during recessions, and ones that don’t. Being aware of which kind you’re in will help you to some degree, but it’s not enough to simply be aware; you also have to take action to plan for “inclement weather” in the economy.
The other danger you might not see coming is the opposite - sales speed up. Sometimes they grow faster than green grass through a goose. Mike says that when your income climbs, expenses quickly follow suit. A lot of men I mentor or coach have been through this. Suddenly, they find the magic of the marketplace, with increased demand for what they offer. But whether they lack maturity or necessity dictates they drastically increase spending, they put themselves in a position that threatens everything if sales don’t continue at their current rate.
You’d be advised to join one of our business masterminds for the danger ahead, even more than the danger that follows you. Chances are, if you’re reading this, you’re an entrepreneurial type of person. Maybe you have a product or service you’re ready to take to market, or you’re already busy doing that.
Let me remind you of the truth about our free market system. It’s a spiritual thing; we’d all love for it to be driven only by logic and math, but that’s not how it goes. You know this, from trying to persuade investors or customers. They make purchasing decisions with both emotions and logic. You might have a tremendous work ethic and personal drive; it won’t be any more useful than gum on a boot heel if nobody’s buying.
On the other hand, you have an opportunity to surround yourself with a board of directors by applying to join the Iron Sharpens Iron Mastermind. Not only will you learn all the principles and practices of Profit First, but you’ll also develop relationships in a safe place where you can be transparent, authentic and vulnerable. That’s where your character is forged - as iron sharpens iron, so one man sharpens another.