In order to make more money, based on the way they are currently working, they personally need to work more hours.  The problem with that approach is that they’re already working more than they’d like to be working, and generally it’s been that way for quite a while.

I hate to break it to them, but they actually have a JOB, not a business. 

(Along those lines, here’s a great article from Steve Pavlina on 10 Reasons to never get a job!    He states things pretty strongly, but even as someone that had a job for 15 years, I think he’s right on the money.) 

So ultimately what is the problem with the small business owner being the constraint for their business?

1. They are trading time for money – either directly as an hourly rate, or somewhat indirectly as the only resource available to the business that can do certain critical functions (i.e. sell the product, make the product, deliver the service).
2. When it’s all said and done, their business, without them working it, isn’t worth much if anything.  The new owner would immediately have to jump into 50, 60, maybe even 80 hours of work, just to keep the revenue stream.  How much would you pay for that opportunity?
3. It’s exhausting…and you better hope that you don’t run into an injury or an illness that precludes you from getting the work done.

Having said that,  there are times when this isn’t a problem.  Almost all new businesses fit this description – potentially for several years as they’re in ’start-up’ mode.  Also I’ve met more than a few people that totally understand their situation and they’re doing exactly what they want to do and they have no plans to ‘sell’ their business when they’re ready to move on.

However if you’ve recognized that this isn’t the situation you want to be in, what can you do about it?  Ultimately the right answer depends on what kind of business you’re in and what you, as the owner, want to create.

Here are some high level ideas that might be helpful in brainstorming some next steps for your situation:

As a short-term fix, identify the non-critical functions that you could outsource to a service or an assistant kind of position.  This could be things like book-keeping, follow-up communications to existing clients, web site updates, ordering supplies, etc. 

This will give you some leverage, but ultimately you are still the bottleneck.  It’s a great short-term fix and a step in the right direction, but if you don’t follow-up with something else it will only get you so far.

Pick a key area that you could delegate to the right person.  Maybe you need to hire a salesperson to go out and be your rainmaker, leaving you with the responsibility of delivery (along with all of the other owner responsibilities). 

This can be dangerous for a couple of reasons:  People that are driven enough and talented enough to really take control over something are likely good candidates to start their own business or take the clients they develop with them to their next opportunity.  Secondly if you abdicate your responsibilities to your new employee, you might find out too late that they’re not getting things done the way you want them done.  The key is to delegate the work but keep the ultimate responsibility for quality, using key metrics to manage the situation as much as needed.

Productize the output of your business. 

If you’re currently making widgets by hand, can you find/create an automated manufacturing process? 

If you have a service business, can you create Do It Yourself products like books, audio solutions or videos that clients could buy to solve their problems without your direct help?

The beauty of this approach is that in a lot of cases it’s actually adding a revenue stream, not replacing one.  Having said that, it can be difficult to do well and as a lot of published authors can tell you, it’s difficult to make money from a book.

Change the game  – you’re seeing examples of this on the technology front a lot these days.  Before Apple came up with the IPod, mobile music was a Walkman radio or portable CD players. 

Amazon totally changed the way people thought about buying books.

Obviously this doesn’t apply to everything, but if you can come up with that new paradigm that the market adopts, you can write your own ticket!

Finally, here’s the long term view:

Create a set of business systems for all aspects of your business that minimize the skill level or experience of the employees needed to run them successfully. 

The perfect model of this is McDonalds.  Virtually every position in a McDonalds can be run by a minimum wage high school student with very little training.  All the employees need to do is to follow the system as written for their job.

This sounds daunting, and it can be.  However you don’t have to do this all at once.  If you pick one area and document what you personally are doing to the point that you could hand that document to a new employee, complete with metrics that measure success, then you’ve got the ball rolling. 

It can take a lot of time and a lot of iterations of improvement, but if you can do this across the board, you will be free of the day to day needs of your business. 

You will be free…and your business will be worth several multiples more than what it was worth before!

The best way to really make tangible progress on any of these ideas is to have a business advisor (or Peer Group Advisory Board) that you can use as a sounding board, help you with brainstorming and hold you accountable on taking actions.  If you think you’re in the market for this kind of thing, give me a call – I know some resources that can help. 

I’d love to hear other ideas on how to solve this dilemma.  Share your thoughts here.

Shawn Kinkade   www.aspirekc.com

Similar Posts:

• Are you looking for money in your business?
• Do you have enough Time?
• Who has the time for Social Media?

Unlike some CPAs, John does a great job of keeping things simple.  A big part of the discussion we had was on the importance of Cash Flow relative to the health of a business.

Discussions on Income Statements and Balance sheets are often where an accountant will take you - and those are very important things to keep up to date and accurate, but they won’t always tell the whole story and they’re often more complicated due to accounting standards and can be difficult to plan with.

As an example, the downfall of Worldcom was detected because their cash flow statement didn’t match the story they were telling investors.  The income and balance sheet looked okay, but obviously there was something going on.  It’s possible to create profit on accounting statements, but it’s much more difficult to create more cash in the bank account.

For a typical small business, cash flow becomes the most straightforward way to gauge how you’re doing.  Will I have money in the bank next month?  How about the month after that?  If I get a loan, will I have enough money to pay for everything and still service the loan? 

Obviously a consistent trend of spending more than you make is going to cause a problem.

Cash flow is also important from a planning perspective in order to successfully manage growth.  An extreme example is a building company that is selected for a major project.

From an accounting perspective, the company accounts receivable, the money they’re owed for the project is very high (pending successfully delivering as promised).

However, in order to successfully deliver the work, they need to hire large teams of people and bring on lots of equipment and supplies up front.  Typically they’ll have to pay for those things well before they get paid.

The good news – you’re projecting $200,000 in profits for the year.  The bad news, you need $500,000 in cash in the next 2 months in order to get that profit…and you don’t have anything in the bank.  More than likely you can get a loan (especially on guaranteed work), but there are definitely limits on what you can do.  If a loan is out of the question…then no cash and no future profits.

How is your business cash flow trending?  It’s expected for start-up businesses to run a negative cash flow for quite a while, but there should be a reasonable plan in place that projects when you can get to break-even and beyond (see Break-even Analysis 101)

For a more mature business, if your cash flow starts to decline, you can look at tightening up your invoicing approach to encourage your customers to pay you more quickly.  You can also look into delaying your payments a bit.  Both approaches can give you extra liquidity / cash in hand, which gives you a lot of flexibility and peace of mind.

Shawn Kinkade  www.aspirekc.comSimilar Posts:

• Are you looking for money in your business?
• What direction are you going? Start with Cash!
• 5 Holiday Cash Flow Tips

We also generally agreed that the reality, assuming you had quality service that wasn’t a commodity, was that not only could you raise prices, but potentially you should be raising prices.

Depending on your target demographic, there’s definitely a psychology of pricing for premium products that favors higher prices.  (say that 3 times fast…).

In other words, if your target is the upper end of the market place, they will respond favorably / buy more if your prices go higher under the assumption that Quality is indicated by price and you get what you pay for.

There’s a good article on this topic from Fortune Small Business (on the CNN website):  Raising Prices, Keeping Customers

The article covers the idea mentioned above for luxury or premium products and services, but also notes that any product or service that’s not a commodity can likely support a reasonable price increase.

Many business owners assume that any price increase will drive customers away. But consultants who work with small companies say they often under-estimate their pricing power.

Another thing to consider is that a price increase will drive exponential value to your bottom line profit margins.

First, experts say, remember the rich payoff you can reap from even a small price hike. If your firm enjoys, say, a 10% profit margin, a mere one percentage point bump in the price of your product will deliver a 10% hike in profits.

I’m not saying that you can do whatever you want and it’s all sunshine and roses, raising prices is a risk, and the odds are you could lose some percentage of your clients / sales.  On the flip side, losing your profitability slowly but surely isn’t a good way to go either.

What’s the right way to do this?  The beauty of a small business is that as the owner you’ve got all the cards and you can try different things out.

1. Stay up to date with your industry and your competitors.  You don’t have to be at or below their prices, but you should at least be aware of where you are and comfortable that you are better or unique enough to rationalize it.
2. If you’re like most of us, you are constantly battling demons of self-worth.  Your clients love your product and your company – they really won’t mind a price increase.  Don’t let your own thoughts on money stand in the way of your pricing.
3. Are you or do you have the opportunity to present yourself as the ‘Premium’ solution?  If you can establish that niche in the marketplace, all of the sudden your bottom line is going to start jumping up quickly.

If you’re starting to feel squeezed from a profit perspective and you’ve been holding the lines on prices for a while, it’s time to do something about it.  Do your research, come up with a plan and put it into action.

What are your thoughts on pricing?  Do you have any stories on what’s worked and what hasn’t?

Shawn Kinkade  www.aspirekc.comSimilar Posts:

• 7 Ways to increase Profitability
• Are you competing on Price?
• Are parts of your marketing a tough challenge?