Many new entrepreneurs a opening small businesses every day. They are many reasons people become small business owners: creative freedom, being their own boss, doing what they love, and succeeding financially.
Unfortunately, many newbies and some seasoned entrepreneurs fall pray to the business success myths, that at best can derail their success, and at worst lead to bankruptcy and other problems. In this article I describe the two such myths, and what you can do instead, to succeed as a small business owner.
Myth I – Success Means Making “6 Figures”
My e-mail inbox is overflowing daily with sales offers for “How to Make 6 Figures” as a coach, consultant, or other professional service provider. These offers are, most likely, in email box as well.
No matter what the pitch is: teaching to do tele-seminars, write a book, use social media, design a website, create marketing copy, develop information products, become an affiliate – it has the promise of the magic “6 Figures.” Sometimes to make the offer even more “appetizing” it is combined with the promise of ” 6 Figures in 30 days”, or 90 days or some other off the wall number.
What is left out is the exact meaning of the “6 figures” promise. Having looked at hundreds of these offers, I believe “6 figures” means $100,000 revenue.
These offers are so widely promoted, it seems that the “six figures” is the magic key to the desires of coaches, consultants, and other service providers.
You may be wondering: “What’s wrong with six figures revenues”? There is nothing wrong with making $100,000 or more, as long as you understand that six or even seven figure revenue does not mean you have a successful business.
You can be earning six figure revenue, but your business may:
- Not be profitable,
- Have losses
- Not be paying you salary
- Not be set up for further growth
- Not be a business, but a self-employment job
- You may be sacrificing your relationships and/or your health
This type of “6 figures” becomes very unappetizing.
What can you do, to avoid the trap of the “Six Figure” Myth? Here are the four things you can immediately:
Take Action Now Plan
1. Make Your Accountant Your Best Friend
Every entrepreneur must understand the critical number and their implications for the business. Accounting may not get you excited but in your role as the CEO, it’s your responsibility to understand the financial picture and health of your business.Get help from your accountant if you need to and review your financials on a consistent basis.
2. Focus on profitability, not just revenues
Profitability is an important measure of business health. Understand your gross and net profits, by tracking your costs of services sold and your variable and fixed expenses.Understand your profit margins, if possible by the type of product, service you offer. This allows you to select create the mix of products that is optimal for your business.
3. Consider business growth plans
When growing your business, you need to consider whether you want to grow your revenues and/or your profits.When you plan for revenue growth you need to consider the associated increase in expenses to ensure that the business stays profitable.
4. Understand if you have a sustainable business
You may be making six or even seven figures in revenue, but you may have not a business, but a self-employed job.
Business is an asset that can eventually function without you in it. Consider this fact from the very beginning and create the business model that can be not only scaled up, but eventually transitioned to operate with little or no involvement from you as an owner.
Myths II. Businesses Growth By Borrowing
Just when we thought we learned from the mortgage crisis that borrowing without the ability to pay back is a really bad idea, the marketing gurus continue to promote the concept of personal borrowing.
I witnessed coaches tell their clients that borrowing as a good way to pay for their program. They present this as a way to grow the business, suggesting that without paying for their program you will not be able to grow your business.
Honestly, this one makes me want to cry. I have clients and speak to many coaches, consultants and holistic providers who charged $10,000 to $25,000 programs on their credit cards, without any ability to pay it back.
These programs, instead of generating return on investment, put them into deep financial hole. Some had to take another job to pay off the debt. Unfortunately, many couldn’t pay back, leading to financial hardships and even bankruptcy.
The promoters of taking on debt say that borrowing is how big businesses grow. This can work, if several conditions are met:
- Present the idea you are looking to finance in a written plan to the lender, such as a bank. These lenders understand the potential risks involved and will make sure they have collateral to secure your loan. If they see the idea as too risky, good lenders will not finance it.
- Structure your loan in a way, that if the idea does not pan out, you as the business owner is not personally responsible for the debt repayment.
Compare the above scenario to a way a coach or a consultant operates. Instead of borrowing on your business card, imagine a coach, or a holistic provider approaching the lender for credit, like I described above.
What will be the collateral a coach can offer, except for her personal assets. What confidence will the lender have that the loan will be repaid, and therefore what are the chances of the lender approving such loan? Chances of getting a commercial loan for coaches are slim to none.
Getting into personal debt to start or expand your business is one of the most serious mistakes you can make.
Take Action Now Plan
1. Do Not Borrow On Personal Credit Cards
If paying for something in your business requires taking on personal high interest loan, shift your thinking and make other choices. Borrow from a lender only if you have a proven method of getting 2-3 times the return on your investment.
2. Plan for Start -Up and Growth
Most businesses require investment to start up. Make sure you have this money allocated from your personal savings. Understand how much you can invest and how long your business can last with this investment before it starts generating revenues, profits and return on your original investment.
3. Understand The Risks
Realize that when you invest in a business, you are incurring a significant risk and that you may lose part or all of your investment. Stay away from anyone who tells you otherwise.
Start with a plan that is ambitious and leads to profits, but be prepared for all potential risks. Make sure these risks will not create financial and emotional devastation for you and your family.
If you would like to get more business growth tips and strategies like these, register at http://www.BigVisionSuccess.com. When you register, you will also receive a complimentary e-book “7 Business Success Myths Debunked.” Faina Sechzer is a sought after Business Success Strategist, who helps small business owners remove the roadblocks to success and grow their businesses without sacrificing their sanity, relationships, and health. Faina’s 20+ years consulting to Fortune 500 gives her clients a unique advantage. Faina is happy to explore your burning business challenges, so you can live the life you want.