I believe that there is something different about a business owner. Business owners have a dream. When they close their eyes and think about their business, they see the silver-lining, what is possible, what can be. They see what others can’t see, sometimes they see what is not there, and sometimes they can’t see what is there.
As a business owner it is easy to focus on the dream. Sometimes the silver-lining is all you have to hold onto. As businesses are started, the first thing that happens is revenue. After all, without revenue you don’t have a business.
It is a natural thing for a business owner to focus on revenue. Revenue becomes your newborn baby. It is perfect, it is a part of you. It requires effort, nurturing, and it gets all the love. And just like a baby, it is easy to overlook all the work and pain, as long as the revenue is growing. But, if for some reason your revenue stops growing panic will set in. It is true that “growth hides warts”. And in the event that your business stops growing naturally, you will need to do something to spur growth.
The search for continual business growth can be as elusive as the fountain of youth. My one piece of caution is to not grow your long term expenses parallel to your revenue. Always grow your revenue with variable expenses when possible. In almost every business it is easy to find a sales and marketing force that is 100% variable. You may have to pay a premium, but it will allow you to avoid the long-term liability. Trust me on this one. I have lived it!
Unless your business is a non-profit, there is really only one reason for the business to exist, and that is to make a positive net income. The recipe for net income is simple, (revenue – expenses = net income). And you better have more revenue than expenses if you want your business to be successful. So why is it so prevalent for business owners to get fixated on revenue and so complacent about expenses?
If you ask business owners what they do, they will unilaterally side with the activities that generate the revenue of the business. But why? They obviously know the formula for a successful business? Why don’t they associate with the expenses? It doesn’t take a rocket scientist to figure out that the revenue side of the business is fun and exciting and the expense side, well it just sucks… Literally!
Nothing in a business can suck the life out as fast as expenses. It is important to recognize that this side of the business is just as important as the revenue side and it must be known and managed. When I owned my mortgage bank, I hated dealing with the expenses. Not only were they not sexy, they were everywhere! We had expenses everywhere you looked. And it seemed there was a good reason for every one of the expenses. Expenses are a lot like cockroaches. They will be there when everything else is gone. If you close your business tomorrow; the people, revenue and fun will be gone instantly, but the expenses… you can bet they will be there!
The most important way to know your expenses is to talk about them. Everyone in the business should be aware of your expenses. Too often only the business owner and the accountant talk about expenses. Why, because it’s not fun to talk about expenses. I recommend sharing your expenses with your people. After all, if you don’t share the information, how can they help? You will be amazed at the changes in behavior when expenses become visible. Your people know how to cut expenses, you just have to make them aware of the need. Accounting needs to be tight and reports need to be available often. Your people must know that there are “No Sacred Cows”. Every expense needs to come into question. Your biggest expenses need the most scrutiny, but every penny is equally important. An expense evaluated culture is not easily obtained, but once it is, your people will be amazing at sniffing out unnecessary expenses. Vendors, New Hires, Perks, Employee Programs, will all have to pass your people’s sniff test if the culture is built correctly.
Sometimes it takes an outsider poking around in your business to shine a light on all of your expenses. After all… Why do you think they have lights shining on the dumpsters outside of fast food restaurants? I’ll give you a hint, it’s not to keep people from stealing the trash. It is to keep the cockroaches away.
GROW your revenue and KNOW your expenses. And if you don’t know where to start? Call someone that has been there. You will be amazed at the difference it will make.
