7 Critical Concepts Behind Running a Successful Business

The challenges of starting up a business pale in comparison to the challenges of keeping one going!

The passion that drives you to start your business can carry you a long way and while passion is incredibly important to creating a successful business, it isn’t what pays the bills.

As an entrepreneur that has run a 100+ person company and as an entrepreneur who is in the throes of starting my third business endeavor, I feel strongly that there are some critical concepts business owners have to keep in mind as they pursue their dream of building a successful business.

Concept #1: 
If you understand the difference between how you Make Money and how you Keep Money, you will be able to generate profit.

Determine how much money you will need to spend each month. Map this out on an excel spreadsheet. Project, realistically, how much money you can bring in each month. By simply winging it every month without some guidance, the tendency to overspend is overwhelming.

You have to carve out a part of each and every day to Making Money. I’d say at least 80% of your day should be about Making Money.

Concept #2
If you create a Lead Generation System and a Leads Generation Tracking System, you will create a system that will feed your Top Line Revenue.

Most business owners talk about sales. Selling is the activity you do once you have a prospect. But what if you don’t have any prospects? Marketing is all about generating leads. It’s hard to improve your top line revenue if you don’t constantly find new leads.

Who is your perfect customer? How can your service or product solve their problem?

Keeping up with one lead is easy. But one lead won’t build your business. Find a system to organize and track those leads.

Concept #3:
If you set up Revenue Groups that define what you sell and keep track of your Cost of Goods for each Revenue Group, you’ll understand where you make the most money.
 
Before you worry about a profit and loss statement, figure out your revenue groups. Revenue groups define what you sell and are much more effective than tracking your revenue by client group or product line. Think about setting your revenue groups up based on your unique competencies.

Once you know what your revenue groups are, start tracking your Cost of Goods against those revenue groups. Cost of Goods are:

• Direct Labor
• Direct Material
• Allocated Overhead

If an expense is directly tied to that service or product, it’s a cost of goods. Take your income minus cost of goods to get your Gross Profit. Once you understand your cost of goods against each revenue group, you’ll begin to understand where you make the most money.

Concept #4: 
If you understand the Life Time Value of a customer, you can make better decisions on how much you want to spend on marketing.

Ask yourself this question:  how much will a client spend with me this year?

Let’s use $1,500. Then determine how long do you want your clients to stay with you? Let’s say 7 years.

$1,500 x 7 years equals $10,500. Spending $50 on a thank you gift for this client becomes money well spent.

We all know it’s easier to keep an existing client than it is to go out and get a new one. We all Talk the Talk but do we Walk the Walk?

Concept #5:
If you spend time executing on the Billing Cycle of your business, you’ll begin the process of Cash Flow Management.

Cash is King. The handling of cash in your business is the most important activity you will do. And during the first couple years of your business you need to do this weekly.

Billing CAN NOT take a back seat to getting the work done. You have to intentionally set aside time to put together invoices, mail or send them soft copy and then you have to follow up immediately to make sure the client received the invoice, accepts it, and agrees to the terms listed.

Concept #6: 
If you set up a Cash Flow System, you’ll stay ahead of cash flow issues and manage the growth of your business proactively.

Cash is cash and revenue is revenue. They are not the same thing. More than one company has folded its doors drowning in revenue and unable to pay their bills.

Here’s the formula:

• Take the amount of cash you have in the bank.
• Subtract any payables for that period of time.
• Add in any receivables for that same period of time.
• What you have left is your cash on hand.

You only count money that you know is coming in during that period and you only track money that is going out during that period. If you THINK it’s coming in, don’t count it.

You can’t WISH money in the door. You may have to push out some payables if your receivables are a bit weak for that period of time.

Concept #7:
If you believe your services are of value, you won’t let a client devalue them by being late in paying or not paying at all.

Value. You have to deliver it and you have to make sure the client sees it BEFORE you send the final invoice.

The lesson here is LISTEN UP. The responsibility for happy, satisfied clients is yours. And at any point in time a client can start to not feel good about your work. It is your responsibility to make sure you are explaining the value of your services to your client all the time.

Value is a fleeting concept. Don’t give your client a reason to doubt that what you delivered was worth more than they paid.