I used to call this type of business a lifestyle business. This type of business is really the most traditional of all privately held businesses in this country. It’s the type of business most of us think about when the term small business comes up.
If this type of business is you, you likely have about 5 to 25 employees and have been an owner for quite a while. Some years you have pretty good years and others, it could be better, but you make a living. You might not have had much formal business training. Along the way you’ve learned a few things about what makes a business successful.
A traditional small business is pretty easy to run.
This doesn’t mean you don’t have problems and challenges. It means that it’s pretty easy for you to keep your thumb on most important things that are going on in your company. You might have a supervisor or two, but when you really think about it, they’re more like assistants than supervisors. Likely big issues always come to you for solutions.
You still might have lumpy sales problems where you have great cash flow one month and then none the next. You might wonder where the cash is going to come from to meet payroll. You never worried about payroll when you were a soloprenuer because you just didn’t pay yourself.
You probably spend most of your time working on jobs or directly managing jobs. You’ve essentially bought yourself a very nice job; one that can pay you even if you get a serious illness. The business will continue to run for six or seven months without you before you really have to worry about going out of business.
Some challenges you might be facing.
The biggest challenge I see in your sized businesses is finding and keeping talented employees. Unfortunately, most of the traditional small businesses don’t make enough money to bring top quality talent to work with them. In fact, paying someone $75,000 per year is just too much money.
If this describes your business, you might want to look at the amount of profit your business makes. Rob Slee has done research into private businesses and maintains that 75% of them don’t cover their cost of capital. This means that 75% of the businesses in this country don’t make enough money to afford to hire highly talented people and create enough cash to grow the business.
Many traditional small businesses make just enough money to get buy and in good years allow the owner to save a little money for retirement. Is if this sounds like you, I suggest you take actions that can change this economic picture.
Some simple things to do.
You will want to look at your customer base. If you find that you are competing on price, you need to change this. Try thinking about becoming an expert in providing solutions your customers need. Think about becoming an expert at serving a particular type of customer. Both of these solutions are called creating a niche. Companies that create niches are more profitable than those who serve anyone who walks in the door.
Ask yourself this question, “Do I do business with people I would be better off to not do business with?” If the answer is yes, you need to stop this. You need to learn to say no. Too many traditional small business owners need to say no more often to potential customers.
You probably are scared that if you say no, there won’t be enough business for you to meet payroll and cover your living expenses. If this sounds like you, ask yourself if saying no might not create some capacity in your company; capacity that could be reserved for customers who are highly profitable and easy to service. If the answer to this question is yes, think about saying no a few more times.
Moving to the next level
If you’re able to create predictable cash flow with enough profit you can think about moving to the next level of business. This is called the lower middle market. Next Thursday we’ll talk a little about what some of the opportunities are for you to grow your business. I’ll give you a teaser; lower middle market companies are the ones that create true enterprise value. If that’s of any interest tune in next week.
I’ve put together a special report on key metrics in your business. One of the things that is a good habit to get into is to measure the things in your business that drive profit and cash. This report will help you think about measuring the important things in your business.