You might be an entrepreneur if…you’ve had to explain to your employees that in order to save up money so that you will never be late on payroll again you have to have at least one month where you make more money than you have to spend to stay in business.
When I’ve been late on payroll I have occasionally gotten into a discussion with an employee on the topic of saving up money so as to not be late on payroll again. I understand where they’re coming from, but without profits the idea of saving up money to be used in case of a shortfall later is nothing more than a nice idea.
Here’s how it works. In Month 01 you collect $50K from client, and you spend that $50K on salaries, rent, health insurance, and taxes. How much do you have at the end of the month? Nothing. The next month you collect $40K from clients, but you still have to spend $50K. Now you’re short by $10K. That means you can’t pay certain things, and one of those things might be payroll. Why didn’t you save up money before? Because you never had any money left over at the end of the month.
That pretty much sums it up. But it can be hard to understand where $50K can go so fast. I have a hard time understanding it myself. I look around our office and think sure, this is a decent looking office, but nothing like an attorney’s office or anything. We’ve got some decent furniture, but nothing fancy. Most of us, including myself, are working on folding tables. I don’t even pay myself, so where has it all gone? Employees. Employee paychecks, taxes, and health insurance comprise 80-90% of our expenses. So when it comes to becoming profitable, I have three primary choices–cut employees, cut salaries, or figure out how to bring in more revenue without hiring anyone.
Every entrepreneur would prefer the last choice, but that can be wishful thinking because it doesn’t always work out. I’ve been trying to figure out how to make more money for seven years, and I still don’t know the secret to doing that in my industry other than to start out with a lot of money in the bank so that you can create the ideal company from the get-go, get lucky and land a huge client, or start with a huge client already in tow. Right now we are trying new things to make more money. One step involves getting back to basics and focusing on what we’re truly good at–web design, application development, content management, search engine optimization, and graphic design. We’re hoping by becoming more focused we’ll do a better job with our clients and also have a more effective marketing message.
The second step is that we’re creating a new business model. New for us, that is. All I will say right now is that it’s a new way of providing search engine optimization services, and it’s based on our experiences providing those services over the past 18 months. It’s a model that is highly scalable, potentially quite profitable, and for which there seems to be quite a bit of demand. We hope to have that offering launched by the end of the year. There are a lot of people out there providing bits and pieces of what we are going to do, but nobody seems to be doing it the way we’re going to do it, and we don’t believe that’s because there’s a lack of demand for it to be provided that way, but rather it’s just a new way that hasn’t come along yet. Actually, there probably is someone out there doing it, we just don’t know about them yet.
But until that gets launched and results in a ton of money in the bank, I’ll keep handing out explanations…Liked it? Share it!