You have a business and, hopefully, you’re making money. But what does your business model look like? Do you have to work night and day to make ends meet? What’s your cash flow look like?
There’s a lot that you should be doing to start off the year right, but you need to take a hard look at reality and ensure that your business model works for you.
If you don’t know if your business model is right for you, don’t worry – a lot of owners don’t know the answer to this question.
In this article, we’re going to ask three questions that will help clear things up for you. You may need to make a few tweaks, but it will strengthen your company and allow you to run a business that you truly love.
Are You Generating Enough Cash Flow?
Cash flow will make or break your business. In fact, 82% of businesses fail because of a lack of cash flow. You can only rely on your initial capital and loans for so long. Answer the following questions to better understand if your cash flow is adequate:
- Do you have enough cash flow to cover your expenses?
- Can you pay your taxes with your cash flow?
- Does cash flow allow for abundant compensation for you and your team?
- Do you have enough cash flow to continue growing your business, or is lack of cash flow constraining your growth?
Businesses have three main sources of cash flow:
- Operating activities: Your core business creates enough cash flow that allows you to grow unhindered and cover expenses. For any business, cash from operations is ideal because you’re not going to need to pay off high-interest loans or credit cards or rely on investments.
- Investing activities: Equipment and assets that you can sell may be seen as an investment and are sometimes liquidated to make up for cash flow shortfalls.
- Financing activities: Lines of credit and loans can help you maintain free cash flow and have the cash to cover payroll & expenses, buy equipment & vehicles, and pay for other growth initiatives. However, you will need to pay these debts back, with interest.
On top of adequate cash flow, you also need something that many owners overlook during their first few years: work/life balance.
Do You Have a Good Work/Life Balance?
Even if your business is really profitable, your business model may still not be working for you if your work/life balance is poor. You’re dealing with balance on two fronts:
- Yourself as an owner
- Your employees
Work/life balance leads to 25% less employee turnover, but as an owner, it’s very challenging to understand that work is not life. A few questions that we want you to answer 100% honestly are:
- Are you enjoying your work?
- Are you enjoying your life outside of work?
If you answered “no”, or were reluctant to answer these questions at first, you might not be where you want to be because you need to get better at hiring or delegating (or both!). We also see a lot of business owners recuperate significant hours by switching to more efficient tech.
You might need to hire and delegate tasks, which means giving up control, but in the long term your business will be more valuable by unweaving yourself from every core function.
Work/life balance means that you need to have time to:
- Pursue hobbies
- Maintain relationships
- Enjoy the fruits of your labor
You’ll likely have times when you’re working a lot – burning yourself out – but these moments need to be fleeting rather than the norm for them to be sustainable.
If you have a good work/life balance, you need to look at one more thing in your business model: return on investment. You need to be sure that your hard work and efforts are paying off, and this comes down to crunching the numbers.
Are You Getting a Good Return on Your Investment?
If you’re like most business owners, you started your company because you’re passionate about what you do. But is that “passion” paying off?
In other words, are you getting a good return for all of the time, energy and resources that you’re putting into your business?
The Pareto Principle states that 80% of outcomes come from 20% of causes. For example:
- 80% of your profits come from 20% of your customers, or
- 80% of your sales come from 20% of your products, or
- 20% of your clients take up 80% of your time
That last point is important when evaluating your return on investment. Some of your clients may not be driving enough revenue to justify the amount of time and resources they demand. You may need to make tough decisions, such as having difficult conversations with those clients or letting them go, as you reevaluate your business model and make improvements.
Time investment isn’t the only consideration. What about the money you have invested in your business? You should expect to get a good return on that money, just as you would if you invested it in the stock market.
Not every season will be rainbows and butterflies. Every business has its ups and downs. But if you’re not where you want to be, it’s time to sit down and consider what needs to change.
- Are you operating efficiently? Some businesses lose up to $1.3 million per year because of inefficiencies. Are there ways you can improve these inefficiencies?
- What are your current marketing and sales strategies? Are they providing a good return, or is it time to take a different direction?
If your company’s performance isn’t where you want it to be, your current business model may not be working for you. Taking a fresh approach to marketing or improving inefficiencies can help free up time and resources that could be better spent on growing your business.
Conclusion
There’s only one guarantee in life – things will change. That same principle applies to the business world. The business model that worked for you at the start may not work for you now. Whether you’ve just launched your business or have been in operation for years, taking the time to evaluate your business model will help ensure that you’re on the right path toward reaching your goals and building the life you want.
To learn more about growing your own business or to schedule an appointment, click here.