A winning business model isn’t judged based solely on the money you make. If you have to work 16 hours a day, seven days a week, to keep your company growing, it’s an unsustainable concept that will likely lead to burnout.
One thing is consistent in business, and that is that things will change and evolve.
Working day and night when you first started your company may be a necessity, but change can help you break the cycle. If you’re stuck in a routine where you’re questioning your business model, it’s time to ask yourself these three questions.
Is Your Operational Cash Flow Good Enough?
Operational cash flow is the cash you generate through your normal operations. Monitoring strategic cash flow KPIs allows you to know if your business has the cash to:
- Maintain operations
- Grow the business
- Potentially expand significantly
This is the cash you have without financing activities.
To better determine whether your operational cash flow is sufficient for your business model, assess your:
- Fixed overhead costs
- Cost of materials and other variable costs
- Break-even point
If your sales barely cover your expenses, financing is a temporary solution to keep your business afloat. However, relying on financing is not sustainable long-term.
I once worked with an engineering firm that was struggling with their cash flow. When I delved into it, I realized that their business model was flawed. The only way they could cover their overhead was if the engineers were 90% billable and they were able to bill all of that billable time and they actually collected it in 30 days. Of course, they couldn’t consistently work at that threshold (especially with vacation, holidays, etc.), sometimes they had cost overruns that they couldn’t bill, and collections often took 90 or more days, plus they had bad debt write-offs every year.
Limited space or staffing capacity must also be considered if you want to expand operations in the next few years. If your goal is to expand operations, you should only consider doing so when you can confidently cover overhead at both locations (or at a larger facility).
Your core business should create enough cash flow to not only cover expenses but allow you to grow. For any business, cash from operations is critical so you don’t need to rely on high-interest loans or capital investments.
Are You Getting a Good Return on Your Investment?
Your return on investment is something many owners don’t think about when considering their business model. Investments come from:
- Money
- Time
- Energy
Also, you may be dedicating 60+ hours a week to the business. Are you being well-compensated for your time?
When you think about investment, if you put the same funds into the stock market, you would expect a 5% – 10% return. When it comes to your investments in the business, owners should expect the same.
Say you put in $100,000 to start your business, then several years later you put in another $100,000 during a tough time, and then you put in $150,000 to expand the business. Are you getting a good return on that $350,000 you’ve invested in the business?
And how about the energy you expend on your business? You’re likely doing the planning and strategizing and making the important decisions. Are you being well-compensated for the energy you spend?
Often I see entrepreneurs putting a lot of energy, time, and money into their company but taking a minimal amount out. They rationalize that they’re growing their business. But are they really? I typically recommend getting an informal valuation periodically to see how much the value of the business is truly growing.
Do You Have a Good Work/Life Balance?
Are you stressed? Do you think about work when you’re with friends and family or while tossing and turning in bed at night? If yes, something needs to change. Work/life balance can stress you – and your employees – out.
Stress also causes employee burnout, which is not what you want from a productive team.
If you offer your employees work/life balance, it has a direct impact on turnover. One study found that offering a balance leads to 25% less employee turnover. However, owners often struggle to understand what balance means, especially when they’re passionate about what they’re building.
You put a lot of time, money, and energy into your business. If your work is a true passion, it’s hard to differentiate between work and life. A few questions to ask yourself are:
- Do you enjoy your work?
- Do you enjoy life outside of work?
If the two are intertwined, you’ll be on your phone handling work tasks while you’re out to dinner with your family or not “fully present” because you’re always thinking about your work.
Business owners who are not enjoying their work and life outside of it should take strategic steps to change course, such as:
- Hiring more employees to offload some of the work to them.
- Delegating more tasks to existing employees.
- Adopting new technologies.
If you perform a lot of manual, repeatable tasks, create processes that your employees can follow and delegate these tasks to them. Automating these tasks may also be an option. Industry-related software can help you better manage invoicing, inventory, reminders, payroll, and more.
Software solutions and task delegation are all about freeing up valuable time that is eating into your work/life balance.
Owners need to free up time to:
- Pursue hobbies
- Spend time with friends and family
- Enjoy the fruits of their labor
- Maintain a healthy lifestyle with proper sleep and exercise
You might be in the groove and used to working a lot. It’s not uncommon for work to become a part of who you are, and it can be a slippery slope, one where you eventually find yourself burned out.
When you allow yourself to have a good work/life balance, it’s easier to stay focused and creative.
As an owner, you invest a lot into your business, and if all you do is work, the return on investment is not enough. You’re working towards growing your business and having the life that you envisioned when starting your company.
If what you’re doing at this moment in time isn’t offering you the time you need to enjoy the fruits of your labor, it’s time to adjust your business model and what you’re doing as an owner. Reevaluate things and find ways that you can reach your goals while building the life you want for yourself.
At the end of the day, a successful business model isn’t just about profitability; it must also be sustainable and aligned with your personal well-being. If your current approach requires relentless work and sacrifices your quality of life, it’s time to reassess. Start by ensuring your operational cash flow is sufficient to maintain and grow your business without relying on unsustainable financing. Next, evaluate whether your investments of time, money, and energy yield a worthwhile return, and consider a business valuation to measure progress. Finally, prioritize work/life balance by delegating, automating, and freeing up time for personal fulfillment. Adjusting your business model can help you achieve both professional success and the lifestyle you envisioned when starting your journey.
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