Business101: Profits are the Space between Revenue and Expenses - (W6:D2) Debt Free Millionaire

Simplified Explanation: Owning a business gives you more freedom, more time flexibility, more satisfaction, and more opportunities to make a difference in the world. It also brings more frustrations, more hours to work, more risk, and more stress. It is not for everyone. But, when your company is making more money than you are spending to run it, you are making a profit, which is a great motivator for business owners.

Real Life: Not everyone wants to own a business. It is incredibly stressful at times, and takes extra work; but those who do it can make a lot more money, so much so that they may have to quit their day job. This is always a gamble for business owners/managers and entrepreneurs. 

The difference between these two is that entrepreneurs are those who start businesses or invent products. Business managers are those who take businesses that already exist, and use their skills to make money. There is a greater return on the business if you start from nothing (where an entrepreneur starts), as opposed to someone coming into an already successful business and trying to make it better, or sustaining the success it already has. The entrepreneur definitely takes on more risk, but both are essential for growth. An entrepreneur usually wants to get something started and running successfully, and then pass it off to someone else to manage. This allows them to start something else they are passionate about. They create exit strategies that allow them to exit with a good amount of money, or hand it over to someone to manage, while collecting a paycheck over a long period of time. 

For example, say I own John’s Super Conductors. I know I can get to $1,000,000 worth of sales each year. When I hit that number, I have two options, 1) I sell the company for $8-15 million dollars; or 2) I hand it over to a manager that can do better than I can at this level of revenue, and I collect $500,000 a year for the next 10-20 years, as a constant paycheck. Either way, you make your money. Some would say, why keep it and worry about it?

Read about this in future Debt Free Millionaire Business books.

As stated before, a business is much more than selling a product or providing a service. Successful companies usually have staff, pay rent and utilities, deal with marketing and sales, and R&D (research and development). Information on these products could fill a library of books, so I will break it down to the most important points.

Human Resources (staff or team): Every successful company has more than just the creator. If that person is to be successful, then they need to delegate their responsibilities to people who are better at a task than they are. This is called the 80/20 rule. 20% of what you do makes 80% of your company's revenue. If you can locate your 20%, then the creator needs to do that, while his team takes care of the other 80% of what he does. Then each of them should find their 80/20 breakdown. To manage all these people, you will need a Human Resources (HR) manager, or a third-party software to take care of it. As your company grows, you will need someone to focus on just this task.

Accounting: With all these new people, you will also need to pay your employees. You can hire an accountant/bookkeeper to do this, or a third-party software company to track all your Payroll and HR needs. This is less expensive for a small company, but when you get large enough, you will need to hire people to do this, as well.

Rent and Utilities: How do you house all these people during the workday? You can buy or rent a large facility, but recently, businesses have found out how easy it is to work remotely (where everyone works from home). The difficult part in this, is to make sure they are working; the benefit is that most people will find additional time at home to complete their work, if you give them specific tasks they have to complete, and make them accountable. If you rent a facility/office, you will need to pay rent, utilities, and the cost of other goods, such as furniture. Since most people already have this at home, you can save money when employees work from home, by them using their own furniture, and even computers to save money – though most companies want employees to use their computers because of the intellectual property that is stored on them.

Marketing: Now, most times, your product won’t sell itself. Instead, you need to tell people about it. Most of the time, this takes money - to buy advertising or attend conventions. Check out www.debt-freemillionaire.com/freemarketing/ to learn how to save money on marketing, starting off. Most people believe social media is the best way to get your name out, but most of the time, it is also the most expensive, with very little return for a long time. Instead, emails are free and a direct connection between you and your customer. Check out the link above. Other options you have are tv/radio advertising, billboards, or print marketing. The greatest marketing tool you can acquire is ‘word of mouth’(WOM). WOM is the greatest advertising you can find, and starts with making a great product and then selling it. When someone buys this product and they like it, they won’t stop telling people about it. If you can create a campaign where people are making these contacts for you, and recommending your product, then you will pay nothing for hundreds, thousands, or even millions of sales. Marketing is not just advertising; check your reviews, as well. People these days base their purchases (products or services) off the suggestions of others.

Sales: Beyond marketing, sales are essential. This is where you are directly contacting the customer, and sharing why buying your product or service is so important. You can do this yourself, or hire professionals who have a network of people who would like to sell the product. Again, if you don’t find your 20% effectiveness in sales, then you need to give that task to someone else. Your company cannot thrive without revenue from sales. Sales people should be tasked with contacting customers directly, or searching out the right people to sell to. They need to be excited about your product, and open to selling it to everyone and anyone. If they hesitate about normal sales tasks, it may be time to find someone else.

Research and Development (R&D): You may have a product already, but could it be better? You may have a product already, but could someone duplicate or make it better, before you do? For this reason, your company should always be innovating, and advancing - whether it’s improving your product, service, or even your business. Money that you spend in R&D is an investment into the company’s future (if you have the money to spend on it already, without taking out debt). This was one of my past mistakes: going into debt to find out the product doesn’t sell, and it was not that popular of an idea. 

Products: You have a product to sell. What if your competition starts selling it for less? Do you lower prices? Think of diversifying within yours, or a similar niche. If you are selling maps, why not educational books? Since your customers are close enough, you may want to find something else to sell that your customers are looking for. 

Services: If you do not sell products, then you are most likely selling a service. Is it the same service as your competition? If so, why would a customer use your company? These two are essential questions. Survey your customers and see what they really want in your service. Don’t just assume you know. Send a survey out to your customers and see how you can make your service better, or how you could get them to refer you to their friends. If you find these two answers, you will outsell your opponent every time, because you are addressing the needs and wants of your customers, and not just following the example of what was done in the past.

Multiple Streams of Income: Every strong river is fed by many smaller streams; it is the same with successful income. Where does your money come from? Is it from one activity you do, or many? Do you have a sales season, and if so, what do you do during the offseason? The most important way to make a company secure and successful is to find as many income sources as possible to feed your business river. If your streams dry up, so does your company. You can have conventions, online sales, work with retailers, use software as a service (SAAS), offer subscriptions or memberships, and so much more. Find each way you can make money, and see if it is worth putting the time and money into it, to sustain that activity.