Happiness, Positive Thinking and Acceptance

enough

Let’s all go out and find some Happiness

Happiness: Positive thinking and other nonsense

How would it be if I told you that a lot of what you believe will make you happy in life, actually does the opposite?

keep calmHave a look at the following statements:

  • Do what you love and the money will follow.
  • The only things that hold you back are your beliefs
  • Positive thinking is easy.
  • Focus on the negative and that’s what you’ll get.
  • Your self-talk creates your success.
  • Your thoughts determine your outcomes
  • Happiness is a choice (so is unhappiness)
  • What goes round comes round
  • We only use 10% of our brains. (Trust your intuition to know what to do for success)
  • Success (wealth, happiness, love) isn’t a finite resource; everyone can have it.

If you focus on those statements every day, you will live a happy, fulfilled, rewarding life, right?

WRONG!

They’re all nonsense and harmful to your happiness.

The statements are myths and they set us up for feeling like failures.

The Happiness Myths

I will refer to them as the Happiness Myths from here.

The Happiness Myths have been popularised in books and seminars on ‘Positive Thinking’ and by movies such as ‘The Secret’.

I’m sad to say that I have done my share of perpetuating the Happiness Myths as well.

Goals at Harvard

harvard A classic example of one of the Happiness Myths is one that has been quoted as Gospel-truth for 40 years by anybody with a pulse in the personal development world. The myth is that people who set goals and write them down are much more likely to be successful in life than those who don’t, and that there was an important study done at Harvard University in the late fifties that unequivocally proved the Goal Myth.

The problem is: the study never took place.

Scarcity v Abundance

Another Happiness Myth that I adhered to enthusiastically as well for some time, is that what gets in the way of our success, wealth and happiness is our belief that there isn’t enough to go round for everyone. It’s called ‘The Scarcity Mindset’ and the myth is that we have to learn to embrace ‘The Abundance Mindset’ instead, if we want to live happy lives.

It is a nice myth, but sadly, no amount of Abundance Mindset thinking is going to change the circumstances of a starving farming family in The Horn of Africa.

In our turbulent lives, it is tempting to believe the various Happiness Myths. It would be so comforting to believe that if we simply set a goal, and change our self-talk, we will allow happiness and success into our lives. Who wouldn’t want to believe such dreams?

But they are dreams, and I believe it’s time for us to wake up. Belief in the ‘Happiness Myths’ actually sets us up for feeling deeply unhappy.

Making sense of our lives

Being happy in life has a lot to do with how we make sense of our lives. People who are generally happy tend to explain bad outcomes in life as results of their actions (I have done something bad); as opposed to people who tend to explain the same outcomes as a personal failure (I am bad).

This is how it works: If you decide that you have done something wrong, (‘I have to admit that I didn’t handle that argument with my wife very well’) then you are generally able to manage your diappointment, because you can decide to do better next time (‘Next time I am simply going to remind myself to take a deep breath and count to ten before…’). failure But if you believe that you personally are bad at something, it means you will always struggle to get a better outcome (‘Here we go again, I am just so bad at relationships’).

If you subscribe to the Happiness Myths, you will want to explain life as a result of your thinking, your attitude and your self-talk; If you are not successful in your business, the little voice on your shoulder will say: ‘See you don’t think right’.

  • If you are single, it’s because you are so negative.
  • If you are not as wealthy as you would like to be, it’s because you don’t want it badly enough.
  • If you didn’t win the running race, it’s because you don’t believe in yourself enough.
  • If your children struggle with drugs it means you haven’t been a good enough parent.

In other words: When things don’t go the way you’d wish them to go, it is your failure as a person that is the cause of it. And that is the perfect breeding ground for unhappiness in life.

The Secret to Happiness

So if positive thinking in all its many guises doesn’t lead to happiness… what does?

The answer is this:

Being happy means “accepting what happens”… The search for happiness is a ‘Contradiction in terms’. There is no activity you can undertake that will lead to greater happiness. Happiness can only come from accepting what is.

Acceptance is the key.

I mentioned the ‘Scarcity Mindset’ and how we are told that embracing the ‘Abundance Mindset’ will turn our lives around. It won’t… what will turn your life around (and mine too) is to learn to accept ‘Sufficiency’.

enough When we learn to accept ‘Enough’ in all aspects of our lives; when we accept that we are good enough, clever enough, thin enough, beautiful enough, good enough parents, rich enough and we let go of all the striving to make us happier… That’s when happiness comes-a-calling.

So… What I’m going to do is sit under a tree this afternoon and accept that a bird might drop something on my head.

What are you ready to accept?

Oh and by the way… Please don’t accept everything I wrote 

About Roland Hanekroot and the Small Business Masterminds Webinars

Roland Hanekroot is the founder of New Perspectives Business Coaching and the author of “The Ten Truths books for business owners”

To support small business owners take the first steps to building a business that sustains them for years, Roland runs a series of regular webinars called The Small Business Masterminds Foundation webinars. There are three different Foundation webinars, on Time Management, The Purpose of Business and How to have more Fun in Business.

The foundation webinars are totally free and you can find out more and register for the next one here: http://smallbusinessmasterminds.com.au

 

masterminds

Turning Small Business Customers Into Raving Fans

restaurant

How can we create Raving Fans?

And let them do our marketing for us?

masterminds What does it take to make a success of your small business… how can you avoid adding to those frightening statistics about failure rates of small business.

In this series of articles and associated webinars and workshops, by Roland Hanekroot you will learn the basic concepts and get the knowledge you need to become a successful ‘Business-Owner’, as opposed to a struggling ‘Business-Doer’.

Format

The format of each episode in the “First Steps” series is to explain the basics of the topic and then in line with the principles of New Perspectives business development programs, to suggest some small simple “First Steps” you can take straight away to put the knowledge into action.

 3 Questions

customersIn this article we’ll look at your customers and ask:

How can we turn our customers into advocates for our business so that they’ll do our marketing for us?

There is an old maxim that says: ‘Your best and cheapest source of new business is in your existing customers database’

And that is so true. You know your existing customers and they know you; you know where they are and you probably know how to get hold of them and communicate with them already, and most importantly they’ve learnt to like and trust you already.

Well, I hope they do anyway.

Marketing 101

Marketing boffins refer to the ‘Cost of acquisition’ of new customers, meaning what you have to spend to get one new active customer, a customer who spends money with you.

Cost of acquisition can include all kinds of marketing costs; advertising, Google optimization, brochure delivery etc etc, down to the cost of offering a free garlic bread with a first order of Pizza from the local Dominos.

Marketing is all about balancing the cost of acquiring a new customer against the money you stand to earn from that customer.

But encouraging an existing customer to do business with you again is nearly always cheaper than finding and acquiring a new customer, because all you have to do is to pick up the phone or send them an email or something like that.

So much for Marketing 101, but here comes the interesting part: Turning your existing customers into Raving Fans has the potential to reduce your marketing investments to near zero.

How does that happen?

Let me tell you a story

Bedtime story

restaurant Once upon a time… a long, long time ago in a country not unlike Australia, Giuseppe owned an Italian restaurant in Sydney.

The restaurant employed some 20 people from kitchen hands to waiters and chefs and Giuseppe had owned the restaurant for about 5 years.

Giuseppe loved feeding his customers. The restaurant ran well and as far as Giuseppe could tell his customers were satisfied. The problem was that every time a new restaurant opened up in the area Giuseppe’s place dropped off for a while until clientele slowly started building up again. Every time Giuseppe was getting comfortable with his team and his turnover and his profit levels, there would be a new place in the street and for a couple of months Giuseppe would be losing money again.

‘It’s two steps forward and two steps back all the time’ thought Giuseppe

Giuseppe was ready to close up.

Loyalty

Working with me, Giuseppe came to realize that he needed to create a truly loyal customer base. A group of customers who were advocates for his business, Raving Fans. How do you create Raving Fans? By doing things for your customers they don’t expect, to always go one better, to truly make the customers feel at home and surprise them at every visit.

we love customersSo Giuseppe turned the culture of the restaurant around. Ordinary customer satisfaction wasn’t enough anymore. Staff were trained to ensure they knew customers by name. To record customers preferences for tables and wines and dishes. Customer’s birthdates were recorded and free dinner vouchers sent to them on their birthdays. Every time a customer had dinner they’d be given some little surprise, from a free desert or after dinner drink, to a little bon-bon to take home or a voucher to give to a friend. Any time a customer wasn’t entirely happy with their dish or service they would be given it for free. Customers would be surveyed to find out about their favorite wines or dishes and Giuseppe would make sure that these preferences would be available on the menu next time the customer came and had dinner with him. A couple of tables would always be kept free for his regular customers so they wouldn’t ever need to book on forehand. Giuseppe started free cooking classes for customers and organised wine tasting tours for his regular clientele.

Now, a couple of years later, Giuseppe’s restaurant is always full. Every day of the week… people come from far and wide. Giuseppe hasn’t spent money on advertising or any other marketing than his initiatives in the restaurant. New restaurants arrive in the area and barely cause a blib on the radar.  And best of all, Giuseppe and his staff feel that they have truly become part of the community and the community has made Giuseppe’s restaurant one of it’s institutions.

The restaurant is now consistently profitable

And Giuseppe and his very happy customers lived happily ever after… The end..

Lessons from Giuseppe

raving fan Giuseppe learnt to understand what it means to turn your customers into Raving Fans. Because when your customers are indeed Raving Fans, you don’t need to market to them anymore, they will be looking for opportunities to do more business with you. What business often don’t appreciate though is that the impact of turning your customers into Raving Fans is exponential.

Raving Fans will go out of their way to bring their friends and spread the word amongst their own networks. Raving Fans will also actively resist the attempts of the competition to win them over to their side. Raving Fans feel invested and emotionally engaged with your business and want you to do well.

There is a famous series of business management books written by Ken Blanchard, ‘The one Minute Manager Series’ and one of the books in the series is called ‘Raving Fans, why ordinary customer service isn’t good enough anymore’. Ken introduces a concept of ‘Plus One’ in the book, it’s short for ‘Find out what the customer wants, and deliver plus one percent’

The problem is that most businesses don’t take the trouble to find out what the customers really want and even if they do know they deliver inconsistently and certainly not more than the customer expects.

So if you want to reduce your marketing spend to near zero, commit to turning all your customers into Raving Fans.

Your business and your life will never be the same again… I promise you.

Take the first steps:

As mentioned in the opening paragraphs of this article, here are some ‘First Steps’ actions you can take right away, that will get you started on implementing the topics and principles of Raving Fans:

  1. Send a handwritten thank you card to your  top 10 customers
  2. Invite your favorite customer to lunch/ afl game/ golf etc
  3. Do something outrageous for the next customer you talk to
  4. Talk to your staff and give them authority to go ‘beyond reasonable’ for their customers
  5. Investigate ‘net promoter score’ customer survey system
  6. Call one customer this week for feedback
  7. Implement a monthly customer survey system (incorporating the Net Promoter scoring system).

 About the author and the Small Business Masterminds

Roland Hanekroot Roland Hanekroot is the founder of New Perspectives Business Coaching and the author of “The Ten Truths books for business owners”

To support small business owners take the first steps to building a business that sustains them for years, Roland runs a series of regular webinars called The Small Business Masterminds Foundation webinars. There are three different Foundation webinars, on Time Management, The Purpose of Business and How to have more Fun in Business.

The foundation webinars are totally free and you can find out more and register for the next one here: http://smallbusinessmasterminds.com.au

 

masterminds

 

Time Management

juggling

How to become a time management ninja with two simple questions

ninja What does it take to make a success of your small business… how can you avoid adding to those frightening statistics about failure rates of small business.

In this series of articles and associated webinars and workshops, by Roland Hanekroot you will learn the basic concepts and get the knowledge you need to become a successful ‘Business-Owner’, as opposed to a struggling ‘Business-Doer’.

 

Format

The format of each episode in the “First Steps” series is to explain the basics of the topic and then in line with the principles of New Perspectives business development programs, to suggest some small simple “First Steps” you can take straight away to put the knowledge into action.

Time Management 

In the fourth of these articles we’ll look at Time Management and ask:

What does it take to become an efficient manager of your time?

amazon Time Management is one of those topics that book shelves and libraries are full of.

When writing this article, I did a quick search terms for ‘time management books’ and found 20,000 titles ranging from ‘time management from the inside out’ ‘time Warrior’, ‘How to get things done’ and how to live on 24 hours or even 4 hours a day.

The trouble is, each one of these 20,000 books has a so-called’ proven method’ for mastering time management, overcoming procrastination( and laziness) and hence finding the secret to success.

So which one is best, and are there actually more than 20,000 different ways to conquer time management?

Juggling balls

juggling

 In my opinion, it really depends on how you look at it. I designed my own time management method some time ago, it was different and it worked really well for me for a while. (My patented system was based on the concept of juggling balls or balloons… “Keeping the balls in the air” and involved a white board and varying colours of ‘yellow stickies’). But really, it was just another variant on one of the many different to-do list methods…

As a matter of fact… most of the time management methods I’ve come across fall into two camps: Firstly there are the many variations on working with to-do lists.

Some of those involve a perpetual list; others involve a new list every day or every week. Some list-methods tell you to divide your tasks in 3, 4 or 6 different categories, and others suggest to just dump every action no matter how small or large in the same list. Some ask you to filter out the most important tasks and do them first, others suggest you do the one you like least first etc etc.

The second approach revolves around varying ways to manage your diary and your day: Some tell you to keep lots of blank space in your diary, some direct you to plan your day in 10 minute blocks and others ask you to just stick the “Big Rocks” in your diary.

10 minutes

I worked for a specialist time management consultant for a little while and part of his “IP” revolved around teaching people that every action that would take more than 10 minutes had to go in the calendar and anything smaller than 10 minutes had to go in the task list.

And you know what… I’m pretty sure all of the methods work, and that all of them are fantastic for the person who designed them.

My lazy client

But that ain’t you.

Some time ago, I worked with a client who used to beat himself up something shocking over his laziness and procrastination.

One Monday he came in to one of our sessions in a particularly foul mood. To my inquiry about his weekend, he snapped: “I didn’t get that bloody Tax return done again yesterday!”

When I asked him what had happened he responded with:

overflowing garageI cleaned up the garage, I mowed the lawn, I watched the rugby game and I took my girlfriend out to lunch”. “To be honest, I have been procrastinating for weeks over this tax return and even after making the decision to get it done this weekend, I still never even made a start on it”.

“Wow”, I said, “That sounds bad. But did you enjoy yourself doing those other things?”

“Of course” he replied, “the garage really needed cleaning, the lawn was weeks overdue, the Wallabies won and my girlfriend really appreciated the attention.  However, that’s not the point… I still didn’t do my tax return after making a commitment to do so”.

“I understand that you are disappointed” I said, “But tell me, have you always done your tax return?”

He pondered for a while and responded: “Yes, ever since I was 18 and my father taught me how to do it, it always feels really good completing it myself and getting some sort of refund”.

“Ok”, I said, “so you have never missed a deadline before and are you late with it now?”

Oh no”, he replied, “I have always done it and on time and I actually have another 2 whole weeks before it has to be in… I just wanted to get it in in a few weeks early, in case something came up”

Through my smiles I responded: “Well… maybe something did come up? Maybe the lawn, the garage, the game and your girlfriend were more important this weekend? Is there actually any real reason to assume you won’t get your tax return completed in the next two weeks?”

(In case you’re interested… my client completed his tax return the next weekend… he still had a week to spare) 

The two questions

You see, we only ever do something for one of two reasons:

1)    We want to do it

2)    We don’t want the consequences of not doing it

lunch on the beachWhat my client had ‘wanted’ to do was fix the garage, the lawn and the game and spend time with his girlfriend.  He wasn’t a procrastinator at all. He just didn’t particularly ‘want’ to do his tax return that weekend, and the consequences of not doing it were minimal.

So this is how I’d like you to think about time management.

As long as you are not 100% clear on what you want to do and you are not 100% clear on what consequences you fear – you will constantly confuse yourself and you’ll tell yourself you are an exasperating lazy procrastinator and that you need a better time-management system.

So, by all means… experiment with any of the well-established systems (personally I like the Steven Covey’s Urgent V Important approach) but no system is going to help you unless you constantly ask yourself: What do I want to do and what do I not want the consequences of not doing?

Give it a go… much more fun than beating yourself up… I guarantee it.

About the author and the Masterminds sessions

roland Roland Hanekroot is a business coach who works with Small business owners to help them have more Fun in their businesses and build businesses that sustain them for years to come.

Roland is also the author of “The Ten Truths books for Business owners” (more about the books here: http://thetentruths.com.au)

Every month Roland Hanekroot runs a business development webinar called “The Small Business Masterminds” more information here and to register for the next webinar, follow this link: http://smallbusinessmasterminds.com.au/ The first time is free (normally $99)

 

 

The Market: Finding Your Niche

we love customers

What, who and where is my market?

register for webinar

What does it take to make a success of your small business… how can you avoid adding to those frightening statistics about failure rates of small business. 

In this series of articles and associated webinars and workshops, by Roland Hanekroot you will learn the basic concepts and get the knowledge you need to become a successful ‘Business-Owner’, as opposed to a struggling ‘Business-Doer’.

Format

The format of each episode in the “First Steps” series is to explain the basics of the topic and then in line with the principles of New Perspectives business development programs, to suggest some small simple “First Steps” you can take straight away to put the knowledge into action.

 3 Questions

marketIn the second of these articles we’ll look at Your Market and ask:

What, who and where is my market?

Most of us business owners find ourselves in a market by accident. Not many of us start from scratch in a new market. We’ve either taken an existing business over from a previous owner or we’ve started our business doing something that we happen to be particularly good at and hence we’ve already had a couple of clients and a market from day 1.

Consequently we roll along doing more of what we’ve always done. Our recipe for success is our belief in ourselves and a vague notion that we’ll be able to do it better than the other guys, somehow.

The things that don’t set us apart

we love customersThis situation is equally applicable to someone with a carpentry business, as it is for a mortgage broker, a café or a fashion store. When asked what sets them apart, most business owners will say 3 things:

1)   We give great customer service

2)   For a great product

3)   At a great price.

And I have no doubt that they do, believe that they do, or at least strive to.

There are two problems with these statements though:

1)   The three statements are not special enough, they don’t offer enough value (Customers expect good service, good quality and good price from everyone… as a minimum)

2)   And most importantly, all your competitors say exactly the same thing.

Who is the cheapest?

If you and your competitors make the same promise, the customer will make a decision on price because it is the easy factor to compare on.

In small business, there is nothing worse than being forced to compete on price, because there is always someone who is prepared to do it cheaper. You cannot build a long-term sustainable small business based around being the cheapest.

Find a tight niche

One of the most effective solutions to this problem is to find a tightly defined niche market that is either not serviced at all or is underserviced.

If you can find a niche market for your product or service that has few or no other business operating in, you can set out to own that niche and dominate it. Dominating a niche is a recipe for building a long-term sustainable business, like no other.

3 Niche questions

There are 3 questions you can ask to help you find such a niche:

1)   Who does not currently use my product or service but might?

2)   What are all the factors that we and all our competitors already compete on with each other?

3)   On which factors are none of us competing?

I am going to work through a couple of examples to demonstrate how to go about finding a niche and stepping into it.

The carpet cleaners

Re question 1: ‘Who does not currently use my product or service, but might?

carpet cleaner Assume you own a carpet cleaning business and your town has heaps of carpet cleaners and they all offer more or less the same thing so that 75% of the inquiries you get from prospective new clients revolves around the question: How much do you charge per room? The question drives you mad, because you are only just making ends meet as it is and having to be the cheapest all the time just isn’t viable.

One day you decide something has to change and together with your wife you start to have a look through your database of clients and jobs from the last 3 years. You are not sure exactly what you are looking for yet, but you hope to find a specific category of client or job that is either more profitable than the rest, or more fun to do, or is easier, or all of the above.

After an exhaustive search over many evenings, your wife mentions that she’s come across a few big 21st birthday party cleanups and an idea starts to form.

21st birthday parties

You decide to create a special offering and expertise in preparation and cleanup before and after big parties. Especially 18ths and 21sts can be massive messy affairs and a lot of anxiety goes along with them. How about offering a package that includes preparing the carpets for a big party with a protective spray application and then coming back the day after the party to do a thorough clean to make the house smell like new again?

A special package like this is actually not offered by anyone in your city and addresses a great need.

John and Mary’s Party Cleaning is born… a unique product and offering at a price level that you can make good profits on and best of all, prospective customers cannot compare on price.

Your business and your life will never be the same again… I guarantee it.

Kelvin’s bike shop

bike shop Now lets have a look at the other “niche questions”. This is a story about a different set of circumstances as experienced by Kelvin who owns a bike shop.

This story relates to questions 2 and 3: What factors are you and your competitors already competing on and what factors are you not competing on:

Selling bicycles is not easy because there is a lot of competition from many different sources. There are other bike shops all around the city; there is the ever increasing number of ‘Big Box retailers’ such as Big W and Kmart and the internet is increasingly impacting traditional retail models as well.

Kelvins shop was still doing just ok but the trends were not looking good at all, and pressure on his margins was constant.

Just at this time Kelvin came across a quote from a bikeshop owner in America, Chris Zane: “The only difference between our competitors and ourselves is the service we provide”

The fish pond

fishpondKelvin realised the obvious truth of this statement. There is effectively no difference between the bikes sold by Kelvin or any of his competitors or the pumps or the bike-shoes. Kelvin and his competitors were all fishing in the same pool trying catch exactly the same fish and the number of fish in that pond was diminishing. The only way forward was to create a new pond and attract enough of the fish away from the old pond to be able to enjoy the fishing again.

So Kelvin set about changing his approach to business completely. First Kelvin looked at all the factors he and his competitors fought over (price, range, convenience, friendly service, speed of delivery, connection with major sporting heroes etc)

Then Kelvin looked at what other factors there were that nobody competed on yet.

The insight that Kelvin had was that the greatest opportunity for his business, lay in creating long term customer loyalty through delivering truly extraordinary service, and absolute peace of mind.

Lifetime free stuff

For example, Kelvin implemented a life time free flat tire repair; Kelvin offered ‘no questions asked’ replacement guarantees for any bikes and products sold if you were dissatisfied with the product for whatever reason. Kelvin taught his staff that from now on the word NO was out of bounds and no request was to be rejected.

A couple of years later, Kelvin moved his store to a new location with three times as much space.

Kelvin created his own fishing pond and he was able to dominate it, year after year.

This is the topic we will be talking about at the March Small Business Masterminds ‘live’ workshop as well as the Masterminds online webinar, both on 10 April. If you would like to attend either the webinar or the workshop, go to http://smallbusinessmasterminds.com.au 

Take the first steps:

As mentioned in the opening paragraphs of this article, I will suggest some “First Steps” actions you can take right away, that will get you started on implementing the topics and principles we discuss: The resources page is here: http://tiny.cc/marketlpage

Download the article from the resources page: Blue Oceans and Empty Swimming Pools”, by Roland Hanekroot.

In a notebook ask yourself the first of the 3 niche questions above.

In your notebook ask yourself the remaining 2 niche questions above.

Download and print the “find your niche” worksheet here, and complete the worksheet.

Blue Ocean Strategy” by W. Chan Kim and Renee Mauborgne is the Bible on this topic of finding a niche. It is a great read, link on the resources page http://tiny.cc/marketlpage

About the author and the Mastermind sessions

Roland Hanekroot Roland Hanekroot is a business coach who works with Small business owners to help them have more Fun in their businesses and build businesses that sustain them for years to come. Roland is also the author of “The Ten Truths books for Business owners” (more about the books here: http://thetentruths.com.au)

Every month Roland Hanekroot runs a business development workshop as well as a webinar called “The Small Business Masterminds” more information here and to register for the next webinar or workshop, follow this link: http://smallbusinessmasterminds.com.au/ The first time is free.

 

Financial Management

profit

Why cash is more important than profit

register for webinar

What does it take to make a success of your small business… how can you avoid adding to those frightening statistics about failure rates of small business. 

In this series of articles and associated webinars and workshops, by Roland Hanekroot you will learn the basic concepts and get the knowledge you need to become a successful ‘Business-Owner’, as opposed to a struggling ‘Business-Doer’.

Format

The format of each episode in the “First Steps” series is to explain the basics of the topic and then in line with the principles of New Perspectives business development programs, to suggest some small simple “First Steps” you can take straight away to put the knowledge into action.

Financial Management

profitIn the fourth of these articles we’ll look at the Financial Management and ask:

What do you need to know and how do you need to apply that knowledge to put your business on a solid financial footing?

3 Principles

There are 3 principles you need to understand to manage the finances of a business well:

1)    Why do we need to make profit?

2)    Profit and cash are not the same thing at all and they don’t even have a direct relationship between each other.

3)    Cash is what you must worry about all the time… not profit

Why Profit?

Let’s address the principle about Profit first. The first thing to understand about profit is that it is not the purpose of business. Profit is a vital component of business, but it isn’t the reason the business exists. The Purpose of your business must be something much more important and something your customers actually care about. (More about this idea in my article about Purpose and Vision click here)

Why Profit?

Let’s address the principle about Profit first. The first thing to understand about profit is that it is not the purpose of business. Profit is a vital component of business, but it isn’t the reason the business exists. The Purpose of your business must be something much more important and something your customers actually care about. (More about this idea in my article about Purpose and Vision click here)

The 3 Functions of Profit

Profit has 3 functions:

1)    To pay investors and stake holders in a business a return on their investment.

2)    To provide the business with funds to invest in itself to grow or develop the business.

3)    As the thing by which we measure how well we are doing in running the business.

The first function is straight forward, if someone invests $100 or an hour’s work into a venture, that person wants to see a return for that investment. That return can only be payed out of the profits of the business.

The second function is also straight forward, in that, if you want to buy a new machine or tool or vehicle for your business you need to have the money to pay for that. Profit is what provides that money. (You can borrow for that purchase of course, but then the purchase is effectively made out of future profits)

The third function is about this: How do we know if our business is going well or not so well? The simplest method to answer that question is to keep track of the financial numbers and profit is one of the most important of those.

Profit and Cash

The second principle about profit and cash is what brings a lot of small businesses unstuck. A large proportion of the businesses that make up the horrendous statistics on failures in small business do so because of a lack of understanding of this principle.

Profit is a simple sum (on paper) of sales minus costs. So if you sell stuff in a week for a $100 and it costs you $50 in raw materials that week and $25 in office costs, it means that you have made $25 profit that week.

river Cash (your bank balance) bears little relation to those numbers in most cases. The $100 of stuff you have sold might not be paid for that week or even that month. You also might have had to pay for the raw materials some time previously and your office costs (staff and rent etc) may have to be paid every Friday. So that at the end of the week your bank account will actually be significantly in the red even though you’ve made a profit.

Cash Flow

So cash needs to be calculated in a different and slightly more complicated manner than the simple profit and loss equation.

When thinking about cash it is useful to think in terms of flow… money flowing in and out of your account, like a river flowing into the sea. If it rains upstream in Queensland for example, it may take a month for the Darling River to start swelling downstream in South Australia. So when talking about cash we usually talk about cash flow…. Money flowing in and money flowing out. If more money flows into your bank account in a given period than flows out in that period, your bank account swells and vice versa.

Cash is the main thing

cat And that brings us to the third principle that you need to understand about financial management of the business.

I said that the thing to worry about in your business is Cash and not Profit. For most people this is a counterintuitive statement.

The truth of this principle is actually much more straight-forward than you might think, because:

Only cash can be used to pay for stuff

Theoretically, your business may never make a profit and yet survive, as long as you continue to have enough cash to pay the bills, your staff, your raw materials, the rent etc. Obviously without making a profit, the business will ultimately run out of cash, but that can take years in some circumstances. So as a business owner who is committed to put his business on a solid financial footing, Cash-flow must always be your first concern.

This is the topic we will be talking about at the March Small Business Masterminds ‘live’ workshop as well as the Masterminds online webinar, both on 13 March. If you would like to attend either the webinar or the workshop, go to http://smallbusinessmasterminds.com.au 

Take the first steps:

As mentioned in the opening paragraphs of this article, I will suggest some “First Steps” actions you can take right away, that will get you started on implementing the topics and principles we discuss:

  1. Download the Article by Roland Hanekroot: “Cash-flow, the Basics”: follow this link
  2. Have a look at a great blog post on the Times of London about the importance of profit in business: Follow this link
  3. 5 ways to improve your cashflow in INC magazine: Follow this link
  4. If you are not already doing so, start by paying yourself a regular “wage”. A weekly or monthly amount you can live on as a minimum, and record this wage in your books as an expense to the business. You may decide to invest this money back into the business if you don’t need it to live on, but by paying yourself such a wage you will gain a more accurate insight into the profitability of the business and you will start to see how much money you are actually investing into the business and therefore should get a “return” on in the future.
  5. Start a proper bookkeeping program (Xero, MYOB, Quickbooks, Saasu, Freshbooks) and ensure it gets kept up to date at least monthly.
  6. Ask your accountant or bookkeeper for a simple cashflow spreadsheet and either start to use it yourself monthly or ask your bookkeeper to do so for you, you’ll be surprised how easy it is to start to get a handle on the cash flowing in and out of your bank account.

About the author and the Masterminds sessions

roland

Roland Hanekroot is a business coach who works with Small business owners to help them have more Fun in their businesses and build businesses that sustain them for years to come. Roland is also the author of “The Ten Truths books for Business owners” (more about the books here: http://thetentruths.com.au)

Every month Roland Hanekroot runs a business development workshop as well as a webinar called “The Small Business Masterminds” more information here and to register for the next webinar or workshop, follow this link: http://smallbusinessmasterminds.com.au/ The first time is free.