4 Simple Business Lessons for Every Entrepreneur
Renovate Life Now
Many businesses are complicated. For example, most businesses need a website, even if it's just an informational site. This requires a domain, hosting, an SSL certificate, a content management platform, etc.
But business doesn't have to be overly complicated. All you have to do is learn how to focus on the most important things. This was one of the earliest lessons I got when I studied entrepreneurs in the travel industry like Nicholas Bredimus and like Matt Zito.
Here's a list of 4 simple business lessons that every entrepreneur in every business needs to master.
1 -- The Importance of Actual Cash Flow
If you've studied business you're probably familiar with the term cash flow. But that's not exactly the kind of cash flow I'm talking about. The cash flow I'm talking about is actually simple.
The cash flow figure that shows the heart of your business, as well as the health of your business, is simply the difference between how much money your business has going out compared to how much it has coming in.
When you have more money coming in than you have going out, your business is surviving. It might even be thriving.
On the other hand, when you have more money going out than you have coming in, your business is going to struggle to survive. This includes all of the money going and coming, no matter what the money is for.
Start tracking every cent in your business. And track it every day for the rest of your business life.
2 -- Volume Doesn't Always Equal Profit
Sales in any business are important, because if you don't have any money coming in you can't have a positive cash flow as defined in the first section. This is a big reason why most entrepreneurs are so focused on sales.
Focusing on sales is important, but only if you don't focus on them 100%. You have to make sure that the other numbers in your business are right.
For example, if you're selling something for $45 and it costs you $47 to create the product, the more you sell the more you lose. In this situation you need to either figure out how to sell your product for more or create the product for less, before you focus on selling more. Or even better, you can work on doing both.
3 -- Never Lose Sight of Profit
This section goes hand in hand with the previous section, but it's so important that it needs a standalone section. A business without profit can only survive for a limited amount of time. This is why you can never lose sight of profit.
When you compile all of the numbers to track your cash flow the way I described in the first section, you already have everything you need to know to determine if you're making a profit.
Gross profit is important on each product or service you have, but the net profit after all of your costs and expenses is what's the most important.
You've probably read about businesses that managed to fool everyone and survive until they could go public or get bought out without making money. While this has happened a few times, this is a terrible business plan.
Focus on making your business profitable, and never lose sight of your profit.
4 -- What Isn't Tracked Isn't Controlled
If you want to have complete control of your business you need to track everything. If you track enough to have an exact number for your cash flow like I covered in the first section you're well on your way to tracking most of the important numbers.
You should also track your numbers day to day, week to week, year to year, and season to season. The more you know about the past and the present, the more you can control the future.
As your business grows you might have to automate some of your tracking and/or hire other people to help you track everything. This isn't always a bad thing. Just make sure that you always look at the most important numbers every day, and never lose track of your true cash flow.
Conclusion
Business usually boils down to numbers. Without true cash flow your business can't survive. And you can never afford to take your eyes off profit. Ask Nicholas Bredimus. Ask Warren Buffett. Heck, ask the Walton Family.
You can never make up for losses with volume if the rest of your numbers aren't right. You have to know what numbers you need to know, and you need to track them to make sure that you survive your entrepreneurial journey. And if you do everything right, your odds of thriving as an entrepreneur are good.
Resources for further reading
Making Money Like Warren Buffett
The Three Pillars of Growth for People Who Want to be Wealthy
Can We Learn Economic Lessons from the Past?
Even Wealthy People Have Debt, So Why Aren't We Richer?
Lessons You Can Learn in Business School That Aren't Taught in Class
Self-Made Multimillionaire Shares Essential Lessons for Entrepreneurial Greatness