According to the United States Small Business Administration (SBA), a small business is defined as an independent business with less than 500 employees, and according to them 99.7% of the United States economy is comprised by small business.
Every year, there are thousands of new business in this country in every industry, but there are many others that go under as well. Whole industries are being created thanks to the innovations and smart decisions many entrepreneurs make every single day, and the capacity of many of these entrepreneurs to think smartly and make decisions that impact their business favorably is outstanding.
But, as with everything else, small business owners make mistakes that can impact their business and profits and can leave them with many unanswerable questions. Sometimes, they can catch those mistakes and move forward with their business, but other times those mistakes can be too costly and cannot be solved quickly enough.
One of the biggest mistakes 90% of owners make is not knowing or understanding the importance of their numbers. They don’t know if or which of their customers generate a profit, nor do they know how much a profit it is. They don’t understand a fundamental concept — if you don’t have a profit margin, you can’t sustain a business.
The margin is simply how much out of every dollar a business earns it actually gets to keep. For example: $1.00 (earned) minus $.90 (expenses) equals $.10 (profit). The profit margin is 10%. Many owners keep investing money, not understanding this straightforward tenet, hoping to “get the company on its feet”. However, there’s no reasonable, mathematical way for that to happen if there’s no profit (margins can be either positive or negative).
Owners should always know their margins if they’re positive or negative at the very least because the volume of a business doesn’t give an accurate picture of its financial health. A company with $5 million in revenue can actually be losing money if it has a negative margin.
Another of those mistakes that small business owners do not take into consideration, is their competition. Every business in the country and around the world has a competitor. Not thinking about the competition can leave a small business owner wondering where it went wrong while leaving their competitor reaping the benefits of their mistakes.
As a small business owner, you do many of the tasks your company or small business needs doing, and the responsibility to have them done come to rest at your desk. Knowing when you need to hire extra help, and hiring the right people for the job can become an invaluable asset for your business.
It is never too late to start the business of your dream. Knowing ahead of time that it will be extremely difficult and stressful, but giving you the rewards you always wanted.
