Angel Investor Discusses 2 Requirements for Investing In Your Business
“Whenever you see a successful business, someone once made a courageous decision.” – Peter Drucker
What does it take to be profitable?? A lot of small business owners get started with an idea they run with and never create a business plan. As much as getting a business started can be a leap of faith, knowing what it takes to be profitable is essential in setting expectations and achieving success. When talking with the successful business owners during the interview series “How’d They Do It”, the business owners all stated that they wish they knew more about increasing profitability and maximizing return on investments (ROI) earlier in their startup stages. Profits are the bottom-line and are critical to you as the owner in the first years of operation regardless of your enthusiasm for the work.
John, a consulting firm owner, mentions that he wishes he understood what it takes to be profitable earlier. Federico, the owner of a software development and systems integration company, uses his revenues and profits to re-invest in software, aiming for higher return on investments and profitability.
Greg, a multi-millionaire and owner of three companies, has discusses how he is often approached to participate or partner in business ventures.
What are his two requirements for starting a new business or partnering with someone?
1) knowing how much it costs to get the first customers, and
2) that he never invests in something unless he is guaranteed 100% return for his money.
Money being spent on hiring, training, operating and performing are all expenses that must be weighed and prioritized in terms of if the expense is revenue generating.
These business owners didn’t start out with business plans but the majority, if not all, recognize the value of them and have gone back and have created one. Davon, a multi-million dollar consulting firm owner discusses wished that he had tracked his money (expenses and revenues) from the beginning. He also wishes he set higher goals for himself.
One valuable piece of information the business plan will provide you is: what it takes to be profitable.
If success is comprised of a lot of hard work, luck and a leap of faith, and if most small businesses don’t last more than five years, then learning what it takes to become profitable sooner than later is a worthwhile investment of your time.
Question: What does it take to be profitable?
Answer: "Plain and simple, profits occur when revenue is greater than expenses. Additionally, the management of your revenue stream (aka cash) is vital for your business to succeed. Remember that every expense out is an investment in your company. Your employees, your contractors, your website, office and training courses are all an investment. When deciding whether to make an investment, know what, when and how the revenues will come as a result of these investments."
Question: How much will it cost get your first customers? How much will it cost to get your next customers?
A lot. Whether it is sweat equity, cold hard cash or a combination of both, do your research and know how you will get your first customers and what it takes. Hard work and persistence are required. What else is required in getting your customers? Knowing this information will lead you to better decision-making, better profitability and a high return on investment faster.