If you’re a business owner, I bet the following questions keep you up at night:
How is the business going to generate sales?
Are my customers happy with my products?
Is my business working at full capacity?
Are my employees happy working at my firm?
While these are all important, I hope the one that you’re constantly thinking about is – When is my business going to make money?
Is it going to take a week, a month, a year, or a decade?
As heartless as it sounds, the only purpose of any business is to make money.
All noble causes like making a tangible difference in people’s lives, making customers happy, etc. are certainly important –– but none of them would be possible if the business doesn’t earn money and sustain itself.
With our experience of dealing with over 100 businesses, we have observed that an awful lot of business owners don’t exactly know how their business makes money. Only a deep dive into the mechanics of the business (and not just a couple of hours every week with your accountants) will really show you how your company earns money.
First, let’s clear some myths on how a Business makes money:
Ah, we’re finally at the million-dollar question. After all, the sole reason your business exists is to make money, right? Which is why you need to know how it makes money so you can gain control over it. It’s simple enough and focuses on the bare basics:
Some business-owners focus too much on generating a positive cash flow that they fall into the trap thinking that if there’s cash in the bank, things are going in the right direction which will lead to them going after growth opportunities which might not be feasible in the long run. Read – taking up assignments which are outside of your organisation’s core competence.
The area where the three circles overlap should be the only place where your business is placed in order to generate money. As a business owner, it is your goal to make sure your business creates a Triple Overlap and make the overlap as large as possible – that’s when your business will make the most money.
Make sure to not be fooled by any one individual circle. Each circle has the potential to draw you into a lethal trap which will lead to unforeseen circumstances dangerous for your business.
But how can positive net profit be dangerous? How can generating a positive Cash Flow be harmful to the business? After all, if a business is making a good net profit, it’s easy to assume that things are going well.
Valid Questions.
In the next few blogs, we’re going to take a deep dive into the three elements and show you why each of them needs to happen together to generate profits for your business.
So, stay tuned for the upcoming blogs and we’ll make sure you have a completely different approach towards your business after it.
Liked our content? Do you now want to find out where your Cash is stuck and what are the bottlenecks in your business?
Set up a non-chargeable call with our team of strategic consultants who will give you effective solutions with the help of our PCV Simulator!
Feel free to book a slot here for a personal one-to-one review: https://calendly.com/biz-owners/30min?month=2022-06
How is the business going to generate sales?
Are my customers happy with my products?
Is my business working at full capacity?
Are my employees happy working at my firm?
While these are all important, I hope the one that you’re constantly thinking about is – When is my business going to make money?
Is it going to take a week, a month, a year, or a decade?
As heartless as it sounds, the only purpose of any business is to make money.
All noble causes like making a tangible difference in people’s lives, making customers happy, etc. are certainly important –– but none of them would be possible if the business doesn’t earn money and sustain itself.
With our experience of dealing with over 100 businesses, we have observed that an awful lot of business owners don’t exactly know how their business makes money. Only a deep dive into the mechanics of the business (and not just a couple of hours every week with your accountants) will really show you how your company earns money.
First, let’s clear some myths on how a Business makes money:
- Does a business make money when it sells something?
Hmm, not always. Even though company Sundial Inc. might clock revenue figures upto a couple of crores, if it is deeply burdened in debt or has a large amount of fixed expenses, it will show a negative net profit. - Does a business make money when it constantly attracts new customers?
Well, a study by Bain & Co. shows that in consumer electronic sales, only 24% of the customers are profitable. That means three-quarters of the customers don’t make such companies a single rupee! Clearly, attracting new customers is not the only magic solution to making profits. - Does a business make money when it comes up with wonderful new products or services?
Not always. Zomato as we all know launched the “10-minute delivery” service – which frankly sounds super convenient. However, the company has been struggling with product-market fit and getting their value proposition right. And their losses have only been on a downward spiral since then.
- Does a business make money when it whips up great marketing campaigns?
We’re going to take the Zomato example again. Looks like it’s our unfortunate punching bag for this article. But all said and done, they have stellar marketing campaigns. Right from the witty push notifications on their app, to creating wonderfully topical content on their social media accounts, to sponsoring sitcoms and sporting events – Zomato’s marketing team has created a buzz that is hard to neglect. But what is the story told by the numbers? In ’21, it hit a loss of over Rs 1200 Cr. Ouch.
Ah, we’re finally at the million-dollar question. After all, the sole reason your business exists is to make money, right? Which is why you need to know how it makes money so you can gain control over it. It’s simple enough and focuses on the bare basics:
- Generate a positive Net Profit
- Provide you with a satisfactory Return on Investment
- Develop a positive Cash Flow
Some business-owners focus too much on generating a positive cash flow that they fall into the trap thinking that if there’s cash in the bank, things are going in the right direction which will lead to them going after growth opportunities which might not be feasible in the long run. Read – taking up assignments which are outside of your organisation’s core competence.
Triple Overlap – The Secret to Money Making
The area where the three circles overlap should be the only place where your business is placed in order to generate money. As a business owner, it is your goal to make sure your business creates a Triple Overlap and make the overlap as large as possible – that’s when your business will make the most money.
Make sure to not be fooled by any one individual circle. Each circle has the potential to draw you into a lethal trap which will lead to unforeseen circumstances dangerous for your business.
But how can positive net profit be dangerous? How can generating a positive Cash Flow be harmful to the business? After all, if a business is making a good net profit, it’s easy to assume that things are going well.
Valid Questions.
In the next few blogs, we’re going to take a deep dive into the three elements and show you why each of them needs to happen together to generate profits for your business.
So, stay tuned for the upcoming blogs and we’ll make sure you have a completely different approach towards your business after it.
Liked our content? Do you now want to find out where your Cash is stuck and what are the bottlenecks in your business?
Set up a non-chargeable call with our team of strategic consultants who will give you effective solutions with the help of our PCV Simulator!
Feel free to book a slot here for a personal one-to-one review: https://calendly.com/biz-owners/30min?month=2022-06
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