Points of Growth That Can Put You Out of Business
One of the most
misunderstood terms in the entire trades industry is the word “growth.” The
problem lies in the fact that most business owners mentally see a direct
relationship between growth and profitability. The thinking is “If we do more
work, we will make more money. Therefore, if we do a lot more work we will make
a lot more money.” That sounds reasonable, but it’s not necessarily true.
There are three points of growth that can literally put a company out of business:
• Owner moves from the field into the office: When the owner moves from the field into the office, it is a tough transition both mentally and economically. Most owners come from a technical background and now the need arises to learn the business side of the business. That is a topic all by itself. From an economic standpoint, the owner normally replaces himself in the field, and moves to the office, when he or she has 3-5 technicians. The owner’s salary just became overhead normally requiring the companies hourly to be raised somewhere between $8.00 and $12.00/hour … just to make the same profit you made before. Few owners raise their hourly rate at all when they move from the field into the office, therefore initiating the process of going out of business.
• Gross sales reach about $1 million per year: Believe it or not, nearly 70 percent of all contractor that reach $1 million in gross sales for the first time, lose money. Now that’s frustrating. The problem lies in the fact that the company is being forced to make some significant investments in the company in order to prepare to move to the next level, but the sales are not yet sufficient to cover the additional investment. The end result? The company looses money. By the way, the same situation repeats itself at $2.5 million and $5 million as well as the $10 million marks within our company
• Rapid Growth: Any period of rapid growth will not cause minor cash flow problems, it will cause severe cash flow problems. I define rapid growth as anything above 15 percent. Now obviously there is a big difference in 15 percent of $300,000 in sales and 15 percent of $3 million in sales, but any point of rapid growth will cause severe cash flow problems in your company.
If you want to learn the “business side of your business,” you might want to check out Grandy & Associates three-day “Basic Business Boot Camp”. We have trained over 14,000 contractors how to run profitable businesses. For more information, visit www.GrandyAssoicates.com/bbb or call 800-432-7963.
There are three points of growth that can literally put a company out of business:
• Owner moves from the field into the office: When the owner moves from the field into the office, it is a tough transition both mentally and economically. Most owners come from a technical background and now the need arises to learn the business side of the business. That is a topic all by itself. From an economic standpoint, the owner normally replaces himself in the field, and moves to the office, when he or she has 3-5 technicians. The owner’s salary just became overhead normally requiring the companies hourly to be raised somewhere between $8.00 and $12.00/hour … just to make the same profit you made before. Few owners raise their hourly rate at all when they move from the field into the office, therefore initiating the process of going out of business.
• Gross sales reach about $1 million per year: Believe it or not, nearly 70 percent of all contractor that reach $1 million in gross sales for the first time, lose money. Now that’s frustrating. The problem lies in the fact that the company is being forced to make some significant investments in the company in order to prepare to move to the next level, but the sales are not yet sufficient to cover the additional investment. The end result? The company looses money. By the way, the same situation repeats itself at $2.5 million and $5 million as well as the $10 million marks within our company
• Rapid Growth: Any period of rapid growth will not cause minor cash flow problems, it will cause severe cash flow problems. I define rapid growth as anything above 15 percent. Now obviously there is a big difference in 15 percent of $300,000 in sales and 15 percent of $3 million in sales, but any point of rapid growth will cause severe cash flow problems in your company.
If you want to learn the “business side of your business,” you might want to check out Grandy & Associates three-day “Basic Business Boot Camp”. We have trained over 14,000 contractors how to run profitable businesses. For more information, visit www.GrandyAssoicates.com/bbb or call 800-432-7963.