What does small business success mean to you?
Small business success means different things to different people. To some small business owners, staying in business and drawing a regular income equates to success. For others, if they maintain a certain lifestyle and achieve a particular way of life, they consider themselves successful. There are also those who consider fast business growth as the measure of their success. However, in my opinion the universal measure of success in business boils down to one single question: are you getting rich?
But what about profitability and cash flow?
More often than not business success is judged by measuring profitability. The assumption is made that if a business is profitable, cash flow and wealth creation automatically follow. But when interest rates are high and credit is tight, the focus shifts away from profitability and we then hear that ‘cash is king’.
Many business advisors and commentators tend to focus on profitability and cash flow and compare the difference between the two. Quite correctly they highlight the timing difference between income and incurred expenses as opposed to actual receipts and payments. A simple Google search will reveal hundreds, if not thousands, of articles about profitability and cash flow and the fact that you can be profitable and have a negative cash flow and vice versa.
The three pillars defined
We find that in most cases, focusing on profitability or cash flow alone fails to address long term business success. So, our approach is a more comprehensive. We argue business success depends on three key elements:
- Strong profitability
- Positive cash flow
- Growth in wealth
We call these three elements ‘the three pillars of success’. Through our extensive experience, any small business that gets these three elements working will be very successful.
So, let’s remind ourselves what profitability, cash flow and wealth mean:
- Profit = Income – Expenses
- Cash Flow = (Receipts – Payments)
- Wealth = (Assets – Liabilities)
The challenge for any small business owner is to have all three elements working in harmony and moving in the right direction.
So where to from here?
Obviously, every small business owner or manager wants to be successful. Over the past 30 years we have had the opportunity to study hundreds of SMEs and we have had the pleasure to develop recommendations to improve their performance and grow their assets. In doing so, we have found that the process becomes repetitive as most businesses share similar problems and concerns. Business principles are also universal.
Using our extensive experience, we have systematised our approach which is now being offered to SMEs as ‘The MACHUS Small Business Boost Program’. The program includes:
- Detailed examination of your small business
- Identification of areas that can be improved (for example, cost cutting, margin improvement, productivity increases, sales extensions, value adding)
- Detailed recommendations including specific strategies for each pillar of success and timelines for implementation
- Development of reporting tools specifically designed to your requirements (these usually include KPI and Cash Flow reports)
- Periodic performance reviews and application of continuous improvement principles to the Business Boost Program
A final word
The application of our program takes time and persistence, but the greatest motivator for you will be seeing gradual and consistent improvements, or in other words, greater small business success. In fact, it’s our greatest motivator too. We see this program as an ongoing partnership between our clients and ourselves. We look forward to helping you on a path to achieving small business success too.