Money isn’t everything.
Many entrepreneurs are driven to succeed by their vision, even if it means giving up sleep, security, or a regular job. However, most of us are inspired by billionaires like Mark Cuban and Richard Branson, who are looking for financial success (or at the very least, some reward).
How do you feel when your day is a struggle? When you are struggling every day to sell and seeing the financial statement makes you cringe, what happens?
Many entrepreneurs complain about not having enough revenue. However, statistically speaking they are making more than they need to. I experienced the same feeling when I quadrupled revenues and overshot my goal.
Why is this happening? This problem could be caused by many things. Here are five common reasons for money problems in entrepreneurs.
Why your business isn’t making enough money
1. Pricing strategy wrong
2. The product does not exist
3. NOT ATTRACTING THE RIGHT KINDS OF CUSTOMERS
4. Not Tracking Your Revenue
5. Money and Relationships
Your pricing strategy is incorrect
Solution: Reverse engineer your prices.
What is the basis for setting prices? Most entrepreneurs base their pricing on what others charge, or what “feels” fair. However, this strategy can be flawed because it fails to take into account what your business requires to make money.
It is important to understand your expenses as an entrepreneur, tax liabilities, debts owed by your company, and your desired earnings.
The pricing of your product is wrong because you have done bad math.
Use this simple formula to determine your annual revenue goal:
Minimum Gross Income = (Business Expenses-Desired Salary – Tax Liability expressed in decimal)/ (1-Tax liability expressed in decimal)
Examples of business expenses are subscriptions for software, payments to contractors, employee payroll, and interest on loans.
The salary you desire is the amount that you wish to take out of your company to pay yourself. Founders do not usually pay themselves a salary initially.
In a Foundr piece, Janine Allis revealed that it was three years before she took a salary after starting her own business.
Decimal is used to express the tax percentage. The tax liability percentage is expressed in decimal form.
Speak to your accountant about the taxes you owe as they vary widely depending on what type of business you run.
Do you want to see the formula in action? How might this look for a web designer who works independently and is an individual proprietor?
($9,000 + $70,000)/.7 = $112,857.14
Using the above formula, the freelance web developer would have to earn an annual income of $112 857 to pay her expenses and to save 30% in income tax. Now she can work backward and structure her prices and services to help achieve her goal.
You can use this figure to determine the cost of a product or service.
Reason # 2: Your product isn’t viable
Solution: Pivot (maybe).
It may seem harsh.
This could pose a problem for two sides. You either have a product that isn’t viable because of the cost to manufacture it (in this case, you need to reconsider your pricing strategy) OR no one wants it.
If your business is not profitable, regardless of the price structure you use, you can pivot. This also applies if you come up with a fresh business idea and can validate it.
Holly Liu, co-founder of Kabam and its CEO is one of many businesses that has adapted their business model from the original idea. Holly Liu restructured Kabam three times before it was sold for $800m.
If you are not profitable but have a big audience, then create a product that will appeal to them.
Want a real-life example? Gretta Van Riel did exactly that with Drop Bottle. She had a huge Instagram following, consisting of thousands of detox water enthusiasts. Van Riel began to brainstorm ideas for a new product to offer to this large group of followers. What was the result?
The Drop Bottle allows you to create detoxified water by infusing fruits into the glass.
Create a new product for your loyal customers if they are a part of your business. For example, if your financial coaching service is aimed at creative entrepreneurs, but you find that many need help with their bookkeeping. You may consider providing bookkeeping services.
Is it better to shut down or pivot my business? This is a tough decision, so don’t rush into it. Ask yourself these questions.
- Am I a loyal customer?
- What if I do not have the cash to continue?
- Am I able to attract a large following, even though it is not of paid clients?
It might be time for you to close down and start again your business if the answer to these questions is “no”.
Reason #3: You are not attracted to the right type of clients/customers
Solution: Identify your ideal client.
Your product is great, but you aren’t getting any sales. Although your skills may be excellent, it’s not translating into customers. There may be many unhappy or difficult clients.
You may be not attracting the best people for your company.
You have never made one? There’s a problem.
Customer avatars can be referred to as buyer personas or ideal customers. Your customer avatar is a real person.
There are many ways to discover who has praised your company on social media. Use Twitter to search for those who have talked about your business.
You can find out who has sent you a thank you email by searching your inbox.
The marketing message you send should reflect your avatar. Without one, it will be difficult to get anyone’s attention.
Now is the time to ask yourself some questions about your ideal clients:
- Which customers are my “favorite” of mine? What are their comments about me that they say without asking?
- What is the age of your child?
- What are their occupations and income levels?
- Why are people worried?
- When was their last purchase?
- Which brands do they prefer?
- Which specific problems is my product or service solving?
Once you’ve defined your ideal customer, here are some steps that you can quickly take:
A Clear Tagline
You don’t know how to do it?
This formula is easy: Your company + your help + customer issue + solution
Hootsuite has, for instance, used this formula to show that it can help its clients manage their social media.
It’s not that they want to appear clever; it is just to make things clear. They state above the fold, “Manage your social media profiles in one location.” “
Find Your Customer
Go to where your ideal clients hang out.
Go to the place where you’ll be seen by your target customers.
Evaluate the audience of your Facebook Ads. If you run Facebook ads, you can more accurately target customers. Facebook Ads Manager can be tailored to your ideal customer.
Reason #4: You have no idea what you are earning if you do not track it.
Solution: Each Monday, update your cash flow statement as well as your income statement.
The old saying is true: “Whatever gets measured, gets managed.” If you do not know your business’s cash flow, it will be impossible to manage its finances.
Cash flow is different from profit. Cash flow is the amount of money coming into and leaving your business each month. Profit is revenue earned but not necessarily received that month.
A positive cash flow will keep your business operating daily.
The rest of the payment will be due two months after project completion. If the cash flow is negative but your income is positive, you can still require 50% of the fee upfront to begin work. It is possible that I only received $10,000 this month, despite having earned $20,000 during the month.
To determine whether your business is sustainable over time, you should know both the cash flow and the income statement.
Your accountant can prepare reports for you by preparing a cash flow and income statement.
Don’t ignore the issue and hope it will go away. Update your income and cash-flow statements every Monday. A weekly overview of the business finances is essential to feeling confident.
Reason #5: Your relationship with money is flawed.
Change the way you think about money
Would you consider yourself wealthy if your bank account contained $5,000,000? Do you think that your wealth is enough for you?
It’s a common myth that once we reach a certain level of income, we will no longer have any worries.
A study by Boston College showed that many people face new challenges once they are wealthy.
When researchers interviewed super-rich people, they found they were worried and isolated about the future of their children because of their wealth. The majority of respondents stated that they did not feel secure financially.
Your relationship with money could be flawed if you think that you are not making enough money in your business even though you’re on track with your product pricing and your cash flow.
Your “money mindset” is the view you have of money. If you’re constantly concerned about losing or not making enough money, you will feel unsatisfied with your business.
Marie Forleo is a financial expert who uses exercise to help her overcome fear. Every time Marie Forleo spends money on her business, she tells herself “There is always more where that came.” She shifts from worrying about losing money to the belief that she can always make more.
Business Not making enough profit
Will rebranding increase my company’s revenue?
You can improve your financial position in other ways.
I am not earning enough money in my business because of the economic situation. Now what?
It is important to develop a long-term vision for your company that is longer than the economic cycle.
How can I earn more money the easiest?
Cutting expenses can help you to get on track. Your downtown office may not be as valuable as you think.
If your business isn’t profitable enough, you can make it more successful
Your business is not alone in feeling like it’s losing money. This problem can be viewed from a logical perspective by looking at these 5 common problems that cause businesses to lose money.
- Pricing without profit is not a good strategy. You will not make any money, no matter how much you sell or buy.
- Test and validate your product to make sure there are buyers.
- Your marketing is geared toward the wrong clientele. Identifying your ideal customer will help you to improve your sales, satisfaction, and retention.
- Your business’s cash flow is not tracked. If you are serious about managing your finances, then tracking them will help.
- Your relationship with money is flawed. If you fear money, you’ll feel like you never make enough. Learning and using new techniques will be helpful.
Entrepreneurs are known to take risks. You may worry about not having enough money to enjoy a fulfilling life.