A Couple of days ago, I sat with a business owner over pineapple juice at a 5 star hotel, discussing expansion and funding opportunities for her business.
As soon as we began, I wasted no time. “OK tell me how well business has been?” I asked. She answers that business has been very good.
And in her own words “I am not even able to meet my demand”. As an SME Coach, the word DEMAND is extremely important to me, so I was interested in the gist.
So I quickly asked, “how much does this business make in a day?” She answers and says both sizes of her product jointly earn her sales of 30,000 Naira ($86) daily.
Within a split second I said in my head, this is a 1,000,000 Naira ($2,857) a month business. I asked her for how long she’s been making this type of sales, she indicates that it’s been so for a while.
It was a good feeling for her explaining how good the business is.
Then I asked her “what does it cost you to make the 30,000 Naira ($86) in sales per day”
First the question startled her and I had to rephrase. I asked, how much of this 30,000 Naira ($86) revenue is the COST of production?
Then we started the math. She gave estimates of the major elements of her cost of production and I was busy punching into my phones calculator. When she stopped, I asked, what of transport? She says oh yes, so much. I asked again, what of PHCN? What of Fuel? Does any one work for you? Yes she said – two people. We finally added most of the costs (without adding her own salary).
Guess what? we arrived at 34,762 Naira ($100).
Yes, it was costing her almost 35,000 Naira ($100) to make sales of 30,000 Naira ($86). And we hadn’t costed her own salary in it. What was notable was how she didn’t realize that fact.
And guess how much she’s trying to raise? 600,000 Naira ($1,715).
Are you seeing anything? Are you hearing anything? Why is a 1,000,000 Naira ($2,857) per month business that has run for years looking for 60% of its monthly sales to expand?
Like I am with all my clients and training delegates – PRACTICAL; I asked that we first must focus on ascertaining why these numbers are what they are. We have to focus on the FUNDAMENTALS of the business before we try to raise capital or seek investors (and raising her kind of money isn’t hard actually. I do this well).Otherwise, you will raise money and contract partners into your CHAOS.
ALSO READ : 10 WAYS TO FIND NEW CUSTOMERS FOR YOUR BUSINESS
You will believe your own press. You will be in a hobby, not a business. You will frustrate yourself and your partners. Expectations will be mismatched. You’ll all work at cross purposes and the business will suffer or die.
My advise to you is – please audit your business. Where’s your excitement coming from. Is your business making PROFITS? Does your revenue cover your costs? Does revenue cover costs sufficiently enough to leave a margin to grow the business?
Or are you just writing the news, editing it, casting it, watching it, and believing it all by yourself?
If it’s not PROFITABLE in a SUSTAINABLE manner, then it’s NOT EFFICIENT.