In my work as a business coach I turn around companies that might be enjoying significant revenues, but are not seeing the fruits of their labor on the bottom line. It might surprise you to learn a 3 or 5 or 10 million dollar company isn’t super-profitable but sadly it happens a lot.
Here are the 3 biggest lies I’ve heard financial experts like to tell:
Lie #1 – It’s okay to carry “Smart Debt”
This was advice given to a client of mine who runs an $8M manufacturing company from their ACCOUNTANT. Well how much “smart debt” were they carrying? About $1.2M worth of it. Doesn’t sound very smart to me, especially when sales dropped and they were trying to keep the doors open and service a huge debt load. Sadly this isn’t the only accountant out there giving this kind of advice, but if you are hearing it from yours, run away!
The only smart debt is NO debt.
Think of it like this… If you have two bank accounts… One account has $50,000 of money the bank gave to you to spend in the form of a line of credit and the other account has $50,000 of your OWN money you worked crazy hard to save… Which account will you spend first, and spend faster?
The bank money. You will cook through that money literally at the speed of light. When it comes to spending your own money, I bet you’ll think twice, and maybe three times, and even find another solution to the problem so you don’t have to spend your own money at all.
That’s the problem with debt. So easy to accrue, so hard to pay off. Don’t fall for this big lie.
Lie #2 – Don’t worry about profitability, just keep making more sales
This advice came from a business coach to my client who was selling $1.5M a year in services, but still struggling to make payroll. His approach was basically, just keep selling and the profits will take care of themselves.
This is FALSE.
More sales do NOT fix cash flow or cash management problems. In fact, they only make things worse. If you are selling a Widget and you sell 100 of them and break even, great. But when you sell 200, what happens? You don’t break even, because your costs will increase. So you turn a small loss. Then what happens when you sell 300 or them, or 500 or 1,000. Sure you’ll have more money flowing into the company but no real profits at the end of the day.
If you don’t go back and figure out how to get profitable from the beginning, more sales simply compound the problem.
Yes, it takes time. But it’s worth the effort. It’s much easier to fix profitability when you are at $500,000 or $1M than when you hit 5 or 10 million. Do not believe this lie that your money problems will be solved if you just sell more.
Lie #3 – Just throw money at your problems
I heard this lie from a financial expert who was teaching a course on building a business. The idea is any time you have a problem or challenge pop up, you should just throw money at it until it goes away.
While this might sound like a simple solution, it’s actually a terrible habit that will only cause you financial grief.
When you just simply throw money at a problem, you are robbing yourself of creativity and ingenuity. Remember those? You probably relied on them a lot more when your business was new and you didn’t have money to spare. As a result, you were required to find new solutions and were always be looking for better ideas.
It’s not to say at some point you won’t need to use money to solve a problem, just don’t rely on it as your only solution. Push yourself harder to find ways of solving problems without money and your wallet and bank account will certainly thank you later!
Do you need helping turning your business around? If so, Schedule a Breakthrough Session here. We’ll work together to create a Profit Plan and identify the next 3 Action Steps you should take to get the ball rolling!