This article is a guest post from Matt Fox (Cultivate Advisors)
Post 2020, the world has changed forever. And so has business.
Not only in the way we go to market as business owners, but the immense challenges the business community is up against. Staffing, inflation, a shift to online sales, health protocols, supply chain issues, employee expectations, and much more. It’s safe to say that business has changed forever. The consumer demands and speed of business just to stay competitive require a new way of thinking.
As business owners, we need to be thinking about our business differently. What worked last year, last month, or even last week might not work tomorrow. This shift in strategic thinking will ultimately dictate the success or failure of a business going forward.
While this may sound bleak, it’s actually positive, powerful, and extremely motivating as an entrepreneur in the world. There’s no better time than right now to grow and scale your business. There’s no better time to provide a new and unique company culture that sets you apart from the rest. There’s no better time to redefine your business. There’s no better time than right now to utilize the business community for your success.
Why Expense Reduction is Critical for Growth
There’s been a shift in business over the past few years. Prior to 2020 small businesses were booming, but during 2020 businesses were shut down and when open, customer demand decreased for many. That’s not to say some industries showed strong 2020 revenue, but small business was challenged overall. Today, business is generally back open. The consumer demand is there, but we’re faced with supply chain issues and staffing shortages. As a result, we’re still not at our maximum capacity in many cases.These issues allow us an opportunity to reevaluate our entire business, including our expenses.
For many people managing expenses is not always the most enjoyable part of running a business, but it is critical for a business’s financial health. Tracking expenses against plan, budgeting for salary increases, or planning for utility increases are usually not the primary focus. Most business owners went into business because they had a passion for their industry and niche, not to get in the weeks with expense reduction. But we have to do it – and many have!
You may be a business owner who found an opportunity to reduce some of your expenses. Many have found that they have been able to add 3% to the bottom line profit by reducing credit card processing fees. Think about that for a moment. A 3% profit growth is a huge win and one that translates to overall business health to investors, banks, and potential buyers (if you’re looking to sell or retire in the next few years).
Mastering this winning formula can change your financial future.
Congratulations! You’re one of the business owners who capitalized on the opportunity to reduce your credit card processing costs. Now what?
As a business owner, what do you now do with this savings?
Depending on the size of your business, this amount of savings can vary greatly. Some owners might take this savings as personal income, while others may put the savings towards debt repayment. Unfortunately, some business owners don’t watch their finances closely enough and that amazing 3% savings gets lost in the day-to-day noise of running a business.
As a strategic business advisor, my objective when looking at a business opportunity is to maximize the Return on Investment for any and all money in the business. I naturally am thinking “how can you put this money to work for your business?”.
When I work with enterprise and large corporations, achieving a 3% annual sales increase is often something to celebrate. It’s a balancing act. As businesses grow and evolve, there’s a balance between increasing sales and decreasing expenses. By reducing your credit card processing costs, you’ve positioned your business for a successful path forward.
A best practice I work with small business owners on is to plan and track this expense savings (and all expenses) to ensure these funds move from one expense bucket to another bucket. Outside of paying down debt or handling legal issues, the first bucket I’d move this money to is to a Capital Growth Budget to reinvest into the business. This could be new revenue producing equipment, increasing headcount, and much more. In fact, there may be something much more impactful for your business that’ll produce a recurring ROI greater than what you may have in mind.
As a business owner, it’s important to look at your business critically and recognize that the business and brand is only as strong as those leading the company. Strong business leaders recognize that they cannot grow their business on their own and need to bring the right people into the leadership team of the business.
I often find two types of business owners who operate as a single owner or co-owners/partners. For small and mid-size businesses, I tend to see the owner’s wearing all the hats; meaning being responsible for the financials, sales, marketing, HR, payroll, customer service, and so on. They are the Chief Everything Officer. This type of business owner tends to be in the weeds, looking at the business day-to-day. The other type of business owner I meet often is someone who has a great business that is scalable, but they cannot do it on their own. They don’t have the time, resources, or knowledge to build the foundation necessary to scale quickly.
These are just two of the many scenarios business owners find themselves in and why a business advisor could add tremendous value to the business.
Whether you’re in growth mode, focused on sales and marketing or focused on the capacity side of your business, focused on recruiting and leadership, building a solid business foundation each step of the way is essential.
What is a Business Advisor and is it Right for My Business?
Timing is everything. Whether you’ve previously had a business advisor, coach or consultant work with you on your business, it all comes down to partnering at the right time and for the right reasons. A business advisor is different from a coach or consultant because business advisors are strategic business partners. The business owner(s) bring the industry expertise while we bring the business expertise to grow and scale businesses. In short, a business advisor provides an outsider’s perspective on your business and looks at the business like an investor would. Instead of making a financial investment in the business, we become an active member of your leadership team; strategizing, building, and implementing alongside you.
There are different types of business advising. Business coaches may provide group coaching services that meet weekly or monthly. Oftentimes business coaches have templates to help business owners get started in specific business categories. Business consultants are often paid for a specific task or set of time and focus only on that area of the business. A business advisor, on the other hand, is a holistic and strategic business partner. A business advisor looks at the business from a 10,000-ft view, meets regularly in the “boardroom”, always available as a business partner should be, and tailors everything specifically to your business, goals, and vision. We hold accountability throughout the process to ensure you achieve your long-term goals. We raise you up out of the weeds, so you can lead the business from a high level and help position the business for massive growth.
If you decide to proceed with a business advisor, be cautious of their primary focus. Many will say “leadership is #1”, “follow our process”, etc. Business must be centered around financials and no one should be giving you or your business advice without fully understanding the financials and making data-driven decisions. At the end of the day, the focus of your business advisor is to be helping support you implement a business strategy and roadmap to achieve your goals.
Evaluating the ROI of a Business Advisor
If you’re going to be redirecting costs savings from credit card processing and think a business advisor may be value-added, doing the due diligence to ensure the ROI is valuable is important. Business coaching, consulting, and advising services vary greatly in price, service, and quality.
When I first meet with a business owner who is interested in business advising, we walk through all aspects of the business and get an understanding of where the business is today and where we intend to take the business in the future.
Let’s look at a real life example of this ROI analysis. Assume your average transaction size is $5,000. Now let’s assume you will pay $2,500 per month for a business advisor. In the most simple form, if that advisor can help you gain one new customer every two months, you’ve covered the cost of the advising service.
Illustrating this further, two years of advising at this cost is $60,000. In this example, if you were able to bring in one new customer every two months for two years, that’s also $60,000. The key is that these new processes your business advisor brought you should last a long time. Let’s say this one process your business advisor helps with generates one new customer every two months for 5-years, that’s $150,000 of new revenue. This equates to a 90,000 profit.
Unbelievable, right? And this doesn’t even include anything else a business advisor and partner would bring to the business. Many cases, this growth can be hundreds of thousands of dollars if not millions of dollars of long-term returns on your investment. This is done through a holistic business approach in financials, sales, marketing, recruiting, leadership, productivity, and prioritization of the strategy and roadmap.
In full transparency, a business advisor is not right for every person or every business. It’s through discussion and due diligence to determine the value for your business.
What Should I Do Next?
If you’re in a position where you want to see if a business advisor can make an impact on your business, we should schedule a call to discuss your current business, future goals, and vision. If it makes sense for us to dive deeper, we would complete a business scalability assessment and review the ROI to determine if working together on your business makes sense.
You can reach me at [email protected]. Cultivate Advisors is a team of full-time business advisors (all former business owners) focused on scaling businesses. I’m proud to share our 5-Star Google Reviews and that we’ve made the Inc 5000 as America’s Fastest-Growing Private Companies in America for 3-years in a row.
With the business world continuing to evolve, this is your opportunity to reposition yourself and redefine your business. You may have just taken the first step to reduce a portion of your business expenses, which is outstanding! Now, as the business owner, you should be thinking how you can maximize your return on investment with that savings from your credit card processing.