How Money Really Flows Through a Small Business (And Why Profit Disappears)

How money actually flows through a small business

The main objective of any business is to make profit – because without profit, a business isn’t sustainable, and it won’t survive.

A business, however, is a complicated thing, with many interwoven parts and mechanics at play – regardless of its size.

These parts all need to work together and flow, in order for profit to be made.

If you don’t understand how money moves through your business, you can’t control what happens to it.  And, because no one ever teaches you how to run a business, this can feel like a really big, complicated beast.

It’s not just do the work, or sell the product, get paid, keep what’s left.

This is exactly the gap most small business owners are left to figure out on their own. 

The flow of activity through your business should work something like this:

Attention (from marketing) → enquiry (leads) → sale → delivery → retention → operations → repeat.

If any stage of the flow is unclear, or weak, money will leak out before it can become profit.

Why effort doesn’t always equal reward in small businesses

This means that not all effort always equals reward – so you can be busy in your business, but not make the necessary profits to match how busy you’ve really been.

Unfortunately, effort applied in the wrong places most often produces little return. 

Therefore, if you’re stuck working in the business, and reacting to everything thrown at you on a day to day basis – firefighting - instead of taking a step back and working on the business, you can’t design how your business’s profit is made.

Your problem isn’t that you’re not working hard enough – it’s that not all the hard work and effort is being applied to the right places.

It’s doing the wrong work, but doing it very well.

Where profit quietly gets lost in businesses

And again, as is always discussed – this doesn’t mean you’re bad at business – this just means you’re building your business operating expertise.  Learning and improving along the way is part of the journey.

It could be argued that it’s the most important part of the journey.

If the flow isn’t quite flowing, and that effort isn’t being spent in the right way, you’ll be experiencing issues such as:

• Time-heavy work that doesn’t generate revenue
• Under-priced offers
• No clear route from first contact to sales
• Constantly firefighting

Constant firefighting is usually what prevents you from making improvements, as well as being a symptom of the actual problem at hand.

These aren’t mistakes – they’re natural outcomes of a business that grows without the right structure in place.

Why growing a business often makes things feel harder

When a business starts, you’re very lean in the way that you operate.  Nothing’s ever gone wrong, so you don’t even recognise that there will be problems you have to solve in the future.  And you’re not very busy, because everything usually takes off so slowly.

As your business grows, though, different elements put pressure on different parts of the business.  Initial ways of working become no longer viable, and what worked to begin with stops working.

Each stage of business growth will squeeze, and put pressure, on the business and how it’s running.  This often results in business owners working a lot harder, instead of working differently – i.e. smarter.

These pressure and pain points aren’t because the business owners stop caring, or are failing – they’re because the structure of the business doesn’t evolve to incorporate it’s new size.

The danger of only fixing business problems in isolation

When a problem is identified, because small business owners are very busy, wearing all the different hats in the business, it can be tempting to try and quickly fix an area that’s an issue, in isolation.

However, fixing just one part of the flow, won’t correct the entire flow through the business.

Fixing marketing alone, won’t solve profit.

Fixing pricing alone won’t solve cash flow.

Fixing systems alone won’t solve overwhelm.

Fixing one area in isolation still provides plenty of areas where profit, and cash flow, could leak.  This is because everything is connected, and flows and works together.

It’s like having a flat tyre on your car, and there’s also something wrong with the engine, and taking it to the garage for them just to change the tyre – something will still be wrong with the engine.

All the parts of your business interact with, and affect, the other parts of your business.

Sustainable profit comes from how the business works together, in totality, no from a quick, or magic, fix.

Why profit is something you design, not hope for

Profit isn’t just what’s ‘left over’ – it’s the result of intentional decisions you make in your business.  It’s:

• What you sell
• Who you sell to
• How goods or services are delivered

Hoping isn’t a strategy for making profit.

What to take away from this

If your business feels hard, and you don’t feel like you’re earning enough for the effort you’re putting into it, it doesn’t mean you’re failing!

It just means your business, and the way it operates, hasn’t caught up with its current size.  It means the way it’s being run hasn’t been designed end-to-end…yet!

Clarity comes before control – clear understanding of the issues at hand.

Control comes before profit – taking that step back to work on the business, not just in it.

You don’t need to work harder – you just need to work a bit differently.

Work smarter, not harder! 

Understand what’s really happening in your business, behind the scenes, is the first shift in the right direction.  Everything else comes after that.

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