Money is, of course, something a small business owner thinks about often. How much money do you have? How much money will something cost? How much money can you make?
While money itself may not be your sole aim in building a successful business, money-making is a necessary component of business success. Maybe your motive in business is to help people, or be creative, or change an industry. Or, perhaps, your aim is to make money. It doesn't really matter, because any business, no matter its purpose, must make money in order to sustain itself. (Get tips on how your business can survive the recession.)
The plunging-profit pattern
Unfortunately, what often happens at this point is a pattern that leads to less profit, not more.
The pattern starts with some long-held belief about money, and about how making money happens. You pull it out, eyeball it and decide to try it out again. Or, more likely, you don't even consciously note it; you just allow it to control your decisions.
Maybe it's your Granddaddy's voice in your ear, saying that slashing prices is the only way to boost sales. Or maybe it's your old business mentor, giving you his tips on how to cut corner after corner, because that's his version of bootstrapping. Maybe it's your accounting professor, your tax guy, your lawyer, your spouse, your best friend, your own fears.
Whatever old hat it is you're waving around, it doesn't fit on your new business head. It doesn't work, and your profits plunge.
The problem with money myths
Money myths aren't always incorrect. That's the trick, and that's why you keep believing them. Sometimes they do work, so their power over you remains. In fact, money myths are accurate in certain situations, but are not universally true. Applying a limited or faulty money belief as if it is universal or flawless is how small businesses wind up in trouble.
10 common money myths
Do any of these statements sound familiar? Have you heard yourself saying them or heard something similar echoing through your brain?
Myth No. 1: "Lowering my overhead (spending less) is the only/best way to increase my profits."
Myth No. 2: "Debt is the devil."
Myth No. 3: "Payroll is my biggest expense."
Myth No. 4: "I can't afford to [enter whatever it is that you want to do]."
Myth No. 5: "I have to offer the lowest prices to beat my competitors."
Myth No. 6: "Lack of money is my biggest business problem."
Myth No. 7: "Dumping money into XYZ area of my business would solve my problems."
Myth No. 8: "I'm doing the best I can with the money I have."
Myth No. 9: "Cutting jobs/cutting costs/cutting corners is my only option."
Myth No. 10: "Lack of profit is justifiable because it's a down economy."
Busting the money myths
Your job is to see the myths for what they are and are not. They are not universally true, unerringly accurate statements. They are limited. All you have to do is figure out their limitations. In other words, when should you keep the faith, and when should you stop believing?
Use these myth-busting questions to figure out if your money belief works for your current situation.
- Why do I think this is true?
- Where did I learn this?
- What policies do successful businesses have about this money issue?
- Is this the only option?
- Is this the best option?
- What are the alternatives? (And there are always alternatives.)
- What's the opposite?
- What's the long-term outcome of applying this option?
- If this were the only thing people would know about my business, would I do it?
- What possible positive effects could this have?
- What possible negative effects could this have?
- What effect am I looking for?
Like it or not, part of your job is dealing with the money and being smart about the money. If the nuts and bolts of money-making don't appeal to you, you'll be tempted to divert to the easiest plan. The easiest plan will be the method that's most comfortable, and that's where the danger lies. Pay attention to your own money beliefs and make sure they're accurate for your actual situation before you act.