It’s tax season. Do you hear the collective groan from small business owners across the country? Are you one of those small business owners who is groaning because yet again, you are barely breaking even? What are you doing wrong? It may surprise you to learn your human nature is working against you.
If you are barely breaking even in your business, or worse, losing money and continually operating in the red, rest assured you are not alone. In fact, the majority of small businesses in the United States barely break even. Out of 28 million small businesses in the United States, 22 million are breaking even. That’s right. Only 6 million of the small businesses in the United States are profitable.
Why is it so hard to be profitable in small business? Theoretically, all you need to do to be profitable is to make more than you spend. But, it rarely works this way. Why? The reason lies in our human nature.
It is our human nature to consume all of our available resources. This is Parkinson’s Law. It applies to toothpaste, dieting, AND the financial management of small businesses.
Parkinson’s Law states that our demand upon a resource tends to expand to match the supply of that resource.
Think about it. When you have a brand new tube of toothpaste, it’s likely you fill your toothbrush with a long bead of toothpaste to brush your teeth. As you get down to the end of the tube, you squeeze out the last little bit to brush your teeth. Either way, your teeth get brushed. But when you have a large supply of toothpaste in the tube, you use a lot. This is Parkinson’s Law in action.
In my home, it’s the bag of chocolate. When my bag is full, I grab a handful of chocolate to eat when I resume my workday after lunch. When the bag is almost empty, I take one or two. When it’s gone, I don’t eat any. (In fact, it’s best if I don’t even buy the bag of chocolate in the first place!)
How does Parkinson’s Law apply to Small Business?
The majority of small business owners practice “Bank Balance Accounting” to make financial decisions in our businesses. When we are contemplating a major purchase, we log into our bank account to check the balance. If there’s a good bit of money in our checking account that day, we move forward with the purchase. If our balance is low, we may postpone the purchase or pass on it all together. This is Parkinson’s Law in action. We spend what we have.
Parkinson’s Law explains why so many small businesses are not profitable. When revenue increases, so do our expenses. In fact, what typically happens is that our expenses increase prior to our revenue increasing. Yet, our revenue never seems to outpace our expenses so that we can be profitable. In many cases, expenses typically outpace revenue, which results in the business barely breaking even. This is why a business owner making $1 million or more in revenue still loses sleep at night worry about cash flow—just like he did before he grossed his first $10,0000.
Clearly, not every small business owner falls victim to the detrimental effects of Parkinson’s Law. Some small businesses are significantly profitable and thriving. What is their secret? What are these owners doing differently than the majority of small business owners who are barely breaking even?
They are harnessing Parkinson’s Law to their advantage. The majority of what these profitable small business owners are doing is very similar to what the rest of small business owners do. Yet, they do a few things differently. It’s these few things they are doing differently that are responsible for their consistently strong profits, year after year, in their businesses.
If you want to know more about these small, simple changes you can make to drive profit in your business, join me for my upcoming webinar, The Secret Profit Formula for Rural Business Owners. I will reveal the exact system I use to drive the profitability in my clients’ businesses up to 10-15% or more, year after year.
Just imagine…you could end the year with 10% profit and be rid of your cash flow worries once and for all. Join me and learn how.
