The Psychology Behind Why You are Barely Breaking Even

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.

About The Author

Dr. Sabrina Starling, The Business Psychologist and international best-selling author of the How to Hire the Best series and The 4 Week Vacation™, is the founder of Tap the Potential and host of the Profit by Design podcast. At Tap the Potential, we work to free business owners from the constant demands of a growing business.

We believe work supports life, not the other way around. Clients in our Better Business, Better Life coaching program have more time for what matters most and more money in their bank account than they’ve ever had. Next, we send them off on a 4 Week Vacation™ to celebrate their hard-earned journey to take their life back!

Dr. Sabrina and her team at Tap the Potential are on a mission to change the story of entrepreneurship from one of long hours, grinding it out, to one of sustainably profitable businesses that support and enhance life. The Tap the Potential Solution™ and our Tap the Potential Family of Business Owners are disrupting small business as usual. We are on our way to making the Tap the Potential Solution™ the mainstream model for growing business.

By 2023, 150 Tap the Potential clients will have taken 4 Week Vacations. These are the trailblazers, role modeling what’s possible for entrepreneurs. In many entrepreneurial circles, it is becoming more and more common for one entrepreneur to ask another, “Have you taken a 4 Week Vacation™?” (as opposed to asking “How many employees do you have?” or “What is your annual revenue?”). Taking a fully unplugged 4 Week Vacation is rapidly becoming the recognized symbol of entrepreneurial success.

Never one to accept the status quo or back down from a challenge, Dr. Sabrina’s How to Hire the Best series grew from her desire to solve the toughest hiring challenges interfering with her clients’ growth and profitability. What sprang from her experience working with entrepreneurs in rural areas catapulted her into becoming the world’s leading expert in attracting top talent in small businesses—no matter what hiring challenges those businesses are facing—and earned Tap the Potential’s reputation as the go-to resource for entrepreneurs committed to creating Great Places to Work with thriving coaching cultures and highly engaged team members working from strengths.

As The Business Psychologist, and with her years of driving profit in small businesses, Dr. Sabrina knows what it takes to find, keep, and motivate exceptional performance out of your biggest investment—team members.