We’ve all read the articles about the doom and gloom realities of small business – scary statistics like 90% of them fail within the first year, and of those that survive, only 50% will make it to their third year. Reading those articles is the fastest path to one of two things: 1) opening a business but pretending it’s still a hobby (you can’t fail if you are not officially a business, right?) or 2) giving up before you’ve even started.
For the brave ones who still go into business, you might be wondering when can you expect to finally be making some money out of it? Before I answer that, let me point out that your first thing is to work out what “some money” actually means. Financially speaking we all have different goals – for some, enough money to pay for family extras like vacations or braces. For others, enough money to support an entire family. You’ve got to work out HOW MUCH money you need and want to earn as a first step. If not, NO amount of money will ever be “enough” because there is no definition for what “enough” is.
In my experience of small business (and in particular food businesses), the five year plan to money making looks something like this:
- Year One: Make no money, or plow every dollar back into the business to grow it. This is the year you’ll invest a bit (in websites, education, marketing etc) so the year is about putting in and not taking out. Your pricing is probably also out of whack and it covers your goods plus a bit. You’ll want to give up a lot.
- Year Two: Make some money, and still plow every dollar back into the business to grow it. This is the year you start to get more serious about things. Your skill has improved, your pricing is more structured, and you’re probably covering your goods, overheads and maybe SOME of your labour. You’ll want to give up a lot.
- Year Three: Hit burnout because of the lack of money (“Why am I working so hard for so little?”)- so you start to bring some strategy to how you do business. Your skills have improved, you’ve learned to speed up, and you’ve started to feel the pain of working for no money – so you start to take some money out of the business and pay yourself. The sky does not fall, the angels don’t sing…but you’re getting paid! HOORAY! You’re also buying in bulk (saves you money), have determined your niche (or are working on it) and you’re starting to feel like YOU control your business as opposed to your business controlling YOU. You can cover goods and labour, and are starting to think about profit. You’re thinking about scaling up or out. You’ll want to give up a lot.
- Year Four: You’ve been getting paid for a while, you’ve started investing a bit heavier into the business (business coach, business classes, bigger premises, more heavy-duty equipment) and you’re starting to see how you can make this thing work. You’ve started to build profit into your prices, you’ve got a niche (or several), you may have an employee or helpers of some kind who are also paid. You’re covering goods, labour, overheads…and profit is starting to appear in those balance sheets. You’ll want to give up a lot.
- Year Five: This is when things start to feel like you can exhale a bit because this thing is hitting its stride. You get paid, your helpers get paid, you’re seeing profit, this whole thing is starting to feel worthwhile. You’ll want to give up a lot (small business is hard.)
Those cycles of business might take you a lot shorter or a lot longer to meet, it really depends on how much time and investment you’ve got available to put into it but invariably those things will happen. Business is a process. It’s not a case of “if you build it they will come,” and the amount of companies that go viral are few. How long it will take you to be successful depends entirely on your definition of success, how much time/effort/money/marketing you’ve got to invest, and your ability to keep on keeping on each time you feel you want to give up.
What year (or stage) are you at?