“Your income is directionally proportional to the problems you solve.” Want to make more money? Solve bigger problems.
It took me 5 years to realize that applies to my business even more than to the problems I solve for my customers.
What are the biggest problems in your business? Are you out of time? Team unreliable? Can’t seem close the right deals? For over 5 years straight our income doubled. I can tie each of those growth spurts to internal operational decisions. Working on our business as well as our products & services has proved the most profitable expenditure of time and resources we have made. We improved and systematized project management. We standardized our approach to certain projects. We set actual goals. We identified and propagated culture intentionally. Each of these paid off handsomely.
Work on Your Business: Tracking
The day I realized I had a business marked a significant change. While many people start a company intentionally, I started doing technical services on the side. It took me two years and an argument with Boeing Co’s HR to realize I was a company (of 1) not just writing code. The interesting challenge with being in business without realizing it is that you don’t work on the business itself. Thanks to some good advice, I approached the Small Business Development Center (SBDC) and asked for some help. They set me up with a bookkeeper (for free) who guided me through the process of putting together a financial plan and accounting books.
I clearly remember the questions she asked, mostly because I had no idea how to answer them.
“What is your most profitable service? What are your time and expenses associated with building new customers? How much of your time is not billable?
How are you supposed to make any decision on the direction of your business when you have no idea how things are going?”
She sent me home with a basic task. Start by tracking everything. You don’t know what is important yet, but if we have the data, we can begin to tease out the answers once you figure out the right questions. I clocked ALL my time, not just the time spent on projects. I became serious about tracking and entering finances. When we met three months later, we dug through my data and rapidly doubled my income by removing a few major distractions and unprofitable services.
Where Did All Our Money Go?
As our company continued to grow, tracking became more and more important. In fall of 2010, Peter, Reid & I were staring at the P&L from our agency. Something simply wasn’t adding up. We were working harder than the numbers were showing. We had the feeling all year but simply couldn’t nail it down. We track everyone’s time, the services provided, the dollars in and out.
We stepped out for a business retreat and took the phones off the hook. After 3 days of focus, a pattern emerged and we realized we had been losing a lot of money.
I like to invoice clients by the 3rd of each month. For hourly contracts, I would calculate all the hours worked, and send the bill. Tragically, It turned out that a large number of our contractors were not as diligent as I in entering their hours. Most of their hours would be in, but periodically people would backfill a couple hours before sending in their invoice. Problem was, if I had already sent out the bill to the customer, those hours got missed. We would pay the contractor for their time, but weren’t getting paid for it. It was almost always a small amount, never more than 2-3 hours a person per month. Small enough that we never noticed. When you multiple it times 25-40 people (depending on the month) across many months though, it added up.
We realized over $60,000 of billable time had been given away to our customer in 2010 when we caught this (ouch). The fix was easy. We build “The Clock Blocker”, a little app that put a rolling 3 day limit on time entries. I made sure to wait until the 4th of the month to run my reports. It took a couple hours to solve the problem. Without the data we were tracking though, we would have never have identified the issue.
Now we know, and knowing is half the battle.