It's No Wonder Some Businesses Struggle To Produce Financial Results

Yesterday I was reading an article about a particular small business.

The article was interesting and told about how the owner went about starting the business a couple of years ago.

Then when it came to the "financial section" of the article I was reminded about one of the reasons I've found that small business owners seem to struggle so hard to produce the financial results they want.

You see, there was a table that showed a breakdown of monthly overhead.  The items included were advertising, phone, vehicle, promotional items, office expenses, insurance, accounting fees, and other items.  The total for all of these items was $1,660 according to the article.  And the article then went on to state that the business needed to sell its service twice per month to break even (its service sold for about $800). 

Now there's nothing with the financial theory of this approach - that's a textbook breakeven analysis.

But there's a couple things wrong with the viewpoint, from the viewpoint of a small business owner.

The first is that the article's breakeven analysis didn't even consider how much money the owner wanted to take each month.  And let's face it, for the vast majority of small business owners, they need their business to pay them something.  If it doesn't they will eventually be forced to shut down.  That means owner compensation is as much a montly fixed cost as rent - and it should be factored into breakeven calculations.  After all, why target sales efforts to achieve a level that doesn't make any money for the owner?

The second problem is that the article's breakeven analysis doesn't break the target down into different products and customers.  Like all small businesses, some customers are more profitable, as are some products, than others.  A truly effective breakeven for a small business really should provide targets that related to the day-to-day activities of the business (how many customers and what products?).

Like I said, the article was good and I enjoyed it.  And the breakeven analysis it contained was absolutely correct, from a theoretical viewpoint.

But I was also reminded how different "real life" viewpoints in small business are, and should be, if any business owner truly wants to crreat the financial result they want.