Having owned a business for more than 12 years it has occurred to me that in addition to normal economic cycles of boom and bust there is also another cycle – that of learning years and earning years.
Markets and marketplaces appear to shift or change at a fast pace however if you can separate the noise from that of real changes I believe that surprisingly things tend to stay the same. As an entrepreneur it can be difficult to stay focused and not be distracted by the noise. Having faith that your business decisions are the right ones can require perseverance and determination and even more so if your business has not had strong earnings years. I believe that there are times to make investments in your business that take time to produce results. There are years when a business is learning about its business, services (or products), the marketplace and competition. Then there are years when business decisions produce earnings that are a result of the investments made.
In workings with small businesses, I see business owners that tend not to understand what season their business is in. For example, if a business has not proven its cash flow but is spending money on non-essentials (i.e. hiring unnecessary staff just because you think you need them) during the learning years and never get to see real earning years because their business never has time to catch up. Further, most small businesses do not have a definitive destination they are trying to get to like an eventual sale to management or a competitor. Knowing the destination (even if it changes over time) should provide guidance to business decisions and investments being made. Where there is not vision the people perish (Proverbs 29:18 – couldn’t resist) and this could not be more true with small businesses. Even sole practitioners should have a destination. Accountants and lawyers can sell their annual billings to a younger firm, a plumber could sell the goodwill in his business to an apprentice on their way to becoming a journeyman and a financial planner can sell their client list.
But back to the idea of learning years and earning years. Take a moment to understand what season your business is in. If you are in the learning years – be frugal. Like a university student eating macaronni and cheese your business should be lean and not incurring unnecessary expenses. Most businesses in a learning season that are incurring unnecessary expenses are doing so because they don’t actually know where they are going. During your earning years make smart decisions about how to invest the cash. Like lottery ticket winners who lose their fortunes due to having no real knowledge of budgeting and spending (and investing) business too can misuse their earning years and find that an economic dip can significantly impact their future.
So where is your business now? Learning years or earning years?