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Simple arithmetic may be the difference between success and failure

The failure of small businesses is so high because business start-ups think too small.

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The failure of small businesses is so high because business start-ups think too small.

Everybody understands that they must charge more than their costs, but more often than not, that kind of thinking doesn’t take the business much beyond the breadline.

Business operators need to grasp that to be profitable by one dollar is not good enough – it has to be ten times that, at least.

So many people find themselves despondent when they realise they have to put money away for the taxman, for re-investment, for paying off loans and other costs… never mind having anything left over for themselves. It’s a painful discovery when they realise that there’s nothing left, and all that they’re doing is working to pay off the taxman next year.

New Zealand may be the easiest place in the world to start-up a business, but it’s also probably the toughest place in the world to succeed. We are a very small market, which means every cent counts.

In all my years of teaching and mentoring business owners, the most common mistake without question is that most start-ups under capitalised, under resourced and under-knowledged.

Anybody can make money, but there’s a difference between ‘making money good’ and ‘making money bad. The solution however, may be as simple as making one per cent changes.

A one per cent price increase

A one per cent sales increase

A one per cent decrease in cost of sales

A one per cent decrease in expenses…

…can lift profits by as much as 26.6%.

It is critical to do the arithmetic, to know what the true profit of the business is.

Unfortunately, real business success hinges on boring numbers – there’s no cash flow, no innovation and no vision if the numbers fail to stack up.

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