Reaching the $1MM business revenue milestone is an achievement in itself which proves that you have a sustainable business model and have beaten the odds. Up to 30% of small businesses may fail within the first year and 50% within five years. The $1MM business revenue milestone, however, is not the point that you can afford to sit back and get complacent and expect the business to run itself. Achieving substantial growth in business requires you to adjust the way that you manage and operate your business, it is also the time to look for new opportunities to achieve the next milestone. Here is what you need to do next to keep your business growing.
Businesses often fail primarily due to cash flow shortages. Even though your business revenue is steady and sales are happening, a rapid growth phase can foster cash flow problems. During your growth phase not only will your business get larger with each consecutive month but so will your expenses. It is crucial to use cash flow forecasting and management accounting to make proactive financial decisions to avoid cash flow problems.
Now that you have achieved $1MM in business revenue, you will find yourself having to juggle many roles. As the owner or CEO of a business, this is the time for you to hire and train capable individuals to take over some of your responsibilities. Your role should now shift to one of leadership and you must begin to develop your second line of management and delegate responsibilities to them. The daily running of your business should be operational even if you are not present.
The true cost of an employee to your company is much more than just their salaries. There are other cost factors that you need to consider such as sick leave, vacation, insurance, taxes, healthcare costs, training costs, turnover expenses and other benefits. You need a robust bookkeeping and accounting department to measure and determine exactly how much each of your employees cost and how much revenue each of them generate. Now that your business has achieved $1MM in revenue you will likely require to expand your workforce, but before you do that be sure that you can afford them.
One million dollars seems like a big amount when you achieve it, but how much of that did you get to keep? Profit margins are an important factor to consider and is the difference between profits and profitability. In order to stay profitable, you need to keep track of your business’s net and gross profit margins. Even if you are generating a lot of money, if your margins are very narrow, you could be operating very close to a loss. It is therefore crucial to focus on your net income.
As your business revenues increase, so do your expenses and payables. A cost fluctuation that may seem minor, like a wage increase or rise in supply cost can have a major impact on your total expenses and profit margins.
It is apparent that your product or service is desirable considering the revenue that it has generated. This is when it is important to reevaluate your pricing structure. Now that your business is growing are you charging enough to cover the increasing costs? What changes do you need to make in the pricing structure to encourage repeat business or increase subscribers? Test out different pricing strategies to see how customers respond and make the necessary changes to improve your bottom line profits.
To ensure that your business continues to grow, you need to establish a customer response management protocol and a marketing strategy to retain existing customers and to spark lead generation and conversions. It is important to determine your company’s Customer Acquisition Cost (CAC) and Customer Lifetime Value (CLTV) to determine how much your company spends per customer and how much revenue you gain from each customer.
With a healthy revenue stream and good profit margins, you should be having a good free cash flow. This money can be paid out to investors, held in an emergency fund or invested in further development and expansion. Make sure that you measure the ROI on your investments to put it to best use.
Now that you have achieved $1MM in business revenue you will require and benefit greatly from a bookkeeping and accounting service. Experienced financial professionals can help you generate a sizable return on investment. You will get help with transactional processing and compliance, strategic planning, cost reduction, and profit growth through actionable financial data.
We at Accounovation are passionate about helping our clients grow profitably. Get in touch with us for a free consultation on how we can assist you with bookkeeping and accounting services.