Many small businesses hemorrhage money – often by not spending it. It can be seductive to start spending business management money. The scam and con artists know that many new business owners have a few thousand dollars to invest. They create large websites, impressive looking campaigns, and other ‘tools’ to help them separate small business owners from their investment capital.
There are hundreds of stories where a small business owners paid for SEO optimized websites and shopping carts, or had a media company make them a professional looking front page, or maybe they spent thousands of dollars to bring traffic to their site. None of this generated any sales.
Yes, these things are valuable, but they are a waste of the businesses resources.
When a business starts out, every dollar spent should expect a return. A desk is an office expense, but it will not return any revenue. It is vitally important to make sure that every dollar spent is capable of generating revenue.
Getting traffic to a website does not generate revenue. One million visitors to your site will not generate wealth. However, hiring a forum poster to create a reputable image and build a buzz, without actually selling, may bring in 1000 visitors, producing 100 sales. Difference? One is spam generated, the second is target market focused.
Take link building. Thousands of small business owners will spend $1000 to have a web site optimized. A Search Engine Optimized (SEO) website will not generate revenue. It is like putting an ad in the newspaper, or handing out business cards. This will not increase traffic. There is no ‘Return On Investment’ value. But, these same companies will not invest in a forum where potential clients can have their concerns addressed, receive insightful answers to questions, and learn about unexpected benefits available in the product for sale.
Capital vs Money
Businesses also need to learn how to differentiate between capital and cash on hand. A business owner may spend more than six months building a web portal/community, while making minimum sales. However, they now have a platform worth $10 000. This Capital may not pay the expenses, but it is valuable. It can be used to obtain a business loan, magnetize Joint Venture partners, attract advertisers, and create bartering possibilities.
Capital building does not last forever. Once the platforms are in place, the business owner can focus on marketing and start promoting their platforms – attracting a target market – increasing the revenue generating possibilities.
Making Sales vs. Generating Profits
Another confusing aspect of business management is the difference between making a sale and generating revenue. There are three parts of a business’s development. The first part is where sales do not cover the expenses. The business manager must invest their own money to keep the business afloat. The second is where the business generates excessive money, but the business owner can only withdraw those funds at the peril of the business. The third is where the business is generating a profit, and the business owner can withdraw the money without worrying about damaging the business.
Too many small business owners start drawing money from their business because there are no current expenses to pay. However, they forget that the company needs marketing and promotion money, so in effect, the business owner is withdrawing money from the advertising budget.
A good three month budget, and a marketing plan will help business owners stop the gaps and prevent wasting their valuable resources.
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