What To Do When Your Startup Profits Hit the Wall

A good many startups I know have been “successful” over a couple of years in overcoming the challenges of starting the business, including incorporation, services development, funding, and setting up operations. Yet they still haven’t achieved a healthy growing profit, even though this was one of the main reasons they went into business for themselves in the first place.

It’s no fun on this plateau, just “making payroll,” and watching some employees make more then you as the founder. At this stage you were expecting to be working on creating a good business valuation to attract future buyers, or at least funding college accounts for your kids.

If you are in this category, first know that you are not alone, but then you need to take a look at the advice given by Patricia Sigmon in her book “Six Steps to Creating Profit: A Guide for Small and Mid-Sized Service-Based Businesses.” I recommend her six tried-and-true tips to deal with the challenges that may be holding back your profits:

1. Stay visible and connected. It’s important to stand up to competition and wear your reputation on your sleeve. Accreditations, licenses, and certification – for your business or for individual employees – can set you apart from your competition. Take your reputation online, utilizing social media, your website, and a blog to connect to clients and make strategic alliances.

2. Maximize cash flow. One of the best ways to achieve a stable cash flow is to offer prepaid retainers or ongoing payment plans. Maintenance contracts are another great way to create a brand-new revenue stream. Consider once-a-year or once-a-month contract renewal fees, and manage credit payments to avoid fees or to take advantage of discounts and better terms.

3. Streamline management costs. Create a user-friendly system for employees and be sure to build in back-office, administrative time into your project fees, hourly rates, or ongoing charges. Automation will allow your business to run more efficiently, and will streamline your management overhead.

4. Raise the marketing bar. Today, marketing is all about immediacy. Give your business an instant presence through online networks, including Facebook and LinkedIn. Set up group meetings, sales presentations, and special promotions using webinars, webcasts, and podcasts, rather than travel and personal meetings. Don’t forget to measure all of your marketing efforts to see which ones are indeed cost effective.

5. Make everyone a salesperson. Ask employees what they would do to grow your business, fix business issues, or cut costs. Mix things up. Break the mold of the “rigid job description,” and open the door for employees to be involved in sales, profit-generating actions, and idea development. Reward employees who make an extra effort to represent the company inside and outside of work.

6. Change the rules of operations. The challenge here is to generate more sales, while reducing expenses and tweaking costly administrative processes. For services, switch to a “relationship-based” sales model by building in plenty of reasons (and financial incentives) for your clients to come back to you. Keep you office running lean and mean.

Is your service being replaced? Reinvent yourself to meet a modern market: If you are a paid technical instructor and your classes are shrinking, offer training over the internet. Instead of selling your services to everyone, expand your services “vertically” by targeting industries where you’ve already been successful.