[S598]Small Business Profit Sharing

Now, don't get me wrong, it is perfectly possible to set up such a business. But the reality is that the type of person who sets up such an 'automated' business are the ones who are least likely to just sit around and watch it happen. And those who would love to spend most of their time on the beach are the least likely to set up exactly such a business.

BUT, with a bit of planning, this is actually a goal that is easily achievable by most of us. The problem that is holding many of us back right now is that we embarked onto our self-employed/small business path because we were very good at something -- and that something is not usually running a business.

So, instead of working fewer hours (or at least the hours YOU choose and not your boss) and earning more cash for the lifestyle you desire instead of making somebody else rich, you end up in the self-employed trap.

You become both boss and employee -- which also means that you are now doing two jobs. No wonder that your days are getting longer and longer. At this point, you don't really have a business, you have just another job. And in many cases it turns out that job is actually more stressful than the one you had when you worked for somebody else.

So, over the next few weeks we're going to look at some business fundamentals that are critical to moving anyone out of the 'working far too much for really not that much money' trap towards building a business.

Or as Michael Gerber says in the E-Myth: "start working ON your business, not IN your business".

So, the first principle is -- as the title suggests --

"What is the purpose of your small business?"

Now, please allow me a small side-rant: in my opinion, there is no right or wrong answer to this! Too many people hear something that some expert said somewhere and suddenly that is THE TRUTH for them and they start preaching that message to everybody who does or doesn't want to hear it.

One definition of "what is the purpose of a business" is for example Peter Drucker's "The purpose of a business is to create a customer". And who is to argue with Peter Drucker, right?

The problem is that if "the purpose of my business is to create a customer" doesn't really mean anything to you, doesn't resonate with you, doesn't get you out of bed in the morning, well then it is a pretty useless mantra to chant.

So: if creating customers gets you out of bed in the morning, great. Otherwise consider the next possible purpose. End of rant.

As most of us are small business owners and most of us went into it because we wanted to achieve certain things (like contribute, achieve a certain lifestyle, ....) a definition that may work for you would be:

"The purpose of a business is to provide the owner with the lifestyle they desire"

This is something that is so obvious, yet almost always overlooked! How many self-employed do you know who will pay themselves last or -- even worse -- bankroll the business when it gets into trouble?

See, like the majority of self-employed, you probably started your business because you wanted a better lifestyle for you and your family. And the main problem is that most then get so excited and bogged down in the rush of setting up the business (and then making it work) that they completely overlook the fact that they haven't really concentrated on what that new/better lifestyle is like and most importantly:

what would be required from the business to get it?!

In order to build the lifestyle of your dreams, you need to know exactly what those dreams are! Otherwise you are just drifting from one success to another (if it's just plain sailing, lucky you) or from one crisis to another.

So, as a first exercise... Yes, I said exercise. Also best done now. You know how it works: I really want something, oh look, here is something that'll get me closer to where I want to be, I'll check it out later.

Don't believe me? Have a quick browse through your email inbox and look at all the things you wanted to do, emails you wanted to reply to, .... Or, what about the half-(or un-?)-read books, articles stored on your hard disk, websites to visit.

Yes, fact is we're all extremely busy, and it's also a fact that those who are above average successful are very good at prioritizing and then focusing on whatever is important.

As David Allen says "we need to take responsibility for moving things to clarity" (one thing anybody should 'own' and make a habit is David's "Power of the Next Action Decision". Check chapter 12 of "Getting Things Done". That alone is worth the price of the book!)

Anyway, your exercise, should you choose to move things to clarity: write down 50 (what?, yes 50!) things that you would like to have over the next 5 years. These could be big things or little things, things that mean a lot to yourself (like seeing your daughter's school play) or mean a lot to others. Some will be expensive, others free.

The reason I'm asking you to write down 50 is that you will hit blanks at some point. And you'll need to push through them. The reason you need to push through them is that more often than not our thinking is boxed in by the boundaries of our current reality (heck, I'm working 80h weeks, how am I going to have time to spend three weeks hiking the Andes with my partner?), that the stuff you really want is simply buried deep down.

When you start pushing through the blanks, all those things you really value in life will start coming to the surface. And once your mind expands, you'll start getting new ideas of what you really want to do with your life.

Now for the fun part: place these into 3 categories: I want to achieve these in 1 year, 3 years, and 5 years. Then, go out and do some research to find out how much each of these things is roughly going to cost you. Both in time and money!

Do another iteration of this if you feel that you have new ideas, that you put some things in there purely to make up the 50 etc.

Now figure out what each year is going to cost you (how much cash your business will have to produce and how much time you're planning to take off over the course of each year).

Add your normal living expenses (don't forget about tax! once you've got the final number) and ask yourself: Is my business generating this much profit, i.e. does it work for me and the lifestyle I'm aiming to have or am I working for my business?

If your business generates enough cash in its present form, perfect. If not, then something is going to have to change. And that's what we'll be talking about over the course of this Business Fundamentals Series.