A major capital investment may seem like a no-brainer, but it will change your organization in ways you need to consider before signing the purchase order.
If you have ever watched “Shark Tank,” you’ve heard the investors asking the contestants about their CAC all the time. The lower you can keep it, the faster you can grow. This is why startups need extra working capital – to cover their CAC. Without understanding your CAC, you can find yourself being incredibly busy with no additional cash to show for it.
Lesson #4: Grow Your Existing Customers First
The best way to help feed your growth is to know where it comes from. The least expensive and most profitable growth comes from your existing customers. They can grow in two different ways.
The first is to sell them more products at higher margins. Repeat work is so much more profitable than new work because the customer knows what to expect and you know how to deliver it – you already have. The key to maximum profit here is being able to repeat the experience exactly as you did in the past, faster. Repeat customers are also less price sensitive, so you avoid the race to the bottom of the RFP bidding process. Success is based on trust, so make sure you never let them down. This is why print spec sheets and approved samples are so important.
The second path to growth with current customers is to sell to them more frequently. If the customer orders once a year and you can find a way to sell them a second order, you will double their growth rate. There are many ways to do this, and they are very easy once you have the client’s trust.
When you know your CAC, you have a number that you can use to factor in additional discounts, samples, and so on to stimulate more business. The point of all this is simple: There is a cost to growth, and automation brings those costs forward.
Lesson #5: Find a Good CPA
The faster your business grows, the more important it is to work with a competent CPA. Most small businesses only use their CPAs to prepare and file their taxes, missing a huge opportunity.
You can grow your company to $1 million of revenue a year easily, but it will not be in a healthy state. I have analyzed over 150 companies and know this for a fact. Their problems come simply from not knowing the right questions to ask to get the answers they need.
Typically, larger companies have either a comptroller or a chief financial officer who is responsible for the healthy management of the company’s finances. Often, small companies don’t have a person like that, which is why it’s so important to have a good CPA. You can expect to pay $175 to $400 for their professional advice, just as you would for a good lawyer.
The CPA will help you plan to grow safely and provide you with the key ratios and KPIs to help guide your development. Their goal is no surprises. To get the
maximum benefit from a CPA, make sure you get your closing numbers to them quickly. Shoot for no more than 10 days after the close of month. The longer you wait, the less accurate the analysis. Remember, the CPA is making decisions based on what has already happened. These are trailing results, which means that if changes are necessary, they need to be applied and measured sometime into the future for them to be effective. The longer you wait, the more time it will take to see your results.
It’s All Related
I hope this hasn’t been too overwhelming. The takeaway? Your business runs on related rates that need to be in balance for you to grow profitably. If you do not know or understand them, your future profits will suffer and you will not realize the full potential from your decision to automate. Determine what your related costs will be before you invest in your first automatic machine. If you do automate, absolutely know how fast you can grow and do not exceed that rate or you’ll risk running out of cash.
Finally, cash is king. Understanding where your cash is coming from and how you use it will determine how fast you can grow. You are in business to be profitable. The more you understand about cash, the better your chances of achieving and maintaining profitability.
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