I was chatting with a good friend of mine the other day about a potential job he had for his video production company. He is an extremely talented filmmaker, so I am not surprised that an organization approached him with such a large project. On the surface, this looked like the opportunity of a lifetime. No one in their right mind would consider turning down something like this! But as he dove into the numbers, he quickly realized it would be much more complicated than that. He would have to hire 2 full time employees, purchase a lot of new equipment and find the time to properly manage the job while still maintaining his other clients. Suddenly, the opportunity of a lifetime seemed a little less feasible.
I am not sure how this project will play out for him, but I do respect his willingness to take a step back and make sure that the decision makes sense from a financial standpoint.
Unfortunately, I see a lot of business owners who do not adopt the same mindset as my friend. Their eyes light up with money signs when a large project comes along and they take it before considering the financial implications.
Let’s take a look at a real-world example to drive home my point.
You are the owner of a roofing business. A large company approaches you to put a new roof on their building. They tell you their budget is $500,000 and before they can finish their sentence, you shake their hand and close the deal. What you failed to realize was that materials for the job would be $200,000 and labor would cost you close to $350,000. After all is said and done, you just lost $50,000!
On the flip side, maybe there was a small job that was only $100,000 in revenue but the profit was $25,000. Which job out of the 2 was the better business decision? Pretty obvious, right?
I want you to understand that growing a solid business is not all about the top line revenue. Are you going to lose money on jobs from time to time? Of course. But you need to be able to step back, see the big picture and make a well-informed decisions based on the financial implications of your actions.
If nothing else, I hope this post get you to reflect on your own business. It is crucial to look at all decisions from not only a top line standpoint, but also from the bottom line.
If you have additional questions, do not hesitate to reach out anytime.
Have a great weekend!