$200K to $500K - WHERE MOST SERVICE BUSINESSES DIE!

Hey everyone, it's Mike Andes. And today I'm going to be sharing with you why the most treacherous part of growing your small business is typically when your revenues are somewhere between 200,000 in annual revenue and 500,000 in annual revenue. So if you're growing your business and you look over the course of, you know, 10 years, maybe the business grows substantially and you know, maybe looks something like this in terms of your growth. And if we look at it as a form of revenue here on the right hand side, growing up to a million dollars in revenue, there's this period of time right between here where you're going to be going between 250, $200,000 and 500,000 in annual revenue. Now, the reason I call this the wilderness of small business is because you're not going to make any more profit here at this stage right here. If I make a dot here at 200,000, I'm not going to make any more profit here than I will right here. And the reason for that I'm going to explain today and I'll explain what you should be doing if you're inside of the wilderness or if you're coming up to the wilderness. Alright, so let me first explain why a business that does 200,000 in annual revenue typically doesn't make a whole lot more in profit than a business that does 500,000 in revenue. Let's first look at kind of what the typical 200, 250 ish thousand in annual revenue business is going to look like. Typically it's going to look like you, the founder, the owner, and then you're usually going to get one sidekick employee. This person might be a part timer and potentially might even be cash on the table to get started. Now you're also probably going to have like one truck. And this is like the worst truck drawing ever. One vehicle to go do your services, whether it be pool cleaning, whether it be fence building, whether it be lawn care, landscaping, one truck to employees, and you're ultra, ultra efficient. You don't have to have office staff, you don't need to have buildings, you don't have offices, you don't need a lot of equipment. You can usually store all of this at your own house. So if I look at the truck, the house, the house, your house is literally keeping that truck inside. You don't need to go get shop space, you don't need to go rent a storage facility. But now let's look at the same business that instead of doing $200,000 in annual revenue, is doing 500,000 in annual revenue. That same business now is probably going to have you, the founder, but now you're going to have probably four employees. And now you're probably going to need like three or four trucks. All right, so let's do three trucks here. Okay, well if you have three trucks, no longer can you have this just sitting at your garage. You're going to need to go to shop. And in order to keep those four employees busy, you're probably also going to need a whole bunch of other infrastructure and back end overhead. You might need a website, you might need an office person. And now your overhead is starting to really eat into your profits. So let's look real quickly comparing a 200,000 annual revenue business versus a 500,000 in annual revenue business in terms of what their expenses might look like. So if we look at 200,000 on the left hand side here, we look at 500,000 on the right hand side. Let's go through this real quick. Obviously this is our revenues, but, but let's first take out our owner salary. Let's assume $50,000 for owner salary. All right, but over here on the left hand side, when we had one employee, we paid them part time, little on the side, a little bit of maybe cash. Let's just say that we had to pay them $40,000. But now if we have four employees, that number is going to jump up to $160,000. Over on the right hand side, when we have $500,000 in annual revenue, but on the right hand side, we also going to need an office person. We're going to pay them $50,000 a year to answer the phone, answer emails, send out quotes, all the rest of it. On the left hand side we don't need to do that. We're doing that ourselves in the truck throughout the day, getting things done. Now on the left hand side we did have one truck. So let's just say the expense of that truck is $15,000. We bought a truck for 15 grand, but to kind of insure it, fuel all the rest of it, let's just say $5,000 for the year. Whereas on the right hand side now we're going to need four truck, three trucks, and that's going to be looking more like $15,000. But now we need equipment, mowers, any sort of equipment you're using on your landscape route, dump trailers, all the rest of it. We've got to take that in consideration. And that's going to be at least another $20,000 per year. Just to keep all that stuff. Now on the right hand side, we also got to assume that we're going to have office space. And so instead of using our garage, we've got to get a storage facility. And if that's 500 bucks a month, now we're looking at like six, $7,000 a year. So when you start adding all of this up, what starts to happen is the fact that although you might make 500,000 in annual revenue, you might not make any more profit than you did at 200,000 simply because at 200,000 it can be you with one other person. You're ultra efficient. There's no waste of time, there's no overhead cost, it's just ultra efficient. You as the boss are also performing work, therefore you are a revenue producing employee. Whereas at 500,000 annual revenue, the owner, you, your, you're really just focusing on selling. You are not actually producing revenue. You're out of the field and you are working on the business and you are doing sales. But that makes you overhead. You are no longer generating revenue for the business. And by the way, you are the most efficient employee. So it means if you're not out in the field working, there's no revenue being produced for you being on the payroll, you are literally an expense to the business. So if we go back to our chart here, between 200,000 and 500,000 in annual revenue is when most small business owners give up. And what they do is maybe not give up in terms of close the business down, but they retreat back to being solo or working by themselves. They get frustrated with employees. They realize that they're not making any more money now than they were a few years ago when it was just by themselves and they didn't have all the headache of dealing with employees, dealing with all the problems and the complaints those employees brought. So what happens is they retreat back to being solo. And you see this all the time on social media and contractors that make videos is they get 1, 2, 3, 4, 5 employees and all of a sudd, they'll come to a point and they actually retreat back to being solo or maybe working with one employee. The reason for that is because there's no more money being made, there's no more profit being generated at 4 or 500,000 revenue compared to 200. So the question is, what do you do if you're in the wilderness? You're somewhere between 200 and 500,000 in annual revenue. I really encourage you to speed through that phase. Do whatever you need to grow the business to the point where you're doing above half a million in revenue or, or potentially if you're not yet in the wilderness and you're 150, 200, 220,000 revenue, if you don't have a lot of cash on hand to scale really quickly past 500, maybe take an extra year or two and stack some money aside, because you can be very efficient, very profitable at 150, 200, even 250,000 in revenue. But if you're going to scale up and you're going to move out of your garage, you're going to start hiring employees, you're going to get multiple trucks, which is all necessary to get past 500,000. But if you're going to do that, have the cash reserves, have the money set aside for marketing and hiring and buying more equipment set aside so you can scale through that period of time very, very quickly. Look, you might spend an extra year in that phase of 200, 250,000 revenue, but it's fine because you can be really profitable there. At 250,000 annual revenue, you literally can make 70, 80, 90, even $100,000 in profit in your pocket. So take that time, take that money, put it in your pocket, and get ready for the quick expansion. Because remember, growth sucks cash. You're going to have to buy equipment, hire people, spend in marketing, but that's all going to be done. So you can quickly accelerate through this period of time and get to the other side. Because the goal, ultimately, if you're trying to grow a small business, is to get onto the other side, get to a million in revenue, get to the point where you can offload some of the responsibility, the sales, the marketing, the emails, not having to take phone calls, that is the goal. But to get to that point to, don't stay in this period of time too long. This is a very demoralizing period of time when you just don't see the results, the fruit of your labor. You feel like you're working so hard and employees are driving you nuts, and there's really no benefit between 200,000 and 500,000. Now, there's absolutely anomalies to this. There's definitely ranges based upon what services you offer, how much you charge per hour. But time and time again, I see this as the period when most people give up or they retreat and they give up on their idea of growing a business that can run without them and run on systems with great employees working for them. Now, if you haven't even built your business to 250,000 in revenue. Watch this video here where I break down exactly the one thing, the only thing you need to focus on to get your business to $250,000 in annual revenue.