July 13, 2022 | Last Updated on: August 1, 2023
In this article, you’ll learn what to do with your money after your business reaches $1 million per year. We will give you seven strategies to grow your business well beyond $1 million.
Forty-five percent of new businesses fail within five years of opening. So, staying afloat as a new small business owner is not easy. And if you’ve managed to get your small business past the $1 million per year level? You’re in exclusive company.
You should celebrate after your business starts making over $1 million a year… within reason. But your work is far from finished, as there’s a good chance that others are well-aware of the opportunity in your industry. To maintain – let alone grow past – the million-dollar level, you will need to take the right actions.
There’s nothing wrong with rewarding yourself for your small business success in the form of a higher salary to cover higher living expenses. Still, you should reinvest some of your profits into your small business to increase the likelihood of continued success.
Here are seven money moves to make if your business makes over $1 million a year.
Your customers got you to where you are, so you need to do two things:
Keep your existing customers
It’s hard to overstate the importance of customer retention, as it’s between five to 25 times more expensive to acquire a new customer than retain an existing one. Here are several customer retention strategies to bolster your small business. There’s a lot to digest, but the key is providing what your customers really want. As a small business owner, you may not be able to afford to implement a dozen customer retention strategies, so you may have to find the two or three most likely to move the needle.
Starbucks, for example, allows customers to order coffee before they arrive through the app. In this case, Starbucks’ customers – many of whom are busy professionals – really want to minimize the wait time for their coffee. While educating customers is a solid retention strategy in certain situations, Starbucks might not get an outstanding return on investment (ROI) on educational programs.
Acquire new customers
To grow well beyond $1 million a year, you will need to acquire new customers. You have to calculate a couple of metrics to increase the chances of profitable growth: customer acquisition cost (CAC) and customer lifetime value (CLV).
Your CLV needs to be higher than your CAC. If it isn’t, you’re going to struggle with profitability.
For many small business owners, the best way forward is investing a little money in a few marketing channels, figuring out where you’re getting the best ROI, and doubling down on that channel. So, let’s say you invest in search engine optimization (SEO), email marketing, and social media, and your CAC is $200, $300, and $400, respectively. Your CLV is $500. In this example, you should double down on SEO, but it wouldn’t be a bad idea to keep investing smaller amounts in the other channels since the CLV is higher than the CAC.
As stated earlier, there’s a good chance that other small business owners have taken note of your success. They may be developing a product or service that matches or exceeds your product or service.
How do you determine the risk of getting overtaken by the competition? Your niche is a significant component. A tech company can never stop innovating – imagine if Apple stopped developing new products after inventing the iPod. On the other hand, a restaurant may not need to continually make major improvements… but minor changes may be necessary to maintain and grow the business.
In any case, you should always deliver the best product or service possible. If you don’t, it’s only a matter of time before you lose ground to competitors… and it may be tough to come back.
You likely wore many hats in your early days as a small business owner for a couple of reasons:
On that second point, you may spend 20 hours per week on a certain category of tasks for a month and start wondering if it makes sense to hire a part-time employee. But it’s possible that number will go down to five hours a week in the near future, making it tougher to bring on an employee.
After reaching the $1 million a year level, however, you likely know what needs to be done over the next 6-12+ months, making it easier to bring on a part-time or full-time employee.
How do you decide what to delegate?
You should start by tracking your time for a month, figuring out how much time you spend on various tasks and projects. The next step is to categorize the tasks and projects, determining if there is someone with the skillset to take them off your plate. You should create a job posting if the expected salary is within your budget.
As a small business owner, you want to be working on your business, not in your business.
In the early days of your small business, you may have been able to get away with using an inexperienced accountant and free accounting software. But after growing to a million+ per year, you may need to invest in a Certified Public Accountant (CPA) and paid accounting software to keep accurate financial records.
Here are a few benefits of investing in a great accountant:
The word “invest” is critical. A top-notch CPA may be an expense on your income statement, but in many cases, they positively impact your bottom line. So, an accountant shares similarities to a business asset, in practice.
As an entrepreneur, investing in business assets is an excellent way to use excess cash.
You may be able to get an excellent ROI by purchasing business assets such as real estate, equipment, or company vehicles.
For example, you have a landscaping company. You currently have strong demand for your services, and you constantly put customers on your wait-list because you don’t have enough trucks. In this case, you should consider reinvesting your profits in more trucks… if you expect demand to stay strong for the foreseeable future.
Here’s another possibility: look for ways to increase your employees’ productivity. Let’s say you have a digital marketing agency and nine employees. They each have one monitor, but you are confident productivity would soar if you gave each employee an additional monitor… and the cost wouldn’t make a dent in your budget. By doing an in-depth analysis of your business, you can find several opportunities for improvement at a great ROI.
With your business generating $1 million, it may seem like a good idea to invest all your money into the thing that has made you so much money. But that would be extremely risky, as you don’t know what will happen over the next few decades. To increase the chances of a comfortable retirement, you should invest in bonds and the stock market.
There are several options with retirement savings, including:
You should talk to a financial advisor to build an investment strategy. You ideally want to generate enough passive income from stocks and bonds to meet your monthly expenses in retirement. By doing this, a possible downturn in your own business wouldn’t prevent you from reaching your savings goals.
If your small business makes over $1 million a year, you likely have a solid business credit score. But there’s always room for improvement, so you should look at ways to build business credit – there may be some low-hanging fruit.
Here are a few reasons why building business credit is a good idea:
On that last point, you may have some cash if your small business makes over $1 million a year. But you don’t want to go into your savings account and use your emergency funds to purchase assets. As the coronavirus pandemic showed, you never know what will happen over the next few months. You don’t want your bank account balance to get too low to meet short-term requirements.
Reaching $1 million a year is a great milestone, but you may need to make some changes to keep growing. By keeping the tips outlined above in mind, you can increase your chances of hitting your long-term goals.
At any stage, it’s essential to be able to pounce on opportunities to grow your business, so you need straightforward funding made for your business. With Biz2Credit, the process of securing a loan is streamlined. Jyoti Sharma wanted to open a spa and spoke to loan specialists Adam and Joe. She said, “They told me straight, they need these documents, and this is how soon they can fund me.”
Learn how Biz2Credit can fund what’s next for your small business.
