Business Principles of Every Successful Business

August 25, 2012 | By | Reply More

Business Principles of Every Successful Business

You do not need a graduate degree in business from an Ivy League school to be an entrepreneur (although that won’t hurt). You just need to master and understand the three business principles that lie at the heart of all successful commercial enterprises: sell to your customers, collect the payment, and profit from it.

Selling to Customers

The goal of any business is to sell its products and services to customers. No business will ever survive without customers. A business exists to serve its customers, and its success or failure will depend on how well it serves and fulfills the expectations of its customers.

This may be a simple concept, but you would be surprised at the number of businesses that do not understand this basic principle of entrepreneurship. As a result, these companies can never be expected to endure.

Take for example the crash of the high-flying start-ups, especially during the dot-com era. They sell the idea of their business to financiers rather than provide real products and services to real customers. Their goal is to get as much funding as possible from venture capitalists, angel investors, and public offerings. They focused on a kind of growth that is driven by venture money and partnerships, and not by customers and revenue. Alas, with no revenue to show, capitalists begun to drop these dot-coms like a hot potato.

Even social media companies today such as Twitter and Facebook are all plagued by the most basic of questions: How do they make money? What is their business model?

No business will survive if its lifeline is tied up to the pockets of investors, and not through its customers. A business can only be sustainable if it has a steady revenue stream resulting from sales from its customers.

Collecting Payments

If you are extending credit to your customers, you must be prepared to take on a different role: that of a bill collector. While everyone knows that bad debts cost money, some small business entrepreneurs are reluctant to go after their slow paying and deadbeat customers. While large corporations can afford the luxury of having collection departments, small businesses often have too few resources that can be dedicated to running after collectibles.

To minimize receivables, the first step is to streamline your billing process. The ideal billing approach is to collect payments when goods and services are delivered. If you have to bill your customers, send invoices out the day the product or service is delivered. Follow up with a reminder bill two weeks later. If you don’t receive payment in thirty days, get on the phone and make a collection call. Talking to customers may be far more effective than sending letters. To encourage early payments, offer customers a discount (1 to 3 percent) for payments made within fifteen days.

The key to collecting money from customers is to do it without damaging the business relationship. In order to know the best course of action to take, you need to know the reason why the customer is late with the payment: is the person or company falling on hard times temporarily, or is it is going under, or if it has no intention to pay up.

If the customer is feeling a temporary financial pinch, talk to your customer (if a company, talk to the president or owner). While indicating that you are willing to be patient, inform the customer that you expect to get paid as soon as possible. Ask for partial payment as proof of good faith. If your customer plans to file for personal bankruptcy or if the business is folding up, move swiftly to try to collect something before all assets vanish.

business principles

If you have the time or patience to deal with deadbeat customers, assign someone to do the job for you. If do not have any staff, it might be better to turn matters to a commercial collection company to manage your past due accounts. Collection agencies usually work on a contingency basis, usually keeping about 35 percent of what they collect. Then again, 65 percent of the receivable is better than nothing!

Making Profits

Regardless of what kind of business you start, you must have the capital and the available time to sustain your business through the first six months of operation. Specifically, you must not count on receiving or spending any money coming in from your business on yourself or for your bills during those first six months. All the income from your business during those first six months should be reinvested in your business in order for it to grow and reach your planned first-year potential.

Once you’ve passed that first six months milestone, you can set up a small monthly salary for yourself, and begin enjoying the fruits of your labor. But the first six months of operation for any business are critical; so do not plan to use any of the money your business generates for yourself during that period.

If you’ve got your business plan properly organized, and have implemented the plan, you should at the end of your first year be able to begin thinking about hiring other people to alleviate some of your workloads. Remember this: Starting a successful business is not a means towards either a job for yourself or a way to keep busy. It should be regarded as the beginning of an enterprise that will grow and prosper, with you as the top dog. Eventually, you’ll have other people doing all the work for you, even running the entire operation, while you vacation in the Bahamas or Hawaii and collect or receive regular income from your initial efforts.

Recommended Books on Business Principles Needed to Succeed:


George Rodriguez

George Rodriguez is a writer for An entrepreneur with experience in running several businesses, he writes on various topics on entrepreneurship and small business.

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Category: Success Factors

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