Part 2 | Company Money
How you think about yourself, your business, and even your money, will determine how you feel, what you ultimately will do, and the results you get. In this module we are going to talk about your company money and how to think about it in a way that serves you.
Revenue, Profit, and Taxes
When you think about money, the first thing you must do is have a revenue goal. When we ask our clients what their revenue goal for the year is, they answer “We’re on track to…” or “We’re hoping for…”, and many don’t even have a dollar figure. The biggest reason why they don’t set revenue goals is because they’re afraid they won’t meet them.
Some companies set revenue goals based on nothing. They randomly choose a number that they think would be fun to make, instead of using past revenue data or thinking of what their business model could produce.
If you want to set a big, impossible goal, set it for 10 years. Your goal for this year should make sense and you should have a good general idea of what you have to sell, and how many customers you need in order to accomplish the goal.
The second step is to think about how much of that revenue you are going to take out in profit.
Most people will say, “Oh, well, this is how much revenue I can make. This is what my expenses are. This is what’s left over for me.” Approaching your business this way often leads to entrepreneurial poverty where the company is getting everything and you’re broke.
Once you decide on your revenue and take out the profit, how much is now left over for expenses? So often people will ask, “Can I afford to hire someone or purchase a website?” You will know that number if you predetermine what your profit will be.
You’ll need to ask your accountant, “If I make this much profit, how much of that will I need to save in taxes?” This is the next line item.
A lot of people stress about making payroll and worry whether there will be enough money. If this is you, it is because you have hired unconsciously. You have too many people or they aren’t efficient enough. The upcoming modules will help with this.
But one of the ways to prevent this is to decide ahead of time—before you get to expenses, which includes your payroll—you decide, “This is what I’m paying in taxes, this is what I’m paying myself, and this is what’s getting reinvested into the company.” And if there’s no money left, there are no employees. So you either need to adjust your goal, or you’re going to need to lay some people off or not hire people. The numbers always tell the truth.
The next item you need to think about is business growth. You need to look at your business and decide, “Am I going to grow this business? Is that my goal, or do I want to pull more profit out?” The more profit you leave in, the more you’ll have to invest with.
It’s important to think about what you need to do to invest in your business so that you are generating more revenue. It’s also important to view your employees not as an expense, but as an investment. They are resources that produce more value, especially when managed well.
The best advice we have is this—whatever you have right now, if you grow it, it will get bigger. If you have a lot of debt, it will get bigger as you grow. If you have a lot of inefficient, ineffective employees, you will get a lot more inefficient, ineffective employees. If you’re already very tired, you are going to be exhausted if you grow your business.
Do not allow yourself to grow until you have your business finances dialed. Way too many businesses grow broke, they grow too fast, and don’t manage their cash flow. They don’t have an emergency fund and they literally run out of money.
The Health of Your Business
When we ask entrepreneurs, “What makes a healthy business?” they will say “Revenue. Lots of sales and revenue.” This is not the answer. You can have a lot of sales, like a manufacturing company making a lot of products, but they may not be getting the money in time to pay for the materials, build the products, and keep up with it all.
Here are the indicators of a healthy business:
- Are you a conscious leader? Are you paying attention?
- Are you profitable?
- Do you have enough cash reserved for a rainy day if your results aren’t as repeatable as you had planned?
- Do you have a solid business model that is a long term solution? (not just about getting the next quick buck)
You will want to make sure you’re monitoring your numbers and paying attention to them. We look at our numbers every single week. You should know at any point the following numbers:
- What your revenue is so far for the year
- What your profit is so far for the year
- How much you’ve saved for taxes or paid in taxes
- How much you have on hand to reinvest to be able to meet goals in the future
What we have shared are the most basic, fundamental things you need to know. You have to look at the numbers now. What do you owe? What are you going to pay off? What do you owe in taxes? Get all the numbers clear. Because then, from this knowledge, you can make a really, really good plan and follow it.
This is all about entrepreneurial maturity. It’s about paying attention to what is really going on and making conscious decisions that aren’t instant gratification, that aren’t quick fixes, but are repeatable, long term, business models.
We believe this topic is so important that we created an entire other program on it. If you haven’t taken Entrepreneurial Bookkeeping, we highly recommend it. Click the image below if you are interested: