How to create a healthy business with great profits

Six figures in revenue does not mean six figures in your bank account!

A very common problem that I see with business owners is not understanding the difference between revenue, profit, and your salary.

When someone says they have a “six-figure business”, that could mean many things.

-They have sold $100,000 in the past year
-They have sold $999,999 in the past year
-They have sold somewhere between the two in the past year

When most people talk about money and business, they are talking about REVENUE (or “top line”). This means the money that a business takes in BEFORE any expenses are removed.

This is very different than profit (or “bottom line”), which is the money left over after everything has been deducted e.g. Cost of Goods Sold (COGS) – the cost to create the product or service), expenses, and taxes.

A “six-figure” business may be making the owner a decent amount of money (high profit, low expenses) or very little money/losing money (low profit, high expenses).

The same thing can be said for a seven-figure business.

One business that I worked with made $5.2 Million in the year before they brought me in. Pretty sweet! They had about 35 employees and had been in business for several years. Living the high life! Except, they lost $250,000 that year.

That’s a lot of work to lose that much money. I can lose a lot less money without nearly as much work.

The lesson here is that a business’s revenue number doesn’t tell you a lot. You can see much more from their profit number.

Read more:  How I made my first money as a young entrepreneur at 10

How to create a healthy business without losing money

And if you are in business, here is a simple guide to help you create a healthy business. This comes from the book Profit First.

Basically, it allows you to see how your money should be allocated based on your business size.

For example, if you are under $250K in “real revenue” (basically remove your cost of creating your product and sub-contractors), then a way to allocate your money in a healthy business is below:

-5% Profit – This is what you get for owning the business.
-50% Owner’s Pay – This is what you get for working in the business.
-15% Taxes – This is what you allocate to cover your taxes.
-30% Operating Expenses: This is what you put aside to cover your expenses.

Target Allocation Percentages

Together, these add up to 100%.

The system is called “Proft First” because you want to pay yourself first, before you pay expenses.

Often people pay all of their expenses first, leaving little to no profit. By paying your desired profit first, you constrict how big your expenses are and force you to get creative/run lean.

This is just a quick lesson, but hopefully will help you understand what “six-figures” really means and how you can see how healthy your business is based on where your money is going.

How to reduce your operating expenses by hiring the right person

Be very cautious about hiring someone who will not tell you exactly how their system/program work and how they will help you BEFORE you spend a dime with them.

Read more:  11 lucrative skills that will make you more money in 2018

There are no “secrets” when it comes to business, and you shouldn’t be paying for secrets. Anybody worth their weight should be willing to tell you who they work with, the challenges that they help these people overcome, the process they use to overcome those challenges, and some examples of people who have gone through it.

You see, it’s not the knowledge that people pay for. Knowledge is free and everywhere. People pay for the systems, support, guidance, and implementation.

So be very wary (or turn and run) from anyone who won’t tell you the above aspects of their program or offer.

And before hiring someone, do your due diligence. Check out their free content. Get a feel for their personality and vibe. Check out their system and how they solve your problems. And check into their results.

Do this and you will have a much better experience with investing your time and money with this person.

Stop collecting and consuming content!

We come across people every day asking for help.

They are not achieving the success that they would like in their business, and often are so confused on what to do because they are trying to follow everyone that they come across online.

This will not lead to success, but instead, lead to overwhelm, analysis paralysis, or just wasted time by trying to implement everything.

Do this instead.

Step 1 – Plan out 3-5 goals, specifically focused in on 90-day goals.

Step 2 – Break each goal into 3-5 key action steps.

Read more:  How to succeed in e-commerce business as a beginner

Step 3 – Plan out your week with the first set of keys actions to achieve your goals.

Step 4 – If you need to learn to take action, decide which training you need (a book, podcast, course, coach, etc) and just focus on that content. Only learn as much as you need to take the next step then take the next step.

Don’t worry about “missing out”. Worry about clarifying and making progress on your goals.

Get My Income Ideas in your email. We won’t spam you or share your email

Husband. Father. Entrepreneur. Business Strategist. You can reach him via his website.

Share1
Tweet
Share
+1
1 Shares
%d bloggers like this: