You’re finally starting to make money with your business. Congratulations! Now how are you spending it?
If your response is “Vegas, baby! I’m going to double my investment!” that’s not a long-term strategy for success. Let’s make sure you’re collecting a monthly salary and reinvesting in your business first.
Here’s a checklist to know if your financial ducks are in a row and if your business is thriving or dying.
1. DO I KNOW MY TRUE EXPENSES?
Before coming up with a magic number of how much you want to make each month, determine how much money will be spent each month first. This is the most important number because it dictates how much you should charge for your services or products for a profit.
Your business expenses will be different depending on the business you’ve created.
For example, operation costs. For a business with office space or brick-and-mortar, the cost of the physical building, utilities, and furniture must be taken into consideration.
If you’re an artisan, you need to account for each individual product or tool you use from start to finish.
If you have an online business, your expenses could come in the form of coffee shop lattes or a co-working space where reliable wi-fi is a must.
Bottomline: You have to account for the equipment you need to perform the necessary tasks, and have a dedicated space to do it.
Think of everything. Don’t forget the expenses that happen only once a year.
Have that number? Great, you can move on to Question #2.
If the expenses are excessive to you at this stage, focus on ways to reduce them.
2. DO I KNOW MY MONEY GOALS?
What is going to make having this business worth it to you? How much money do you need to take home every month?
Let’s take a look at Star-Shaped Fresh as an example. (Yes, we made them up!) Sassy Sheila, the owner, wants to sell air fresheners in the shape of stars.
Sassy Sheila has the money goal of making $4,000 a month to live the kind of life she wants to live.
She’s calculated all known expenses and it will cost her $3 to make each air freshener. She wants to sell them for $7 each.
What is her profit margin?
$7 (Sale Price) — $3 (Cost to Make) = $4 (Profit)
How many air fresheners will she have to sell to reach her goal?
1,000 ($4000 divided by $4)
She will have to sell 1,000 air fresheners each month. At this point, if this doesn’t seem sustainable, she needs to adjust her profit number or think about another business model.
This is the step that a lot of business owners bypass. So congratulations, you’re ahead on the success curve!
She’s ready to move forward, but have you thought about Question #3, Sassy Sheila?
3. AM I ACCOUNTING FOR TAXES?
If you operate your business in the United States, you are subject to paying taxes on your earnings.
Rule of Thumb: You should save back 20–30% of your business income to go towards quarterly taxes.
If this is all new to you, don’t worry! There are local resources available to you that will help you each step of the way. To get started, check out this resource from the IRS that breaks down what’s required of you.
The next step for Sassy Sheila is adding 30% to her $4,000 monthly money goal so she knows how much she REALLY needs to make to reach her goal.
$4,000 (Take Home Pay) + 30% Taxes ($1,200) = $5,200
ADJUSTMENT: Must sell 300 additional air fresheners to actually earn $4,000
$4,000 (Take Home Pay) — 30% Taxes ($1,200) = $2,800
REALITY: Short of her goal by $1,200 and will owe that at Tax Time
See the difference in prices?
This is an important step that you can’t miss. You want to make sure that your business doesn’t take a financial hit later, and that you are actually making the right amount of money that you need.
If the numbers aren’t working at this stage, you need to make some adjustments before moving to Question #4.
4. HOW MUCH WILL I SPEND ON MARKETING?
It’s not a question of if you will spend money on marketing but how much. In order to purchase a service or product, someone has to know about it first.
Rule of Thumb: Marketing should account for 10% of your desired revenue at a minimum. If your business is new, the percentage will be around 30% while you’re in the awareness phase.
For Sassy Sheila, she wants to make $4000 per month. In one year, that will earn her $48,000. You go, Sassy Sheila!
Guess what? Her yearly marketing budget should be $4,800. Or $400 per month at the bare minimum.
If that percentage seems high for you, let’s break down what’s actually included in marketing your business. It’s not just Facebook Ads and business cards. It is anything that helps your business get visibility with the right customers.
It includes the following:
- Web Hosting (For example, Squarespace or Wix because your website is essentially an online storefront)
- Domain name (Sassy Sheila’s www.starshapedfresh.com)
- Social Media Ads
- Social Media Management
- Blog Posts
- YouTube Videos
- Business Cards
- Thank You Cards
All of those separate things have a cost associated with them. Even if you’re using a free service like YouTube in your marketing plan, you still need to pay for the phone or camera you’re using to record, and the software you’re editing it with. If you want to have a social media presence but it’s not your expertise, you will need to hire someone do it for you.
Why not plan for that?
If you include the cost of marketing from the beginning, you will actually shorten the amount of time it takes for your perfect customers to find you and get profitable. You will be visible in all the ways that you need on a consistent basis, and it won’t take up your most valuable resource — time.
Now that you have your marketing number, make sure that you’re selling additional products or services to cover it without affecting your desired take home pay.
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If you do these four steps, you can confidently say, I CAN AFFORD TO RUN MY BUSINESS! And here at SNR Creative, we’re rooting for you and can help!
If calculating all of these numbers made you get overwhelmed, we got you. We will walk you through this and more in our personalized one-on-one workshop, Roadmap to Business Clarity. It’s the fastest way to get clear on the version of your business you can begin right now and still be profitable. Find out more.