I loved my work singing for seniors for over 20 years. I grew up in a singing family, and leading singalong was a joy! I started with 5 music clients, and grew them to 15….then eventually 50. In this business, I made 80% profit. My operating costs were only 20% of my gross income. And in my coaching business, too, the margins were good.
But I had to work to get my profit to that point. For many years, I operated my coaching & healing arts businesses like they were a hobby. What I made, I spent. I bought the most expensive supplies, the most expensive advertising, rented the most expensive brick-and-mortar locations for my workshops. Even though I was able to “write off” a lot of my lifestyle, my profit margin was zero.
Plus, as you know, I had debt. “I owe, I owe, so off to work I go.”
This was my motto until I became a single mom. As you know, this was my “come to Jesus” moment where I saw the old way was no longer working. I had to shift my mindset. I had to become a “Wealthypreneur”.
What is a Wealthypreneur?
A Wealthypreneur is a business owner whose business is able to give, save and spend wisely. The business is continually generating cash flow(more income than expenses), which allows for giving, and growing wealth through debt elimination, savings(retained earnings) and assets.
It’s aligned with your purpose, and supports you in serving your clients in a heart-centered way, knowing your money is taken care of.
Why does it matter?
THE BIG PROBLEM I’M SEEING IS A DESIRE TO CONTINUE TO SERVE THE CUSTOMERS WE LOVE SO MUCH BUT…
In a normal economy conscious entrepreneurs often invest in training, coaching, equipment and supplies with a dream in their heart to serve and to give~spending up to $15K, $20K even $100K to support their entrepreneurial dream, which sometimes puts them deeply in debt.
What you are not getting is a simple process for how to deal with money to avoid debt in the first place, and build wealth. So you end up spending that money to grow our business only to find yourself struggling to have savings, buy a home or invest for retirement, and have enough cash flow to put your kids through college.
Some of you struggle to keep your business doors open due to how much debt payments eat up your cash flow. And then, in economic downturns, those debt payments become a crushing burden for your biz.
You must take responsibility for your business numbers! Even if you have a bookkeeper or accountant, it is up to you to look at your numbers and make crucial decisions. Many small business owners abdicate this responsibility. Instead of abdicating, I recommend you embrace this role! Become your own CFO!
As a heart-centered small business owner, you probably don’t even know what a CFO is, right? CFO means Chief Financial Officer. The CFO does more than just a bookkeeper or accountant who tracks numbers and prepares reports. The CFO keeps financial integrity for the business. The CFO makes sure profit margins are maintained and the business is not going into debt. A CFO is not judgmental, but objective & kind.
How do you become your own CFO? First of all, you need to understand profit. Most small business owners don’t even know what that is.
What is profit? Profit is the money in your business that is not used immediately for business spending of one kind or another. In its basic form it is your salary, your takehome pay.
In its advanced version it is not owner pay/salary, taxes, or operating expenses. Profit is EXTRA money that does not need to be used for living, giving, or running your business that month. In that more advanced sense profit is used for business/personal savings & investments, and for investing in longterm business growth.
So for example, a business that grosses $5000 a month and has $2000 operating costs has a basic profit of $3000. $3000 is your take-home pay, and you pay taxes out of that. However, if we separate out take-home pay, taxes, and operating expenses, we might get an actual profit of 5%, or $250, the amount the owner is able to literally save and put into their household savings & business retained earnings that month.
A basic way to track profit is with the 70/30 Rule. The 70/30 rule means that 70% of your income goes to take-home pay, 30% goes to operating costs. Then savings and investments come out of the 70%. Profit helps you grow your business, and your personal wealth.
An advanced way to track profit is with the Profit First system, invented by author & teacher Mike Micalowicz. Mike encourages business owners to breakdown their income like this: 5% True Profit(amount you can save & invest), 50% Take-home pay/salary(for lifestyle), 15% Taxes(put in a separate savings account), and 30% Operating Expenses.
Basic Profit and Advanced Profit
I recommend bookkeeping software to track all these numbers every month. Quickbooks is the industry standard, and many bookkeepers use this system. However, it can be overly complicated for many service-based businesses with just 1 employee, the owner. If you do not have inventory, or employees, I recommend Freshbooks, a very simple & user-friendly system that does invoicing, and profit/loss reports. And if you are just getting a business started and have very low overhead, you can even use Everydollar, the personal finance software, to keep track of business expenses under $500.
Another common way businesses track profit is through a “profit & loss” form. This form is easy enough to create yourself in Excel, and is readily available in Quickbooks & Freshbooks. A Profit & Loss form is helpful if you are using the Basic Profit system, or 70/30 rule. The final net profit number at the bottom should be ideally 70%.
Once you understand profit, you can assess whether your business is a hobby, or profitable. Wealthypreneur Russ Schweikert says “Don’t pretend it’s a job when it’s a hobby, because chance is, you’ll go months and years doing it and you’ll wonder what happened and you let it overtake you. And then you’ll somehow feel guilty because you have to let people go and close the business. And what you’re trying to do is help people and make money.” I agree with Russ. Find out your true profit margin so you can answer the question, “do I have a business or a hobby?” Once you know, then you can make an empowered decision.
Coach. Teacher. Author. Speaker.