The Secret to Building Profitable Businesses, Pt. 1

There is an unspoken rule when you invest in anything: You don’t make money when you sell an investment, you make money when you buy it. 

You work to make money. It may not be your main motivator but it is why you (and we all) work, otherwise you would do what you do for free. You want to be paid for your effort; it has value. Also, you’ve got bills to pay and mouths to feed.

When I had a W2 job I used to go through the exercise of figuring out how many hours I was dedicating to my work versus how much money I was making. This is what I knew:

• My set salary was based on working 40 hours 5 days a week, no more and no less.

• I was working 60-70 hours over 6-7 days a week.

• I was “on call” for any emergencies, no matter what time of day (or night) they happened.

This exercise helped me understand that I wasn’t willing to continue trading hours for dollars, at least not when both were being devalued by the imbalance of hours worked for those dollars. I love working, but my goal is to always have a true exchange of dollars for time. And, if I can get more efficient with my time and scale that dollar? Even better!

This is the idyllic, pie in the sky dream, right? It takes figuring out. It takes trial and error. Sometimes it takes experiencing hard lessons kicking you in the butt.

How to Monitor the Money Side of Your Business

You MUST know your numbers

Starting a business does not have to be a risky prospect. You don’t have to feel like you are taking a gamble. Every solopreneur’s numbers are different, but here are some basic questions to ask:

What is my gross income versus my net income?

Gross income is all the money you make. Net income is what you keep after cost of goods (see COGs below), taxes, and other costs (marketing, facilities, etc). Just think, “My income is the money I catch in the net.”

What money is exiting my pocket to pay for my business?

If it is a physical product, know the base cost of each piece you create. These are the COGs (cost of goods).

I love making jewelry. I started doing it when I was 18 or 19, when bead stores were a thing. A few years back, I briefly entertained monetizing my hobby. I priced every bead, finding (these are the clasps, jump rings, headpins, etc.), chain, string, and cord. I used precious and semi-precious stones, as well as sterling silver. Cha-ching, cha-ching. Then, I priced my time. Ultimately, it would have been a very expensive and time intensive business to run, so it remained a fulfilling hobby. 

On the flipside, I have a friend who owns a successful business upcycling pieces into kitschy jewelry. Glamourbilly is a side hustle she enjoys, and it brings in some extra money.

Other costs

Will I have any marketing, equipment, or facility costs?

• Do you pay for any advertisements, marketing products (flyers, pamphlets, business cards, networking groups, etc)

• Do you have to use the internet, a computer/laptop, or any other equipment for your business?

• Do you have an office, storage space, or a facility associated with your business costs?

What is my time cost? 

• How many hours do you spend on your product or service? 

• If it is a physical product, how much time does each piece take to create?

• If it’s service based, how much time do you spend researching and preparing?

How much money do you want to make?

Let’s explore any expectation gaps out there. I always say that disappointment occurs when the outcome is different than what you expected.

• How much do you want to make a year (or do you currently make)? How much is that per month? Per week? Per hour?

Team Building

Make sure you have a quality CPA or other tax professional who can give you sound and knowledgeable financial advice on running a profitable business.

NOTE: Although a financial professional supports you it is not that person’s responsibility to know your numbers from a business owner’s perspective. What do I mean? A tax professional, for example, can look at your past numbers and see whether or not your business was profitable last year (or last quarter). It’s your responsibility to know if your business is profitable today. 

The Importance of Setting Financial Goals

There are businesses that are profitable immediately and others that are profitable in the future. Here are a couple of simple examples:

• A pet sitter takes care of your pet and you pay them either in advance or immediately after services are provided. 

• An affiliate marketer builds a site, writes articles about products and after 6-12 months they start making an income. The more they write and link to products the more they make. (*This is a very elementary explanation this business)

Both business owners need to set money goals if they plan on being profitable, creating full-time income. This is why you sometimes see pet sitters walking a team of a hundred dogs (okay, maybe just 4-5) and a product search you do for your favorite mushroom coffee has 20 articles from the same site. BTW, mushroom coffee is not really coffee, y’all. 

Setting Personal Goals & Parameters

Some of the businesses I start have a period where they are not profitable. I know that is part of the business model and I plan for it. I have to set goals. I have to create a financial cushion that makes me feel comfortable. And, I can’t have an “If I build it, they will come” mentality about this. If you believe your financial cushion will come from your future clients or customers you are setting yourself up for failure.

This is a single piece of a larger puzzle. There are so many aspects to a business, and my business may look very different from yours. The basics still apply.

I personally want to spend as little money as possible, so I can make as much money as possible. Here’s a replay of my parameters from last week’s newsletter:

The type of business I like to start has the following parameters:

• It must allow for  flexible working hours, so I can spend quality time with family and friends.

• It must be a business I can start with zero to less than $500 initial invested capital.

• It must have minimal overhead expenditures.

• It must be location independent.

• It must be scalable.

The additional buffer is that if I have to shutter I can do it without a huge loss of funds. How many people stay in a failing business because they have invested a painful amount of money, and they have to recoup something, anything? I don’t know about you, but I have never wanted to remain on a ship that I knew was going to sink. If you do the right analysis upfront (or make the effort now, if you’re already entrenched in business) you can avoid or mitigate financial costs that will create craters in your business’s hull.

Let’s avoid sinking ships, shall we?

YOU ARE INVITED!

If you are an established solopreneur or side hustler and need support with scaling your business, join CONNECT collective today and contact me for a coaching session.