I had an enrollment conversation with a coach this week. Part of his work is to teach a class through another organization. When I asked him what his profit margin for this work was he said, “I’m not sure, somewhere around $200.”
And all of the sudden, I was reminded so vividly of myself 12 years ago.
When I started my business, I didn’t have any extra money. My monthly intention was to see how long I could push whatever bill I wasn’t ready to pay yet and simply do my best to pay them all within 30 days, but not a day earlier.
I was literally just trying to keep the lights on.
Because there was no money to manage, I got in the habit of not managing money.
So when my business started to make money, I got loose with it. I just spent what we made. I got a bigger office, hired a bigger team, built a fancier website — money was coming in, money was going out, and people were getting paid — all was fine.
But here’s the funny thing: Even though my business was very profitable,I never felt financially secure. I was still operating within that old model of never quite having enough, even though that no longer was the case.
I often see my clients who are just getting started with their coaching business be really loose with their numbers…
They send a PayPal invoice for their services and they just assume it gets paid; they keep their business and personal expenses all together; they’re not really sure what a sole proprietorship is or if they have one.
And that works…until it doesn’t.
It stopped working for me when I started to make six figures.
And then it really stopped working for me when I needed to buy a house and I had no real proof of income. Sure, I had a lot of money. But I hadn’t been tracking my numbers or paying myself through payroll, so didn’t have any real proof of how much I made and therefore what I could afford.
That’s when I hired an accountant, and it was the smartest thing I ever did for my business. In fact, if I could do it again, I would hire an accountant on day one when I wasn’t making any money. He would have helped me put systems in place that would have created a larger container to hold more money.
Fast forward to today: I am incorporated and I pay myself through payroll…with a bonus check here and there 😉
My accountant sends me my profit and loss margins each month and I actually make it a point to know my numbers.
And I’m not going to lie, some months that picture looks better than others. But because I know my numbers, I can make informed decisions about the future instead of just focusing on my gut. I can see where in my business I can expand and where I need to cut back.
I think it’s a no brainer why that’s 100% necessary when growing your business. So let’s jump right to how you can start to know your numbers today…
Step One: Separate personal and business expenses.
I know… this is a pain. But I actually think you’re going to love it. It makes things super clear and easy to understand.
Step Two: Make it official. No more getting paid under the table!
You think you might be saving money by taking money under the table, you’re not. You’re also missing out on a lot of tax benefits that you could take advantage of. Put yourself on payroll!
Step Three: Go through your bank statement every 30 days.
Honor yourself for the income that has come in and the investments you’ve made. Get really familiar with the ebb and flow that happens throughout the year and what it really costs to run your business properly.
Step Four: If you can’t afford an accountant, use budgeting software.
And there you have it.
You’ll never be stumped when someone asks you for your profit margin again. And if you’ve never been asked that before, I give you my word: As your business grows bigger and bigger, one day, that question WILL come up. And now you know you’ll be able to answer it.
Do you know your numbers? When did you make knowing them a priority? Let me know below…