Salutations, friend! In today's episode, we are going to talk about "how much money is enough money." If you're confused or hesitant about how to get the right timing of hiring someone, quitting your full-time job, or taking a vacation, today's topic will help you sort it out. I will discuss the essential areas in your business to determine how much you need to make. So get your worksheet ready, and hit the play button!
Salutations, friend! Welcome back to another episode of The Profit Scale podcast. In today's pisode, we are going to talk about the importance of knowing your numbers before making a decision or turning your ideal situation into a reality. If you have doubts about pursuing something because you are not sure if you're financially stable to do it, then today's topic is for you.
Here are the topics that we're going to cover today:
Links:
Salutations friend and welcome to an episode of The Profit Scale! This is the podcast for service-based coaches, consultants, and creatives looking to stop living from paycheck to paycheck, pay themselves more, and scale their business beyond the 6-figure plateau without the overwhelm of 60+ hours' work weeks.
I’m your host and Income Strategist—RJ Connell. If you are looking to collect more coins, stop dropping coins, and grow your business sustainably, then you, my friend, are in the right place! Turn up the volume and lean in because we are about to get started!
Salutations, friend! It’s your Income Strategist, RJ Connell, and today we are diving into just how much money is enough money.
If you have ever wondered how much you need to make to quit your full-time job, hire help, or take vacations in your business, today’s episode will help you break those numbers all the way down! This is definitely an episode you want to make sure you grab the worksheet for because today’s strategies could be the difference between financial problems or financial peace.
Click the link in the show notes for the worksheet or head over to rjconnell.ca/11.
Before we jump in, I want to share an opportunity that I only open up a few times a year! My signature program Systems That Scale is opening up for enrollment this month, and this program is transformative!
During this 12-week experience, we have 1:1 consulting sessions that dive deep into strategies that help you grow your money without marketing!
You will receive your own customized pricing strategy so you can price yourself properly and not leave coins on the table, no matter what the context. You will learn how to sell effectively, negotiate, and close more sales! You will learn how to optimize your profit margins so that every dollar that comes into your business will help grow your business and not just maintain it.
Clients who go through this program walk away with peace of mind knowing their business is on track for growth. When you go through Systems That Scale, you will finish with confidence in your pricing, and the communication and sales skills to land new contracts, clients, and opportunities, consistently.
You will have sustainable strategies to help your business thrive financially. My past clients have cumulatively earned over $100,000 in additional revenue because of going through Systems That Scale. Friend, I want that to be you too.
This program is perfect for entrepreneurs who want to land corporate contracts, B2B businesses, and entrepreneurs who are making or nearing 6 figures in revenue.
All you have to do is head over to rjconnell.ca/sts and fill out your application for Cycle 3.
This program is perfect for you if you are an entrepreneur who is looking to make the switch to working with corporate clients, already working with corporate clients but under charging or your contracts are few and far between, or if you are tired of feeling overworked and underpaid in your own business, and you know that it is time to level up.
Space in this cycle is an extremely limited friend. There are only 10 spots available so if you know in your heart that it is time to level up, then send in your application. I can’t wait to work with you!
Again, head over to rjconnell.ca/sts to apply for the Systems That Scale program!
Now let’s jump into today’s topic!
Money—we all need it, right? Realistically, part of why we started a business was to make more of it, but what happens when you are in that in-between phase where your business is not quite earning enough to support you full-time, but your client base is growing to a point where it is becoming exhausting to balance your 9-5 with your 5-9?
What if you are already working full time in your business, and your success is growing? You know you need to hire help because the workload will soon be too much for you to do alone and you will eventually become the bottleneck that stops your business from growing, but the thought of having to pay someone else a salary makes your heart rate speed up. Not only will you be financially responsible for someone else, but what if you hire someone and it does not work out?
What if you have a terrible month, and you cannot pay them? Will you have to take it from your own salary? How do you figure out how much you should pay them? What if you simply want to take a break from your business—an actual vacation—where you do not open up the laptop at all and still have income flow through your business?
Do any of these scenarios sound like your current situation? If so, turn up the volume my friend, because the first thing I want you to know is that it is possible! It is possible to run a business that can comfortably support you and your family. It is possible to pay yourself your ideal salary and still have the financial abundance for your business to thrive. It is possible to hire help and provide financial security for your team or employees, without jeopardizing your own. It is possible. You need a strategy around your income. You must know your numbers before you can make your ideal situation your reality.
There is one main number that you need to determine so you can confidently make wise, profitable and impactful financial decisions for your business. I call it your Thrive Number.
Thrive Number represents the financial revenue your business needs to bring in for it to thrive and not just survive. It is not calculated arbitrarily and is not based on blowing up a golden helium balloon, so you can pose on Instagram and brag about hitting a specific milestone. It accounts for 6 key areas of your business that will set it up for sustainable, repeatable, and recession-proof success. It will also position you as an employee of your business to thrive personally.
Knowing this number will help you tie your marketing strategy to your money strategy, so you can be confident that you are building towards financial independence, as you define it for yourself.
I prepared a 7-step exercise within a worksheet for you to follow along easily while I walk you through the 7 steps towards accurately calculating your Thrive Number.
You can click the link in the show notes to access your worksheet, or head over to rjconnell.ca/11.
So download your worksheet and let’s calculate!
Step 1 - Define what financial independence means for you
It means identifying the conditions that represent your ideal financial independence, and it involves more than just a salary number.
Does it mean you only want to work a 4-hour work week like Tim Ferris? Does it mean you want to have every Friday off? Does it mean having the ability to retire your spouse? Does it mean being able to offer an insurance plan to you and your team?
This definition will be unique to you, so the first part of establishing a Thrive Number is defining your conditions for it.
Once you have written your conditions, let’s use that to help determine your numbers in step 2, which is your salary.
Step 2 - Determine what your salary will be
This is a conversation that I have all the time with my clients in Systems That Scale: how to determine what your salary will be, so I will give you a few factors to consider in calculating how much you should pay yourself. One of it is to consider how much you are earning right now at your 9-5 job.
If your income can comfortably support you and your family, the first step towards your financial independence is to aim to replace your gross salary—your salary before taxes and deductions.
If your current salary is leaving you barely surviving, decide how much of an increase will give you space you need to be comfortable. Understanding that this is a process, it is okay to set a gradual salary milestone instead of jumping from earning $30,000 a year at your 9-5 to paying yourself $100,000 a year from your own business.
Paying yourself that salary might be the end goal, but it does not mean you have to start there. For example, you can go from a salary of $30,000 to $45,000, to $60,000, to $80,000, then $100,000.
This step still applies even if you are employed full time in your own business. You still need to follow this step of reviewing your current salary to see if it allows you the financial freedom you want, and if not, set a goal for a salary that will support that.
Step 3 - Establish your deductibles
Do you know when you get your pay stub from a 9-5 job and it has deductibles where they take out money for taxes, health insurance plan contributions, employment insurance, pension plan or 401K?
You need to create your own version of that section for your own business. You will calculate a percentage for taxes, health insurance plans, government-mandated retirement contributions, employment insurance, and any other government-mandated deductions.
You need to account for these mandatory expenses even if you are the only employee in your business. This will help you make sure that the number you calculate for your Thrive Number is as accurate as possible, so you do not have unexpected expenses creeping up on you.
Step 4 - Evaluate your profit margins
You need to understand what your gross and net profit margins are right now. Your gross profit is the money left over after subtracting your cost of goods sold while your net profit is the money left over after subtracting your cost of goods sold and your expenses.
If you are listening to this saying to yourself, “RJ, you completely lost me. I know the individual meaning of the words you are saying, but when you put them together, I do not understand what it all means.”
Don’t worry, friend. The good news is you do not have to be an expert in accounting, but you need to have a foundational understanding of what these numbers mean for your business. While I, myself, am not an accountant, I have a solid understanding of accounting foundations, and I help my clients understand how their accounting reports affect their money and marketing strategies inside Systems That Scale. So if you need additional support beyond today’s conversation, you can visit rjconnell.ca/sts to send in your application today.
Aside from Systems That Scale, the simplest way to figure out your profit margins is to ask your accountant what your gross and net profit margin percentages are. Knowing these numbers will help you understand whether you need to increase your profit percentage, or whether you can afford to keep it the same for now.
Step 5 - Calculate expenses for an emergency savings fund
You need to calculate 3 months of expenses for an emergency savings fund. The expenses you include here will be the critical expenses that you need to keep your business running. It includes your salary from step 2, overhead costs, taxes, and all government-mandated deductibles, and more. Your worksheet has unique items for you to consider in your emergency fund.
This fund will allow your business to keep running with no disruption for a minimum of three months, even in the worst financial times, and based on the experience we have had this year, I’m sure you now know just how important it is to have an emergency fund for your business.
Step 6 - Account for projected expenses or purchases
Do you remember where we talked about running a business that is revenue rich yet profit poor in episode 3, and we walked through the Predict and Prioritize exercise? Well, you can literally take the total number you calculated there and input it directly into your worksheet in front of you.
If you do not want to account for all the predicted expenses, you can take your top 3 priority expenses, add them up, and include the total in your current worksheet.
If you missed episode 3, I recommend you to go back, listen to it, download its worksheet, and run through the exercise. But to give you a brief recap, in that episode we talked about 3 ways to boost profit margins, and one strategy we covered was an exercise called Predict and Prioritize.
This exercise allowed you to plan for the future expenses of growing your business, including things like hiring more support, expanding your team, upgrading your software, and more. When you plan for it in advance, you can prepare for it.
In the show notes, I have included the link to a short version of the worksheet from episode 3, that only includes the Predict and Prioritize exercise.
However, I recommend that you go back to episode 3, download the full worksheet with all 3 exercises and implement them. Doing so will help you run through today’s worksheet much easier.
Now that you have completed all 6 steps, the last and final step, step 7 is to add up all your numbers to get your total Thrive Number!
Step 7 - Add up all your numbers
On your worksheet, there is a section for you to break down your yearly Thrive Number into quarterly and monthly numbers.
This will help you better understand exactly how much revenue your business needs in order for both you and your business to thrive and not just survive.
Running through this exercise and putting pen to paper is a step that many entrepreneurs do not take, even when they are running successful businesses, and as simple of an exercise it may be, you can easily find yourself stressed financially about your business, feeling overworked and underpaid, or trapped in the endless cycle of chasing after sales instead of executing a strategy.
When you take the time to get clear on these numbers, there will be an extra level of confidence that comes in your ability to reach them. Suddenly, quitting your 9-5 within the next 12 months will feel achievable and realize that you can afford to hire a part-time virtual assistant in the next 3 months.
As a by-product, you realize that achieving your Thrive Number means you can no longer afford to pick your prices arbitrarily, and that you need a strategy to make this happen.
The clarity, the hope and the direction that comes from completing this exercise is profound. Like I mentioned earlier, it could be the difference between financial problems or financial peace.
So let’s recap our discussion today.
First, we talked about the challenges and situations you might be in right now that are causing you to feel lost, uncertain, anxious, or stressed about whether your business can subsidize you or continue to support you as you grow.
Then, we discussed a Thrive Number that accurately represents the income goal you have to work towards in your business to live a life of financial freedom and independence.
Next, we went through a 7-step strategy to help you calculate your Thrive Number and to help you. You can find all 7 steps in the worksheet for this episode in the show notes and at rjconnell.ca/11.
Last, I want to encourage you that the Thrive Number you set today, you can decide to increase it later.
As your business grows and you experience more success, you will naturally be able to increase your salary, gain more of the expenses on your prioritized expense list, and even increase your emergency fund from 3 to 6 months.
Your Thrive Number number will grow with you and that is a good thing, as long as the numbers are growing in the right areas.
Friend, I want to support you to make this Thrive Number a reality and I believe that Systems That Scale can help you do just that. I designed this program to help you establish a strategy in the crucial yet often overlooked areas of your business, like pricing, profitability, and client retention that will help you see immense results, even with minor marketing efforts.
When you implement sustainable income strategies around your money, sales and service, scaling your business towards your Thrive Number, is the natural result.
I would love for you to be a part of this cycle of Systems That Scale, so you can click the link in the show notes to submit an application, or you can head over to rjconnell.ca./sts to learn more apply there.
I am so excited to work with you to bring your Thrive Numbers to life!
Friend, I am so grateful that you have taken the time to spend with me today and I would love to see a picture of your worksheet! Tag me on Instagram @rjconnellconsulting with a picture of your worksheet in your stories and let’s see what your Thrive Number is!
In next week's conversation, we will talk all about what you need to do if you want to make the switch to serve corporate clients.
If you have ever considered venturing into the enormous world of money to offer your services to corporations, organizations or associations, then next week’s episode is for you! Make sure you subscribe to the podcast on your favorite podcast listening platform so you can be notified automatically when next week’s episode drops!
As always, friend, I’m excited to spend time with you again, same time and same place next week, and until then, I wish you coins, confidence, and all the bags! Bye for now!