How to Make Sure You Pay Yourself!
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The Local Small Business Coach Podcast
Here is what we discuss in today's episode:
How to Make Sure You Pay Yourself!:
Today we discuss a question I got from Tommy. He is struggling to make enough money at the end of the month to meet his personal financial goals. So we will take a look at what are the key things to do, to ensure that you pay yourself each month the take home pay that you need. Make sure you follow the advice of working your income backwards!
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Hey badass business owners. Welcome to another episode of the Local Small Business Coach Podcast where each week, my goal is to help you get one step closer to that $100,000 in take home pay!
And today, I thought we would take a question that I got on take home pay and dive in a little deeper. I think this one might help a lot of you.
I’m not going to go into the entire email I got, but here is the jest of it. Let’s see if it resonates with any of you as well.
Here is the situation, Tommy is working his butt off and is frustrated because it seems like he is making all this money in his business yet there is so little left at the end of month after he pays his expenses, his help and the materials he had to purchase. By the time it is all said and done, he can barely pay his personal bills and can’t seem to get ahead, now matter how hard he works. He does this for his family yet never gets to see them since he works so hard. He wanted to know, what is he doing wrong?
Sadly, there are so many local small business owners in Tommy’s shoes. I myself even spent several years making no money just to keep my business going. We love our family but for some reason we keep thinking that one day it just has to change. So, we work harder and harder to get the sales go up, yet, it seems like our profit to take home doesn’t. The business seems to keep sucking up the extra profits.
You know how I feel, local small business owners are some of the hardest working people I know. It is situations like Tommy’s, like mine and like yours, that have me on this mission to help each of you, improve those profits so you can take home at least $100,000 annually. For many of you, you’d love to double your profits, so what is it that keeps derailing us?
When I was talking to Tommy, I could feel his frustration. Logically, he knew he needed to work “on” his business and not just “in” his business. But just couldn’t find the time. He was running from 7am to 7pm if not later every day.
Our natural instinct is to work harder and harder thinking it will get us the income we are looking for. Unfortunately, this just isn’t the case. The reality, it is more about working smarter, not harder.
I thought I’d take the next few minutes and go over a few things you want to do. But don’t cut out early. The #1 thing you will need to do will be coming up in a few minutes.
But first, I thought I’d hit a few of the little things I hear from folks that are preventing them from hitting their financial goals.
More Sales = More Help
One thing a lot of folks put off is hiring help. After all, those extra set of hands will want to be paid and there is only one place that money comes from and it is your profits.
Instead of earning say $40 and hour, if you pay someone $15 an hour, you drop down to $25. This means you are giving away 37% of your pay to do the additional sales. Not saying don’t do it, but make sure you are giving up tasks or jobs that allow you drum up more sales and profits.
For example, if the extra help allows you to work on drumming up more customers or clients or the extra helps lets you take on bigger profit jobs. Let’s say you are a home painter. Your typical jobs in your area can run between $2,000 – $4,000. If you happen to average say $3,000 when you are on your own but it will take you a week to do the job on your own, but if you have help, let’s say you can now knock out 2 of these $3,000 jobs.
Stick with me for a moment on this one. Let’s say the profit on one job is say $500. If you are by yourself, you knock out one job and earn $500.
But if you higher help and give up say 30% of that for the help, you drop to $350. But since you can now knock out two jobs in the same time frame, you actually double that to $700. That still is a $200 increase in profits since you could double the jobs.
I know what some of you are thinking. Not only do they take up some of your pay, but they slow you down since you can do things faster. You are right, at least in the beginning. You might also be thinking that you don’t want to hire people and all that goes with that. That’s fine, for many of you, you can use temporary help called independent contractors. Where they are people for hire. So you don’t have to do a full payroll set up. They work independently and you hire them one job at a time. You tell them where the job is and have them meet you there.
Now, I’m making this sound more simple than it is, but for those of you that are in this boat, I’m pretty sure you have paid someone a few hundred bucks to help you out from time to time. It is the same concept. We can discuss independent contractors more in other episodes.
My main goal today is, for you to work the math, if bringing help aboard allows you to knock out more jobs and increase your profits, then this is a great opportunity.
Chasing the Sales & Not Focusing on the Profits
We will dive in shortly on why this one is so important but I do want to point out that many of you are chasing the next sale. You feel sales will cure all your problems. The reality is, it isn’t that simple. Not all sales are created equal. Each sale comes with a different profit attached.
You must have a good understanding of what you make with each job. They will vary. Just like each product in a brick and mortar will have a different profit, so will most service based jobs. Both of you, need to know what you make with various combinations.
Speaking of which, you brick and mortar folks have the same problem. More sales don’t equate to more profits. It is a combination of more sales coupled with the right items.
More on this shortly.
Not Improving Your Processes
This one kills people all day long. When you have broken processes, you are tossing out money. Bad processes are holes in your business that are leaking profits. They are inefficiencies that take time, money and resources. Time is money. Each minute wasted is times that could be spend creating more sales or profits.
I’m not going to spend tons of time on this one. I cover this one in more detail back in episode 97 where we discuss fixing broken processes to boost your profits. But the important thing is, you are not forgetting that your take home pay is a direct reflection of the processes you put in place. They are a crucial piece of your business and more importantly your livelihood.
And with that, let’s dive into the most important thing you can do to ensure you get the take home pay you are needing.
#1 Thing You Can Do is…..
Work your numbers backwards. Have you heard the saying, have the end in mind?
I talk about this in the materials for 8 steps to getting to $100,000 in Profits ebook, podcast episodes and training at the local small business coach website. Step 3 is to discover what your sales need to be in order to obtain the profits you are wanting.
So many of you are focusing on sales but not focusing on if those sales will provide the profits you need. Remember, not all sales are created equal.
Some $3,000 in sales might produce $2,000 in profits and a different $3,000 in sales only $1,000. That is a 100% difference! Not to mention a $1,000 hard cash in your pocket!
If you know you need $5,000 take home each month, then you need to work this backwards. How much profit needs to remain in the company for future needs? Perhaps you are saving up for some new equipment so you know you need to hold back $500. So, add that on first. Now you need $5,500 net profits. Next, you should know your projected monthly expenses (including any additional payroll you need) each month. Let’s say it is $1,500 then you know you now need $7,000.
So your next challenge is figuring out how much in sales do you need to do to produce the $7,000 to cover these items.
Now remember, it isn’t $7,000 in sales. It isn’t a dollar for dollar exchange. You will have product costs associated with each sale. In Tommy’s case, if a $2,000 job will net him $700 after all his costs on average, then he know he will need 10 jobs with this formula.
How did I get this? $700 in profit x 10 jobs will net the $7,000. Translated to sales, he now knows he needs in a perfect world 10 of these $2,000 jobs or $20,000 in sales to get his $5,000 take home pay.
But like I said, that is perfect world. And when is the world perfect? Not all jobs are equal. There will be hiccups. Extra charges, refunds, waste, etc. Things will go wrong. Jobs will vary in net profit. So maybe his more realistic number is $22,000 to ensure he hits his $5,000 in profits. The rest is gravy to either keep in his business or save for rainy day months.
THIS ISN’T EASY
Trust me, this stuff isn’t easy. You will need to sit down at the beginning of each month and figure out the needs you will have. The truth is, it actually starts months before for many of you. You have to think more like 2-3 months about but for now, let’s at least get in the habit of a month out.
For many of you, your jobs will have different profit margins. You will need to figure out many senarios and what types of combinations do you need to hit your targets. You need to sit down weekly and see how you are doing on your plans, your targets. Adjust accordingly.
You can’t keep hustling over and over and never stopping to check your progress and how close you are to the goal. If you are off target by just a little, you can miss big time.
If you push all the wrong sales, don’t be shocked you have no profits at the end of the day.
DO YOU WANT TO MAKE $8,333 a MONTH?
Listen, I want you to hit $100,000 a year in take home pay. I want you to experience the $8,333 a month paycheck that this equates to. But you can only do this by having a plan of attack. You can’t just wake up each day and hit the road. You must start by figuring out what it will take to make it happen.
I promise, you can do this. Each and every one of you. You know, I laugh when I first made the comment that even dog walkers can make $100,000 in profit. Then guess what? I was listening to a podcast where this lady in Northern California was doing just that. She figured out how to tweak her processes and sales packages to accomplish this goal.
If she can do it, so can you!
I have big plans to keep working on this for you. But in the meantime, I do have some tools to at least help get you going. Get the FREE ebook and free workbook – 8 Steps to Earning $100,000 in Profit in Your Local Small Business. Just head on over to LocalSmallBusinessCoach.com/8steps
I’ll put it in the shownotes as well. Is this perfect? Hell no. I have ideas to continually improve it. Heck, I want to hear from you on how I can improve it. This is something your input is crucial. Especially if you have any best practices I can share with your fellow local small business owners that you have found to be helpful.
Listen, for folks like Tommy, for folks like you, you work way to hard not to hit the financial goals you have for you and your family. For your future. I want to help you get there.
Keep reaching out to me with your questions, I will keep trying to answer them.
I’m even tossing around the idea of adding a second episode each week for your questions. Those of you that have been listening for a bit might recall I did questions on Friday. I’m pretty swamped with my own business but I feel so passionate about this that I’m trying to figure out how to carve out the time to add an additional episode.
So, if you have a question, all you have to do is email me at email@example.com I will be glad to answer your questions. I do answer them all as I enjoy hearing what your pain points are and how I can help.
Time for me to wrap this puppy up, but before you go, if you are new to the podcast, down load the previous episodes and hopefully you will find a nugget or two that will help you take your business to the $100,000 in take home pay.
By the way, I want you to know, that I realize being a local small business owner can be a lonely gig at times. But you don’t have to do it alone. Just know, I’m always here for you.
Meanwhile, I wish you the best in your business and remember: Great Customer Service, coupled with Great business practices will set you on the path to Great Profits!
Bye for now…..
Don’t forget, if you are looking to take your local small business to $100,000 in profit, head on over to LocalSmallBusinessCoach.com/8steps to download the free ebook & workbook called: 8 Steps Local Small Business Owners Need to Take to Make $100,000 in Profit. Where I’ll walk you through how to double or triple your current profit level.
Also, don’t forget to shoot me an email on any topic or question you would love for me to cover in an upcoming episode of the show. Just send your ideas to firstname.lastname@example.org.
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My Recommended Bookkeeping Program for Local Small Business Owners: Freshbooks Link
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Two Great Books to Help You With Your Small Business:
Highly Recommend all Local Small Business Owners Read the eMyth by Micheal Gerber. You will learn some critical things about running your business.
The second book is one I wrote based off a popular example I always use when folks are trying to understand their role as a leader with their people. Check it out.
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