Latest / Profit Points Podcast / How Much Revenue Does Your Business Need to Fund the Life You Want?

Transcript

How Much Revenue Does Your Business Need to Fund the Life You Want? · Profit Points Podcast

• 0:00
  SPEAKER_00: Hey, glad you're here.
• 0:01
  SPEAKER_00: This is Profit Points, and I'm Megan Schwant, your accounting sidekick and certified Profit First Professional and Fix the Snex Advisor.
• 0:09
  SPEAKER_00: If you're a small business owner who wants to actually understand what is happening in your business financially, not just survive it, but genuinely get it, you're in the right place.
• 0:20
  SPEAKER_00: Every episode covers one concept, uses real numbers, and ends with something you can actually do.
• 0:26
  SPEAKER_00: That's the deal.
• 0:27
  SPEAKER_00: Let's talk about today's topic.
• 0:30
  SPEAKER_00: I want to ask you a question that might feel a little uncomfortable.
• 0:35
  SPEAKER_00: If someone asks you right now, how much do you need from your business?
• 0:39
  SPEAKER_00: Not your revenue goal, not your business goal, but what does the life you actually want cost per month?
• 0:45
  SPEAKER_00: Could you answer that?
• 0:47
  SPEAKER_00: Not approximately, specifically.
• 0:50
  SPEAKER_00: The mortgage or rent, the groceries, the kids' activities, the savings, the vacation fund, the breathing room.
• 0:57
  SPEAKER_00: Could you put a real number on it?
• 1:00
  SPEAKER_00: Most business owners cannot.
• 1:02
  SPEAKER_00: And that gap between not knowing what the life costs and trying to build a business to fund it is exactly why so many of us feel like we are running hard without ever quite arriving anywhere.
• 1:16
  SPEAKER_00: I'm Megan Schwann, your accounting sidekick.
• 1:18
  SPEAKER_00: This is Profit Points, where we build businesses that are designed around the life you actually want to be living.
• 1:25
  SPEAKER_00: Today we are reverse engineering yours.
• 1:29
  SPEAKER_00: So let's go.
• 1:31
  SPEAKER_00: Most business owners set a revenue goal by looking at what they made last year and adding a percentage.
• 1:37
  SPEAKER_00: Or they look at what someone in their industry seems to be making and use that as a benchmark.
• 1:43
  SPEAKER_00: Or they pick a round number that sounds impressive: six figures, multiple six figures, seven figures, without any real calculation behind why that number and not a different one.
• 1:57
  SPEAKER_00: What almost nobody does is start from the other direction.
• 2:00
  SPEAKER_00: Start with the life, figure out what it actually costs, and then build the business backwards from that specific personal, non-negotiable number.
• 2:10
  SPEAKER_00: The result of the forward approach is a business that grows without a real destination.
• 2:15
  SPEAKER_00: You hit one revenue milestone and immediately move the target because the number never actually meant anything concrete in the first place.
• 2:23
  SPEAKER_00: You were chasing an idea of success rather than a specific funded version of your life.
• 2:29
  SPEAKER_00: And that is what we want to change today.
• 2:31
  SPEAKER_00: The concept we are building around is called life first financial planning.
• 2:36
  SPEAKER_00: And the premise is exactly what it sounds like.
• 2:39
  SPEAKER_00: You start with the life and build the business to match it, not the other way around.
• 2:44
  SPEAKER_00: Here's the three-step framework that we're going to work through today.
• 2:47
  SPEAKER_00: So step one is calculating your personal monthly requirement or what we'll call your PMR.
• 2:56
  SPEAKER_00: This is not what you are currently spending.
• 2:58
  SPEAKER_00: This is what your life would cost if your business was fully, sustainably supporting it.
• 3:04
  SPEAKER_00: Every line item, mortgage or rent, utilities, grocery, insurance, car payment, any debt payments, kids' activities, your own health and wellness, savings, fund money.
• 3:15
  SPEAKER_00: Yes, this definitely needs to be counted as well.
• 3:18
  SPEAKER_00: Things like travel, whatever belongs in a life that feels fully funded rather than financially anxious, add it all up.
• 3:27
  SPEAKER_00: That total is your own PMR.
• 3:30
  SPEAKER_00: Step two is grossing up for taxes.
• 3:33
  SPEAKER_00: This is the part people often forget, too.
• 3:35
  SPEAKER_00: Your PMR, that number is a net number.
• 3:38
  SPEAKER_00: That's what you need to take home after taxes.
• 3:41
  SPEAKER_00: But your business has to pay you more than your take home for you to actually net that amount.
• 3:47
  SPEAKER_00: So you need to divide your PMR by 0.7 to estimate the gross owner's pay your business needs to generate.
• 3:55
  SPEAKER_00: So if your PMR is$6,000 per month, your gross owner's pay target is approximately$8,570.
• 4:04
  SPEAKER_00: So we're adding that.
• 4:05
  SPEAKER_00: Step three is building your target revenue target.
• 4:10
  SPEAKER_00: Using profit first principles, because that's what we're all about.
• 4:14
  SPEAKER_00: Owner's pay should represent around 20 to 50% of your real revenue, depending on your revenue range.
• 4:21
  SPEAKER_00: We talked about that in a last episode or a couple of episodes.
• 4:25
  SPEAKER_00: Look at profit first target allocation percentages to figure out where you land based off of where your revenue currently is.
• 4:33
  SPEAKER_00: So with that, figure out that percentage, take your gross owner's pay target, and then divide that by whatever that percentage is.
• 4:41
  SPEAKER_00: So if it's 50%, then divide it by 0.5%.
• 4:45
  SPEAKER_00: If it's 20%, divide it by 0.2%.
• 4:48
  SPEAKER_00: That gives you your rev monthly revenue target, the number your business needs to hit consistently for your life to be fully funded.
• 4:57
  SPEAKER_00: Now, I want to stop here real quick in uh number two and tell you a little bit of a story.
• 5:02
  SPEAKER_00: I worked with a client a few years ago who had been in business for almost four years.
• 5:07
  SPEAKER_00: She was making what most people would consider a solid revenue.
• 5:11
  SPEAKER_00: She had grown consistently year over year, and she was exhausted.
• 5:16
  SPEAKER_00: I mean, genuinely, as they say, bone-tired, exhausted.
• 5:20
  SPEAKER_00: Not from the work itself.
• 5:22
  SPEAKER_00: She really loved the work, but from the constant feeling that no matter how much came in, it just never felt like it was enough.
• 5:31
  SPEAKER_00: So we sat down and we did this exercise together.
• 5:34
  SPEAKER_00: When she actually calculated her PMR for the first time, something shifted.
• 5:40
  SPEAKER_00: She realized that she had never actually defined what enough looked like for her.
• 5:46
  SPEAKER_00: She had been running towards a number that had no real personal meaning attached to it.
• 5:52
  SPEAKER_00: It was bigger than last year and bigger than that previous year before, but it was not a destination.
• 5:58
  SPEAKER_00: It was just a direction.
• 6:00
  SPEAKER_00: Her PMR, when we calculated it, came out to$5,800 per month.
• 6:04
  SPEAKER_00: Her gross owners target when we divided by the percentage, the 0.7, approximately$8,300.
• 6:12
  SPEAKER_00: Her revenue target using the profit first framework, it was$16,600 per month.
• 6:18
  SPEAKER_00: And she was already making$18,000 a month.
• 6:22
  SPEAKER_00: So she was already there.
• 6:24
  SPEAKER_00: She just had not built the financial structure to actually capture it.
• 6:28
  SPEAKER_00: She was earning enough and spending it without intention, which is a completely different problem with a completely different solution.
• 6:36
  SPEAKER_00: But she only knew that because she did the calculation.
• 6:40
  SPEAKER_00: So wrapping this up, she was making enough, but she wasn't spending it in the right way.
• 6:46
  SPEAKER_00: So she felt like she had to put more into marketing or more into these contractors instead of just focusing on getting her and her current revenue into the different places it actually needed to be.
• 7:01
  SPEAKER_00: So when we sat down and did this, it shifted for her.
• 7:04
  SPEAKER_00: Now it wasn't a problem of grow, grow, grow.
• 7:06
  SPEAKER_00: Now it was a profit or problem of adjust, adjust, adjust the business model because she was already there revenue-wise.
• 7:14
  SPEAKER_00: So we needed to lean into that and maximize what was already built.
• 7:18
  SPEAKER_00: This is what life first financial planning does.
• 7:21
  SPEAKER_00: It gives you the number that actually means something.
• 7:25
  SPEAKER_00: And once you have it, everything else, your pricing, your client targets, your growth decisions, all of it snaps into focus around it.
• 7:34
  SPEAKER_00: So let's run a full model so you can see how exactly how this works.
• 7:39
  SPEAKER_00: Your personal monthly requirement is$5,500.
• 7:42
  SPEAKER_00: That is the life fully funded, every expense covered, savings included, no financial white knuckling.
• 7:49
  SPEAKER_00: Gross up for taxes, divide by 0.7 approximately.
• 7:54
  SPEAKER_00: So if I take my$5,500, gross it up, it's$78.57 per month, is the gross owner's pay that's needed.
• 8:02
  SPEAKER_00: Then we're gonna apply the 50% owner's pay allocation.
• 8:06
  SPEAKER_00: So we divide that number by 0.5 and we come to$15,714 per month in revenue that's needed.
• 8:15
  SPEAKER_00: Following along still?
• 8:17
  SPEAKER_00: So the annual revenue target for these numbers would be approximately 188,568.
• 8:25
  SPEAKER_00: Now, here's where it gets real tangible.
• 8:28
  SPEAKER_00: If your average client pays$1,400 per month, that means you need 11 to 12 active clients to hit that target, not 50 clients, not a massive audience or a complicated funnel, 11 to 12 people paying you consistently to do the work that you love.
• 8:46
  SPEAKER_00: That is the whole model.
• 8:48
  SPEAKER_00: From the life you want to the number of clients you need to fund it in three steps and about 20 minutes of honest math, you can figure this out for yourself.
• 8:56
  SPEAKER_00: So this week, your action step is to calculate your PMR.
• 9:01
  SPEAKER_00: That's it.
• 9:02
  SPEAKER_00: Just lay it out.
• 9:03
  SPEAKER_00: One number, sit down, somewhere quiet, maybe, maybe in a day that you're not distracted.
• 9:10
  SPEAKER_00: Try not to do it in between meetings or when you're half distracted with the kids running around or whatever, the dogs, cats, and list every personal expense that belongs in a fully funded version of your life.
• 9:23
  SPEAKER_00: So not just what you're currently spending, but your target spending, the life that feels right, not just the life that feels manageable.
• 9:31
  SPEAKER_00: Okay.
• 9:32
  SPEAKER_00: And add them up.
• 9:34
  SPEAKER_00: Write that number down.
• 9:35
  SPEAKER_00: Then do the two calculations, divide by the 0.7 to find your gross number, and then divide by that target allocation percentage.
• 9:43
  SPEAKER_00: If you're not sure what to do, let's just go high and use the 50%.
• 9:47
  SPEAKER_00: So divide that by 0.5 and write your revenue target beside it.
• 9:53
  SPEAKER_00: And then I want you to notice something when you do this.
• 9:56
  SPEAKER_00: There will probably be a moment of surprise in one direction or the other.
• 10:00
  SPEAKER_00: Either your revenue target is lower than you expected, which means you might already be closer than you think, just like my client was, or it's higher than you expected, which means the gap finally has a real number attached to it.
• 10:15
  SPEAKER_00: And a real number is something you can actually work with.
• 10:19
  SPEAKER_00: Either way, you will know something specific and true about your business that you did not know before you sat down.
• 10:25
  SPEAKER_00: And specific and true is always better than vague and hopeful.
• 10:30
  SPEAKER_00: So the next time someone asks you what your revenue goal is, you won't have a guess.
• 10:35
  SPEAKER_00: You won't have the right answer.
• 10:37
  SPEAKER_00: You will know.
• 10:38
  SPEAKER_00: And knowing is where strategy really begins.
• 10:42
  SPEAKER_00: So your business exists to serve your life, not the other way around.
• 10:47
  SPEAKER_00: When you build the revenue model around a life that you actually defined, one you can see and feel and put a number on, the decisions get clearer, the motivation gets deeper, and the work stops feeling like an endless chase towards something that keeps moving.
• 11:04
  SPEAKER_00: It starts feeling like it is for something real because it is.
• 11:09
  SPEAKER_00: Doesn't that sound great?
• 11:11
  SPEAKER_00: Okay.
• 11:11
  SPEAKER_00: So if you want to run this model for your specific life and your specific business and build the financial structure that captures the revenue you are working for, I want you to book a call with me, sidekick accounting.
• 11:23
  SPEAKER_00: You can go to chatwithmeg.com.
• 11:26
  SPEAKER_00: We will do the math together and make sure your business is designed to fund the life on the other side of it.
• 11:33
  SPEAKER_00: All right.
• 11:34
  SPEAKER_00: Chatwithmeg.com, book a call or take a look at the services that we provide.
• 11:40
  SPEAKER_00: And I will see you on the next episode.
• 11:42
  SPEAKER_00: All right, that's your episode this time.
• 11:44
  SPEAKER_00: Don't forget your action step.
• 11:46
  SPEAKER_00: I want you to actually do it, not just add it to the list.
• 11:50
  SPEAKER_00: If this episode was helpful, share it with a fellow business owner who needs to hear it.
• 11:54
  SPEAKER_00: And if you're ready to go deeper on your specific numbers, book a strategy call with Sidekick Accounting.
• 11:59
  SPEAKER_00: Go to chatwithmeg.com, and I'll see you next time on Profit Points.