Ep. 73 Three Calculations Everyone Misses When Wishing For A Six Figure A Month Business

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Today I want to talk to you about business preparation. And it’s really interesting because one thing that this season has taught me with the virus is that preparation always feels super awkward when you’re doing it.

So for example, staying home when there weren’t a lot of cases of the virus in your state, kind of looks like overreacting, right. Just like saving money in your business for a recession or an emergency that you really can’t see yet, when you could easily just spend that money on a big event, a new idea, a larger house, bigger car, etc, etc.

It’s this idea of we are in an economy, we are in a culture where we’re always trying to stretch to the next thing, to the new thing. But preparation is sort of working in the opposite direction. It’s not that you don’t stretch, it’s not that you don’t push, but preparation is to make ready the thing that you can’t see yet. This takes a level of faith, and the question is faith in what? You look back in the bible Noah built a big huge boat because God said there was going to be a flood even though it never rained before that time. That’s a story that shows that Noah had faith in who? He had faith in God, that God’s word was true.

If you look at our current situation with the virus, back in January and February, if you were reading reports from epidemiologists and health experts and then started to alter your behavior because of those reports, that would mean that you had faith, or belief that there would be this time period where we would have to stay home and isolated. And you would prepare to make ready. So let’s talk about this in the context of business.

If you’ve struggled to save money in your business to date, you’ve always sort of done that expanding, reacting like, “I want more.” Or not even in a bad way, but just pushing harder and kind of leveraging yourself out. That means that you have faith and belief in the fact that your situation will either remain where it is, or get better. So that’s really when people are not saving money in their business, or they’re not thinking about the future in terms of preparedness, it’s because they have faith or a belief that everything in business either goes straight or up.

So what you need to do first in order to get into the mindset of someone who is prepared is to change your belief system to recognize that business is a series of ups and downs. And a lot of people built their business in the height of one of the most amazing economies ever, that we’ve ever seen, at least in the United States. So it would be very easy to believe that things would always be this way. In fact, a lot of people didn’t even have a concept of what, you know, you’d have some older people saying, “Well, have you ever weathered a recession?’ and if you’ve never been through a recession as a business owner, you’re kind of like, “I don’t even know what you’re talking about, what do you mean? Have I been through a recession.” You can kind of write it off as like, you know, older generation people just being know-it-all’s, right.

But what’s at work there? At work there is an intrinsic belief that things will either stay as there are, or get better. And I obviously don’t need to say that the reality is that that is not how a business curve works. It goes up and it goes down, and it goes up and it goes down. Now that may feel stressful to believe, so your instinct might be like, “Well, no I’m not going to do that. I’m going to be positive.” But no matter what you decide to focus on, that is still true. And anyone who’s been in business for a long time will say that that is true, that you have ups and you have downs.

Okay, so the first thing for preparedness in business, is to operate on the fundamental belief that you will have up and down seasons in your business. Okay, so going with that, for a practical example, I’ve talked about my method of business savings, I’ve talked about it on live streams, emails, workshops, it’s never really made for a sexy headline. My die-hard followers really appreciate the content, but it never went viral, it never got me a ton of attention to talk about it. Yet, and I feel weird saying this now because I don’t want to sound obnoxious, but I made a decision back in 2017, it was partly because I got sort of financial council from people that I trusted and had faith in their expertise, I believed that their expertise was sound. Also partly a little bit of a personality thing. There are personalities that are super, you know, risk adverse, versus risk takers, people who are a little bit more safety, security driven, people who are more variety driven. And I am obviously a little bit more safety driven.

So I made this decision back in 2017 to create business savings. And now, given that we’re in this situation where of course my business has been impacted, it has been impacted in a lot of ways, you know, unless you’re in some niche like toilet paper, you’re going to feel the effects of this recession in some fashion. Maybe not yet, but at some point. And I can see far enough ahead to see that yeah, my high ticket programs are going to take, I’m going to need to adapt in this environment, it’s natural.

But I made a decision back in 2017, month after month after month, I continued to make this decision which is now putting me in a much different position in this unpredictable economy than others. So I’m going to give you this content again. I’ve given it before, I talk about it a lot. But this is sort of the overarching principle of becoming prepared in your business.

When you see people say, “Oh, I had a 10k month.” Or “Oh, I had a 50k month.” Or “Oh, I had a 100k month.” The unfortunate reality is that that sets in our head a belief or a vision of what that number means. $100,000 a month, if you look at that number, and you are currently only making $5000 a month, you think to yourself, “Wow, that is 20x more than what I’m making now.” And just this happens in a split second, but you see, “Oh, I’m bringing home $5000, wow they made $100,000.” And quickly, just in a blink of an eye, you’re visualizing what 20x more income would look like in your life, right. A bigger house, maybe private school for your kids, better clothes, more vacations, etc, etc.

Your brain is not doing any of the complicated mathematical equations that it needs to do to recognize that your comparing your $5000 paycheck in the bank with their $100,000 top line revenue. It’s not doing any of that, it’s just doing sort of the aspirational stuff. So people will set into motion an idea that $100,000 a month business is going to give them everything they need without having actually done the math.

Without having done the math to account for three things, expenses, which is what it costs a business to run, taxes, which is what it costs to run your business in a free society, and savings, which is preparedness, the money that needs to be set aside for when you hit that eventual downturn. So those are the three fundamental equations you have to do in your head every time you are imagining a certain income amount based on what you see on the internet. It’s expenses, it’s taxes, and it’s preparedness, which is savings.

So this is a simple way to do it. Let’s say your top line revenue is $10,000 a month. Okay, that’s what you make gross, and let’s say it’s costs you $5000 a month to run that business. That’s a 50% profit margin, that’s perfectly acceptable in the business. For an online business you want anywhere from 30 to 50% profitability, if you have more, great. So let’s just say it costs you $5000, that’s your first number, your $5000. So now you’re left with how much? $5 Grand. So now we need to think about the second number which is taxes. I’m not a tax professional, but I say that 30% is a good starting point to set aside for taxes. So now you gotta split that $5000 into a 70% bucket, and 30% bucket. 30% goes to taxes, and 70% is left, that’s yours.

So out of the $5000 profit, you have about $3500 to use. This is where most people stop. They figure in expenses, they figure in taxes, and then they forget about the third one, and the third one is so freaking important. It is savings and preparedness.

So you’re going to do a 70/30 split again. So take that $3500 that’s left, split 70/30, so you’re going to use 70% of it, that’s your money, do whatever you want with it. 30% you’re going to stash away in a business savings account. A business savings account can be used for emergencies, it can be used to float businesses when times are tough, it can be used for investments down the road. It’s a savings account for this exact scenario that we are living in right now.

So $2450 is yours to keep. Now, it is quite the pill to swallow, I agree that you’re making a month and you’re only netting about $2450 in your pocket. But now that you know that that’s real, that’s reality, swallow the pill. Just swallow the pill because it’s true. It’s true whether you choose to see it or not. And it will break the spell, it will break the spell that you see out there, which is the spell of, “Oh my gosh, I made $100k a month.” You’re like, “Okay, that’s awesome. But…” and you know there are those other things going on underneath the surface.

And once you swallow that pill, because it’s true whether you see it or not, you can then adapt. And now instead of, “Oh, if I could just make 10k..” maybe now you’re realizing, “Oh gosh, I really need to build a $50,000 a month business. That’s really what I need.” Because if you do the exact same calculations with a $50,000 a month business, assuming you have a 50% profit margin, all the percentages being the same, you would make about $12,250 in your take home pay, which is much, much more reasonable for anyone trying to live in America in 2020. $12,000, most of us can live on $12,000 a month pretty easily.

That means you will have paid all your expenses in your business, you will have all your taxes saved and you will have business savings, okay. If you can’t do that right away, and you start to see, “Oh my gosh, I did, I account for the first number, I accounted for the second number, but I don’t account for the third.” You can start with something you can do. After expenses and taxes do a 95/5 split or a 90/10 split. Just start somewhere, don’t expect it to feel amazing or fun, don’t expect it to have flashes of lightning when you start doing this. This is the stuff that’s unseen. These are the really not super exciting decisions when no one is watching that will position you to be prepared when that wave comes.

And just to give you a story, you know, a realistic story here. I run a high end mastermind, right. It’s expensive, it should be expensive. I bleed for those people, I coach them, I’m with them, this is like my full time thing. And I have been building this program for 2 ½ years and when this hit, I had some people in my program who are agencies who served local businesses and they went from 25 clients down to 6, because they’re serving chiropractors, or they’re serving local businesses that are just going under.

So in that moment I have this group that I have curated and invested in and coached and built, and it’s just an amazing community, and now I’m in a position financially where I can look at myself and say, “Okay, it costs me $50,000 a month to keep the lights on in my business.” That’s what it costs me, and I obviously make more than $50,000 a month, I usually am running a pretty good profit margin on that. But now what if all of that money, which it won’t but let’s just pretend for a second all of that money disappears, how long can I float $50,000 a month in my business before I go under? The answer to that question, thankfully, is I can do it. I can.

Now it’s not how I want to spend the money. Of course I’d rather spend it in a progressive way rather than in a sustaining way, but for me I am in a position now where I can offer scholarships to the people in my group who’ve been there for 2 years who are having a hard time. I can do that, I can hold the space for my employees, I can hold the space for my clients, I can hold the space for my family because I did that. So the ripple effect on preparedness is not just about me still having food on the table. It’s about my team still being able to depend on getting their paycheck.

My personal assistant has not worked for the last 6 weeks and is still getting a full salary. Her family is still functioning because I was prepared. People in my mastermind who went, you know, I have photographers, I have makeup artists, who have lost 95% of their business, but would be staying in the program, they don’t want to leave the program, I can hold space for them. I can say, “Hey, my raft is big enough. Get on my raft, we’re going to be okay.”

So the next time you think about business savings being this sort of unsexy annoying thing to do, remember that story. Remember that life raft. The bigger your life raft, the more people you can help. And it’s not just about you, it’s about other people. And there is something so unbelievably satisfying and gratifying about having a life raft big enough that you can pull all the people on it that are close to you in those uncertain times. So I appreciate you all, I hope you have a great week. Talk soon.