How Much Money Should You Make From Your Business?

Business owners often don't think about this when they start their business - they often just want to get away from their boss, or have always wanted their own business, or started a business in the hope that one day their own business will give them financial independence.

But they haven't actually quantified what they would like their profit to be (or what is realistic). In this podcast, I present some ideas that might help you put some numbers to your aspirations.

https://www.businessveteran.com.au/
[e-mail]

What is The Business Coach?

This podcast is for small to medium business owners. You've got a lot to gain, a lot to lose, and business is tough; there's a lot at stake. Business acumen is what every business owner needs, it will make a profound difference to your business.

This podcast will cover marketing, positioning, branding, lead generation, selling, negotiating, customer service, managing staff, managing finances and accounts and much more.

https://www.businessveteran.com.au/
[e-mail]

Just how much money should you make from your business?

Well the short answer might be "as much as possible". But there are more useful answers which I'll get to in a moment.

First let me ask you a question? Do you have strong or irrational emotions in relation to money?

Psychologist say that you can't entirely escape your family or past when it comes to money.

I've had clients who don’t believe they should make a profit - that profit is somehow bad.
I have others who avoid thinking about money to the detriment of their business.

Whatever your feelings, I recommend to you that you do some reflecting on those emotions and beliefs and think about whether they are serving your best interests.

Let's talk about profit for a moment. Profit, technically "net profit" is the money left over after you've paid all your costs and expenses, including your salary. If you don’t take a regular salary relying on drawing out dividend to live on, then your profit isn't really a profit, its just a wage or salary by another name.

So let's start with your salary. How much should that be? Here are a couple of answers for you to ponder. The first is: whatever you could realistically earn in a job elsewhere. Don’t you owe it to your self and your family to at least bring home the equivalent of a salary you could be earning elsewhere? If your business is in start-up mode, that might be different, but sooner or later you'll want to be paying yourself.

The second answer might be "the same amount I would need to pay someone else, to do my role". If you want to sell your business one day, and you WILL want to exit one day, then a buyer might want to cost in a manager in your place and only pay for profit after that cost. Businesses commonly sell for 3 times their annual profit so a buyer will likely be very interested in how much profit your business is making.

I suggest the sensible answers lies somewhere between the numbers you come up with.

So now we have a salary, or at least know what it should be, therefore we can the profit. So how much should THAT be?

Well I suggest that at a minimum, it should be 10% of revenue. In other words, 1 dollar out of every 10 coming in is profit. That doesn’t mean 10% markup which is only about 9% margin. Remember, this profit is what is left after everything, including you salary, is paid.

Even if you're one of those rare people who don’t like profit, remember that in business, its easy to lose money , and hard to make money. So you had better at least plan to make a profit even if all you want to do is break even. I really don’t recommend aiming to break even, you'll come in under. Even a not-for-profit organisation aims to make a surplus. If you're building a house and planning a budget, you'd add a least 10% just as a safety margin, wouldn't you?

Really good businesses make about 20% profit and some are heading for 30%. Remember, your expenses/overheads are fixed, so as you expand, as you sell more, your profit grows quickly. Selling 10% more doesn't result in a 10% increase in profit, it can result in a 50% profit increase, depending on your business.

One final word on money. Money is not what most people think it is. Within a family, it’s a finite resources and dollars in must be more or equal to dollars out otherwise you're going backwards. But at the level of a whole country, it's very rubbery and the number of dollars in the economy changes depending on economic activity. Why am I telling you this? The upshot is, when you grow a business, you're not taking someone else's money, you're growing the economy and the number of dollars within the country which benefits everyone.

So plan to pay yourself properly and make AT LEAST 10% profit, preferrable more.

If you want to understand how to plan to make a profit and be able to predict, as you go, whether you're on track to make the profit or not, make contact and I'll be happy to help.

Go forth and prosper!
This is Mark Jackson