Recently, we launched the First Ever EntreLeadership Podcast after receiving many requests for it. The goal was to create an additional way of teaching the EntreLeadership principles. The day we started, it went straight to the No. 1 spot for Business Podcast downloads and was the No. 2 Overall Podcast download.
Now that the podcast has debuted, we want to hear from its listeners. I will answer some of the questions via the podcast, as well as through my blog. One of the first questions we received at [email protected] was:
I own a small financial coaching business on the side and average about $2,000 worth of sales each month. I do not have any employees at this time, and I am unsure what to do with the income in regards to profit. Is there a formula I should use to allocate those remaining dollars after operating expenses for things like advertising, retained earnings, paying myself, etc.?
That’s a fantastic question that so many people ask. Here are a few steps you can take:
- Take it home! – Now, when I say, “Take it home,” consider whether you actually need the money at home. If so, take what’s necessary for a living wage (how much you need to live on). If you don’t need the money, you still probably should take home something small so you emotionally feel like you’re winning. Otherwise, look at all the places inside your business where you can grow.
- Piggybank it! – You need to be saving money and building up retained earnings that equal 50% of your annual expenses. That number should be whatever it would cost you to keep your doors open for six months if you didn’t obtain any new business. It’s not overhead and the expenses of your current orders. If you don’t have any new work, you don’t have to pay those expenses.
- Grow it baby! – Where do you need to spend money to grow your business? Most likely marketing, possibly advertising, or, even better, sales people! Can you invest into team members who bring money in the doors? If they’re commissioned sales people, it doesn’t take much from you to get them going.
- Look out! – Or better yet, look ahead. If you’re good on the previous three options, start looking at a percentage of your income to put into an HR fund. This amount could be for profit-sharing, Christmas parties, special outings, helping team members with needs, etc. Obviously, it’s not needed if you don’t have a staff. But as you grow a team, you should take care of them.
Percentages are really based on your needs at the time, as well as what you’re willing to share. You make the decisions, just always be thinking about your team.
Questions: How have you used profits in your business or what questions do you need answered?