Well-meaning and excited people tend to go into Entrepreneurship for more “freedom” and money. In my experience, they don’t get freedom or money for several years into their business launch.
That likely explains why 75% of small business close their doors within their first 5 years of operation.
I wish they had taken the time to calculate their “freedom and money” number BEFORE they opened for business.
Your freedom number is the amount of income your business needs to generate for you to fully satisfy your living expenses. Once you achieve this amount of income, you now have an “employer” that is giving you a pay-check.
Once you have achieved Phase 1: The Pay-check Phase - you can move on to Phase 2: the PROFIT NINJA Phase. More on that in our next email.
First, let’s calculate your PAY-CHECK NUMBER.
Calculating your PAY-CHECK number is easy. It is the average amount you spend on a monthly basis. If you are organized, this will take as little as 10 minutes. If not, you may need to spend a couple of hours pulling together records of your various spending outlets. Either way, the time invested here is well worth it. Here are the steps to calculate:
Figure out how much you spend on a monthly basis. Look back at all of your spending mediums for the last 12 months—including bank statements, credit card statements, debt payments, charity donations, etc.—and try to remember any cash transactions as well. Note: This is why I try to never use cash. It is untraceable!
Put them all into a single spreadsheet. Aggregate all of the transactions you have made in the last 12 months into a single Excel spreadsheet.
Divide by 12. Take the sum of all of the transactions you have made in the past 12 months and divide it by 12. Assuming no drastic life changes, this is your average monthly spending, otherwise known as your freedom number. Once your passive income surpasses this amount, you are free!
Let me give you an example. Let’s assume Jane Smith looks back at all of her transactions over the past year and determines that she spends approximately $5,000 each month. Once her business generates $5,000 per month, she has a “pay-check”.
Not all business owners care to go to Phase 2. Some, if not most, are perfectly happy with getting a pay-check. In Phase 1, profit is not prioritized. It may be dreamed of, but it generally is NOT prioritized. Many small business owners are content to replace their “corporate” employer for a small business that employs them.
But Phase 2 is where the real money lies. When I coach a start-up business I ask them if they have considered a profit target. Generally the answer is “no”. So I suggest the following PROFIT NINJA BELT CHALLENGE:
White Belt: First $1,000 in profit
Green Belt: First $1,000 profit month
Brown Belt: First $10,000 profit year
Black Belt: First $10,000 profit month
Where are you in your business? Are you still trying to get to a steady “pay-check”? Or are you making some profit and want to become a Profit Ninja?
I offer a free strategy session designed to get you this answer and determine your next profit-generating steps.
It's free. That’s a profitable one-hour of your time!