Do you have something that you are super passionate about and want to build a business around it? If you want to take your passion from a hobby to a business, you need a plan. But to be strategic you need to know your numbers. If you want to be profitable, it's time to stop winging it! Knowing your numbers is about understanding the things that are going on financially in your business and being able to measure, monitor, and ultimately impact them.
In episode 94 we explore this topic as the third installment of the From Passion to Profits series. We dig into why it's important to have a plan and what you need to do to implement one.
For more info, see complete show notes: https://www.getthebalanceright.net/blog/episode94
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Heather Zeitzwolfe: “Do you have something that you are super passionate about? And do you want to build a business around it? Maybe you've been thinking about this for a while. You just love what you do and you want to turn it not only into a side hustle, but you want to make it your full-fledged business.
Or maybe you've been following your passion, you started a business, and you find yourself just kind of winging it from month to month. You don't really know where clients are coming from. You don't know how much money you're going to make. You are afraid to spend money because you just don't know when the next client is coming and when the next payment is around the corner.
And it's really, really stressful. Well, starting a business based on your passion - wow, that’s a great idea. But without a plan, you really don't know if it's going to work or not. And the whole method of flying by the seat of your pants. Well, that's only going to take you so far.
For this episode we're going to dig into why it's important to have a plan. And what you need to do to implement one.
Hello, and welcome to Get the Balance Right podcast. I am your host, Heather Zeitzwolfe!
We are in this new series called From Passion to Profits. And I'm interviewing a bunch of really awesome ladies for this series. But today I'm just going to talk with you because I want to make sure that, if you are following your passion and you want to make money from that passion, that you are on a path for success.
Let's just kind of look at the big picture. So big corporations: they get into business to make money. They are expected to make money. That's what their shareholders expect, they have to give them dividends. And so they're always focused on ways to increase profits. That might mean: tightening up margins, firing people, cutting corners, doing horrible things to the environment, whatever they need to do to make sure that their bottom line is secure and shines for their investors.
Now, you're in a different situation. You’re a small business owner, or maybe you haven't even started your business, and you want to do it based around passion. Profits are probably something that you're not really even thinking about. Or maybe you're thinking, ‘Well, further down the line when I actually start making money’.
Well, here's the thing, though - if you decide to take this passion project and move it from hobby to a business, that key word in there is business and you have to treat it like a business. And part of treating it like a business is to earn a profit. Yeah, you might think like, ‘Okay, that sounds kind of icky and gross. That sounds like one of those big evil corporations and Heather you're using words that seem like mumbo-jumbo, I don't even know what you're talking about’.
All right, well, we're going to break it down so that way, even if you've never studied business, but you want to be a business, you can understand what's ahead for you.
If you want to take that hobby that feeds your soul, that’s not really feeding your bank account, but you want to make it your main source of revenue, well, then we've got to make a plan.
So here's the reality check: you need to be able to pay your bills. Now I know that you know, that deep down inside, you know that. But when we're thinking about, ‘Oh, I want to sell this or that I want to make this or that’, oftentimes creatives that I work with, they're not really thinking about how many of these things they need to sell to make the income that they need to pay their mortgage, to pay for their kid's college or to put food on the table. All the things that we have to spend money on, gas in the car, whatever it is.
You got to think about all these things. So that passion that you want to build a business around: we got to make sure that you could even make money from it.
So there are a lot of things to look at. Flying by the seat of your pants is not really the way to do it.
And if you are flying by the seat of your pants, chances are that you are going to go out of business in the next couple of years. High percentage of business do go out of business within a year to two years. So that's the grim reality of it. And the other part of crashing and burning is that people go into debt.
Or worse, they go bankrupt. And I don't want that to happen to you. I want you to be able to follow your passion and make money from it. But it has to be a viable business. And part of that is treating it like a business. And one of the key factors of treating it like a business is to know your numbers.
If you've listened to this podcast before, you've probably heard me say that you need to know your numbers. What does that mean? Know your numbers? Knowing your numbers can mean a variety of things, understanding the things that are going on financially in your business and having a good handle on them.
Now I know this can be really super scary to people. They don't even want to think about it. They put their head down and they're like, ‘Oh God, don't ask me about that’. I know, I get it, it’s stressful. People don't like to talk about it. But I really want to come at this with a shame-free approach where we can talk about the money in your business.
Now, you don't have to share this with other people. You can share it with a coach, an accountability partner, your partner in life, a friend. But you need to talk about it. You want to get out of your head because this stuff is like, it's complicated and it's always great to have somebody to bounce ideas off of and just hold you accountable. I don't want you to do this alone. This is something that you need someone to help you with.
If you have a bookkeeper and accountant, a CPA, they can help you as well. And of course I can help you with this too. So knowing your numbers, not only the financial numbers but all the other things that impact the finances of your business.
There are so many things in the business to measure. But we're just going to keep it simple for today's discussion about building a business around your passion.
And I'm not going to be talking about marketing dollars or any of that. I'm just talking about your core offering, whatever you're making, whether it's jewelry, painting, you’re a photographer, you’re a videographer. It’s some sort of service, whatever it is that you're offering, you want to make sure that the price is not only fair market value, (which means it's like what your competitors are offering), but you're able to get enough money from that offer, based on its price, to actually cover all the expenses needed for that offer.
So if you need to purchase software, rent some equipment, rent a studio, whatever it is that you need to produce this offer, you need to factor in all the expenses. Not only all the expenses, but also time. Time is money, right?
And if you need to hire a contractor, that's another thing. When we look at pricing, we want to make sure that it covers all the expenses, the time, energy. And also that you're getting enough money to compensate you, for all of the education and background that you have.
When I'm talking about knowing your numbers, you need to be able to understand pricing, selling, marketing, expenses, loans. So, I mean debts, when I talk about that, buying equipment for your business, hiring help and contractors, knowing how much you can pay yourself, what the taxes are that you need to send in.
Oh, my God, all these things, right? It's just like, oh my God, there's so many numbers to know. Yeah, there is a lot. The sooner you get a handle on at least some of these numbers, the easier it's going to be. Here's what can happen if you don't know your numbers:
You won't know if you have enough money to pay yourself.
I have worked with so many entrepreneurs that have been afraid to take money out of their business because they had no idea if they had made enough money to pay themselves or where the next sale was going to come from. They just didn't have their head around their cashflow. So when I say cashflow, what I mean is: the money coming in and the money going out. They didn't have any revenue that was predictable. They were just every day flying by the seat of their pants.
Knowing your numbers is one. You want to be able to know how to pay yourself. You want to get profit from your business. That is so important.
Then the next one is something that we don't want to even think about. And that is: ugh paying taxes! Oh, yeah, I know. It's the grim reality that we all need to pay our taxes. Knowing your numbers allows you to be able to know if you're going to owe tax.
How much you're going to owe to tax, how much you should send in for estimated tax payments. I know, estimated tax payments, that’s another area where people are so confused. They’re like, ‘I don't know how much I'm supposed to send in'. Okay. Well, if you start to plan, then you will be able to figure that out and know those numbers. And so you can actually send in estimated tax payments that are real numbers based on fact and circumstances that you can predict and plan for.
Another thing that can happen is if you don't know your numbers is that you can overspend. Oh my God - overspend.
And then again, not have enough money left over for profit. And that profit is the money that you keep yourself, that you pay yourself. You want to be able to do that.
When entrepreneurs come to me and they haven't been tracking their expenses and their revenue. Many entrepreneurs kind of like look at their bank balances every once in a while. Flying by the seat of their pants means that they don't know if they can afford certain things. So they end up spending way too much money in their business and thinking, ‘Oh, I had a great month, I've got the money to cover for it’ not really thinking about what the ramifications would be next month when their sales dried up because they didn't have anything in place. No plan, no way to know what was ahead, no way to gauge things, no way to forecast. That's a grim reality that comes crashing down, that you've spent all the money that you needed for the next month in the current month.
Another thing about not knowing your numbers is that you never know if you've got the money to get help in your business. Oh my God, as entrepreneurs, we work so hard in our businesses, but we can get help. But not knowing when you can afford the right person, that can bog you down and waste time, energy, all those things. And if you only knew, ‘Yeah, I can actually afford somebody’ then you could go ahead and get that contractor you wanted and be able to get stuff off your plate.
Oh my God, if you don't know your numbers, you are probably wasting a lot of time doing things that give you a low return on investment. You could be wasting time going after the types of sales that are not even going to be very lucrative in your business. You could be spinning your wheels, trying to sell some course or something else that the profit margin on that is really, really low.
And when I say profit margin, I mean, the cost of producing it, putting it together, all the hours you put into it, all the costs, and then what you're going to sell it for. The difference between the cost of producing something and the sales price, that is called the profit margin. The higher, the profit margin, the more money you make from it. The lower, the profit margin, the less money that you make from it. Really look at what your offerings are, and you may want to tweak these so that you have a better profit margin.
Now this whole thing about profit margin reminds me of when I was a kid. I learned about profit margin without even knowing that that's what it was called. I really wanted to collect Smurf dolls. This was back in. Um, I want to say it was probably maybe 1980. 81, maybe I think it was like 1980. And Smurfs. I think it was actually before Smurfs was a cartoon.
And The Smurf dolls, were really, , really tiny and very expensive. I can't remember how much they were, but they weren't like a few dollars maybe up to $5 for each little Smurf. of course that was something that my parents were not going to give me money to buy Smurf dolls. Like, they were like, uh,
No, we're not buying those things. if I wanted Smurf dolls, I had to make the money myself. So I was a little bit too young to really be doing much babysitting. So I had to come up with some other ideas of how I was going to make money. My mom was very artsy, crafty, and I had learned how to take soap and decorate soap, and then you dip it in hot wax and then it seals the top with this decoration on there.
And I've thought, okay, I'm going to make some of these and sell them around the neighborhood. You know, my mom had a few bars of soap in the house and she's like, wait, wait, what are you doing with my bars of soap? And I'm like, well, I was going to decorate them and sell them. And she was like, uh, no, those are ours. And if you want to do that, you're going to have to buy your own soap. there was either a loan or an investment that was involved
I can't remember if I borrowed the money from her first or went into my piggy bank. Chances are I had money in my piggy bank to buy the soap. . I went to the store and looked at the soap and I noticed if I just bought bars, one at a time.
It was far more expensive to buy them that way then in a, big package of them. I don't remember. I think they came maybe in a pack of 12, but it was definitely less expensive to buy the pack of 12 than it was individual bars of soap. And they were like the ivory bar soap. So it was just a plain.
Rectangular, bar of. then I needed to get the hot wax. So the idea was I would cut out things from birthday cards old. Anniversary cards or whatever kind of cards that had a pretty picture, like a flower or something like that. I glue it on the bar of soap. And then I have to dip the soap into hot wax, just like partway so that it would seal the image onto the top of the piece of soap. But the rest of the bar was exposed. So you could actually use it. So it could be like a decorative bar of soap for the bathroom.
But also it was useful. , the images that was something I could get for free. in the house, I could find enough little pictures of things. Decorative napkins or magazines
But then there was the wax I had to buy. The wax came in little tiny. Pieces as well, or you could buy a big VAT of wax. , if I wanted to do many of these, the one little tiny piece of wax was not going to cut it.
It would be actually more expensive to buy a small quantity of those than it would be to buy the giant thing of wax. I had to make an investment I knew that I was purchasing far more wax than I would ever need. But it was cheaper than buying the smaller amounts. Okay. So that was an investment. I didn't realize this, but.
Putting money into something like that, that I'll never use. You can call that a sunk cost.
I made the soap did a, like a little assembly line where I cut up all the pictures, glued them onto the soap. We had glue in the house. So I didn't have to invest in that part. heated up the wax and then dipped them in there and coded them.
Had to let them dry. And then I was able to go out onto the streets and go door to door and sell these things.
So I sold each one for a dollar. Depending on how cute certain ones were. I could maybe make a little bit more money off of that, but pretty much. The price of each bar of soap stayed the same. It was usually a dollar. Now that markup is pretty good. When we think about what my profit margin was,
Well, It did take some time, but you know, I was a kid, so I'm not getting paid by the hour. So we don't have to worry about labor costs. So it was just me doing it. I walked to the store to get these things, so I didn't have to drive anywhere. There was no gas involved. I didn't have to pay my parents for taking me to the store, nothing like that. But I did have to invest money into the soap and the wax. So those were the two costs that I had.
To break even. I had to figure out how many of these bars of soap that I had. To sell. So Just to get the wax. I think the wax was probably, I'm going to guess, like $3. I don't really remember how much it was.
Then the bars of soap. So four 12 and a package. I think it was like probably around a few dollars. So everything that I made on top of that, that was my profit. I sold those out pretty quickly. And then I wanted to go buy some more. So now I already had the wax. All I had to do was just buy more bars of soap.
And I always went for the biggest pack, cause it was always the best bargain, which meant that I was going to have a higher profit margin.
I sold enough of those bars of soap. Around the neighborhood to buy Smurfs upon Smurfs upon Smurfs. was really into these Smurf dolls. so I'd have to keep a little bit more money aside so that I could invest in more soap. to buy the Smurfs. That is where I learned about profit margin.
Now thinking about your own business.
What are your profit margins? Think about that.
Do you have a way of tracking this? And if you don't, this is one of those areas where you really need to know your numbers. If I wasn't paying attention. To my profit margin. As a kid, I would have bought the expensive soap and the expensive wax, and I would have ended up with. Less Smurfs.
Now, you can't do this unless you know exactly what's going on in your business and you need to be able to measure things. So again, this is really important of why you need to know your numbers.
Another thing that can happen, if you don't know your numbers is that you invest in things that you don't know what the ROI is. So the return on investment, you might put money into buying courses or buying software or renting a space or putting on any event. All these things that you think like, ‘Oh, these things are going to really have a big, major impact on my business’.
But unless you're measuring it to know what the impact was, then you don't really know. And next time you go to do something like that, you may think like, ‘Oh yeah, that was a sensational event that all these people showed up’. But what was the goal of having them come to the event? Was it a vanity thing just to have them show up? Was it an awareness thing? Or did you want people to sign up for your program? And did they sign up for your program? You always want to be measuring the impact that something has or doesn't have in your business. So you got to know your numbers to do that.
Here's the thing, knowing your numbers is so important when you have a business. Especially when it's based on your passion. And you go into it, not even thinking about what your profit is going to be.
Here are three solutions to that:
One is you need to have a clear plan. You need to be able to put this plan together. Execute it and then tweak it. And then repeat the process. Plan, execute, tweak. Because you're going to measure what the results are and then go back and tweak it again.
The other thing you need is to create clear revenue goals. And these revenue goals, they have to be obtainable. You can't be like, ‘Oh, I'm going to make seven figures in my business this year’. And if you've never made six figures before, how are you going to do that? You not only have to have a clear plan, but make your goals realistic. Make sure that you can actually obtain these goals.
Now, I don't want you to set the bar low for yourself. I want you to aim high. But just be realistic because if you don't meet the goals that you have you're going to be really disappointed and I don't want you to be disappointed. I want you to be able to reach realistic goals.
But make sure that these goals not only are obtainable but they're realistic as far as like, can you stay in business? If you reach those goals, are those goals enough or do you need to go higher? So make sure that not only are they obtainable, but they actually reflect what your plan is and how you're going to implement them.
Then you want to have accountability and guidance. You don't want to do this alone. Being an entrepreneur, it’s not only a lonely road, but also you want to get support in your business. You want to make sure that there are people out there not only cheering you on, but also motivating you.
Just like if you were to go to the gym, you might have a gym buddy that's cool and all, and they'll motivate you as well. And, be like, ‘Yeah, let's go work out together’, but then there might be that day where both of you are like, ‘Eh, let's just go get some ice cream’ and you both do that.
But if you also had a coach you are working with, that coach would be like, ‘No no. Nah, you're not doing that. You're coming into the gym today and we're working out’.
So it's always good not only to have an accountability partner, but also to have someone that is over you kind of laying down the law and making sure that you're following the plan.
So knowing your numbers, you want to be able to create a strategy for achieving the sales that you need and cover the expenses that you need to compensate you and earn a profit.
If you are ready to take your passion and start making it into a profitable business, I encourage you to enroll in my new group coaching program. It's called From Passion to Profits and it's a roadmap that will help you go from passionate ideas into profitable businesses.
I'm so excited about this group program!
If you have any questions about the program, please set up a discovery call with me. I hope that I see you in the group. The link is in the show notes and you can set up a discovery call with me, or you can enroll into the program at: getthebalanceright.net/group-coaching.
Depending on when you're listening to this, if it's in the future, you can get on the waitlist for the next one.
And next week we'll be hearing from another one of our exciting guests talking about how she took her passion and turned it around into a business that is thriving today!
All right my creative entrepreneurs, I will see you on the flippity flip side!