So When Exactly Should My Business Be Profitable?
Profitability. It’s a question I get all the time.
How much money should I actually be keeping at the end of the year? At what point in my business do I profit?
I feel like this is such a source of stress for so many of you because there is a lot of misunderstanding about how much money you should be keeping. Many of you feel like a failure if you end the year with a loss or just breaking even.
But there is no shame in this situation – especially in years one through three.
Let me explain.
First, of all, let me define profit. Profit is your revenue minus your expenses. So it is the money you are bringing in minus the money that you are putting out.
I define the breakeven point as when your business brings in enough money to pay for all of your business expenses plus your personal expenses (break even can be defined in multiple ways, but this is my definition).
Your first goal in any business is to get to the breakeven point.
Then your next goal is to surpass the breakeven so that you can create profit.
Now here’s the thing – every business is going to have a different amount of expenses. In some cases, your expenses could be lower. For example, if you decide you are going to move back in with your parents – then you’ll definitely save some expenses.
In other cases, your expenses could be higher. For example, if you hired a coach in your first year or built your team up quickly – most of your money would be going towards the business.
I personally advocate that most of your money should go into building the business in the first couple of years. I know that re-investing some of my profit into coaching, opportunities and team members has allowed me double or triple my revenue every single year.
So when should you profit? And how much should you profit?
According to Entrepreneur Magazine – it takes most businesses between 3-5 years to draw a profit. That gives you a sense of timing.
Now look, if you are profitable in year one – than I am celebrating with and for you.
But if it takes you a couple of years to re-invest in your business so that in years 3+ you end up making more profit than you ever thought possible – then that’s OK too.
I’m not making judgments on what is right or wrong or even telling you what you should be doing. But I am giving you some perspective on what, for many of you, is a huge source of shame and fear.
I know for me it took about 3 years to really begin drawing a profit from my first business, Ideal Balance. My clients usually start drawing a sizable profit somewhere between years 1-3 and do it much easier and faster than I did.
I had to have another source of income in order to keep the business going in year one. For me it was taking a consulting job at Nickelodeon that allowed me to work on my business and keep making money.
This is true for many of you as well – you might need a business loan of some sort. This is especially true if you are the primary breadwinner or live on your own.
And just so you know this is true of all major companies. Most companies either get a bank loan or some sort of investment to help them keep re-investing and growing.
For entrepreneurs it is usually – a day job, family money, low interest credit cards, loans from friends or family, sub-contractor work or some other income source.
One of my clients worked as a server for a catering company in her first year. Another kept her day job and then just phased it out – going part time and then doing one day a week. Another had great credit and used three low interest credit cards and then paid them back within 12 months. Yet another got a loan from her husband.
I know now that if I hadn’t kept investing in myself and in my business, I would not be creating the amount of profit I do today.
So be patient with yourself and your own decisions. Know that businesses aren’t grown overnight and that profit will come as long as you get the support, guidance and team to help you sustain a growing business.
