I had the pleasure of interviewing business leverage expert and solopreneur CEO Tina Forsyth about the enigma of being profitable when you operate a business that generates $100K or more in revenue. I invited her to be my guest because I heard her speak passionately about this topic on her Women on Top telesummit.
First, I asked Tina why there is so much focus on revenue generation in the service-based solopreneurship / small business arena and virtually none on profits. She replied that "revenue is sexier than profit" and that it is much easier to talk about and calculate the sales that a business generates. She said that it is essential to focus on revenue generation in the early stages of business. But despite the importance of profit, it is her belief that many people don't focus on it because they are not sure of what it is or why it matters.
The old cliché "It takes money to make money" becomes evident when a business reaches the 6-figure mark and the business owner begins paying a team, paying for systems, etc. Unless the owner is purposeful about "matching" income and expenses, she may find that there is nothing to take out of the business at the end of the day.
Tina said that she hears more and more stories about 6-figure and 7-figure businesses that generate little to no profit and has seen this among clients and colleagues as well. While she has no statistics to indicate the number of businesses in this predicament, she believes that it is startlingly common for the owners of high-revenue businesses not to pay themselves or to pay themselves relatively little. She says this is because these solopreneurs are not paying attention to things like expenses and cash flow, and the reason may be that they are afraid of or uninterested in looking at these aspects of their business.
Tina emphasized her belief that for solopreneur businesses, profit speaks to the ability of the business owner to pay herself from her earnings. If the solopreneur or small business owner is unable to pay herself from her business, then there really is no point in having one!
I asked Tina about her conviction that solopreneurs should build profit into their businesses. She said that it is easy for a solopreneur to set a financial goal, but that the goal is often "pulled out of thin air" or based on "what everyone else is doing." Even when the goal is based on what the business owner actually wants - a new home, the ability to travel, etc. - it is often not realistic and not high enough if the business owner is not being purposeful about what it costs to run her business:
When you are in the earlier phases of a solo business, it is often not that expensive to run. But once you approach the 6-figure mark, expenses increase if you want your business to continue to grow. You need to pay for a team, for your own coaching or mentoring, for travel, etc. in addition to the amount that you want to earn each month. All of these things need to be built into the financial goal for the business. They also need to be considered when you set the prices for the products and services you deliver so that the income that you generate covers them.
Tina also pointed out a nuance that solopreneurs should recognize and prepare for as they grow their businesses - the money earned in a young business generally "goes straight to the owner" whereas the money in a larger business "is the business' money first and flows to the business owner second."
Depending on the type of business you are running and your particular tax situation, Tina advises that you weigh the pros and cons of paying yourself from your profits versus paying yourself a salary and bonuses before profits. Whatever you determine is best for you, she believes that the most important thing is for you to pay yourself first!
I asked Tina about her "productivity evolution" and how the changes in her productivity over the lifespan of her business have impacted her ability to make a profit. She responded that in the early phases of her business, she did everything herself and found that to work perfectly fine. She was an online business manager working directly with her clients and there was not a lot of additional "stuff" that needed to be done in her business. At that stage, her productivity focused on how to best serve her clients.
About 4.5 years ago, she shifted her business model from working one-on-one to a training-based business model. She hit the six-figure range of income generation during the first year of that transition and describes this as the time when her business became "bigger than her." It was then that she hired her own online business manager and had to learn a different way of working - namely, giving up control of everything and making deliberate decisions about what she would no longer do in her business.
Tina expressed her conviction that the "DIY" movement is quite damaging for those who embrace it when they are trying to grow a business. It can work when a business is young and small, but there will come a time when the business hits a "bursting point" and can grow no further until and unless the business owner begins to distinguish between tasks that require her time and energy and those that need to be delegated to someone else. As a "recovering control freak," she recognizes that relinquishing control over things can be hard to do. But she fervently believes that it is necessary if you want your business to grow, particularly if you want to earn six figures or more in revenue.
In concluding the interview, I asked Tina to leave the audience with three things that need to be done by any solopreneur or small business owner that wants a profitable business. Her response was:
- Build your profit into your rates.
- Create a "yes list" of what you should be doing in your business and delegate everything else.
- Pay yourself first!
To receive Tina's Systems Toolkit and Checklist - click here.
To receive Monique's "First Step to Profits through Productivity" Worksheet - click here.