Q: Hi Lozelle, I’m in the planning stages of opening a professional services business in Newberg, Oregon. I’m not sure how I figure out an income goal for the year--or how to reach it. I know that this is Business 101, but I’m really stuck. Where do you suggest that I start?
A: What fantastic and brave question to ask. Thank you for your honesty and know that you are far from the only person who gets stuck here. I’m loving that you’re thinking about building a business budget in the planning phase of your business, which shows you’re less lost than you think.
We live in an age of online gurus telling us at every turn how simple it is to make six or seven figures. I’m here to tell you that if you’re looking for easy, then business ownership is not for you. That said, having a good grasp of your numbers will help you immensely.
It’s not glamorous, but you need to create a budget. There is a difference between setting a target and creating a plan to achieve it.
You're in luck, my friend: Here are three steps to get you there.
1. Track your expenses.
Even if you have not yet launched your business, you know that there are costs you will need to incur to get your doors open and keep them that way. For a startup, these may include:
Equipment (computers, printers, desks, phones, etc.)
Domain name and hosting services
Enter the exact expense of each item. If there are expenses you know that are forthcoming but are not yet aware of what they are, do a bit of research, then make your best guess.
Your gross income is just like the total year-to-date numbers you see on paystubs--it’s all of the money that you have earned. But no one gets that full number. It’s the same in your business. All of the expenses you’ve outlined have to be paid, which means that they come out of the total earnings of your business. That amount is your net income.
2. Consider your pricing.
When offering a service, however, then your income goals will help inform how you reach your hourly rate. That will be the underpinning of how you calculate your packages.
There are some great calculators out there to help you. The advice you may have heard that you simply divide your desired income by the number of hours you’ll work in the year is oversimplified. It doesn’t take into account the cost of doing business.
Figure out the amount you need to earn to break even, and then create the amount that you’d like to clear beyond that number and you have created your goal. Factors to consider here consider your salary, health insurance, savings, and any other living costs you need to cover. Only you can pinpoint the exact number that’s right for you and your business.
3. Create a plan.
We should have goals in our lives. It gives us something to work towards. But simply stating it is not enough.
You have to have a plan to meet those goals.
How much time will you invest in marketing your business? Keep in mind that as a new business owner, you will need to do a lot of the legwork in getting your company in front of people. Consider the business organizations you may wish to join and the networking events you want to attend. Think about what makes you different from your competition and how you can capitalize on that contrast. What about your sales funnel and customer retention strategies?
Creating your income goals and strategic objectives are a lot like creating a map for your future. The ability to build the path that will get you from here to there is an empowering feeling. Paying careful attention to your expenses will you figure out how to maximize your gains will help get you there.
I’m excited about your business and your financial future. Best of luck to you!