Welcome to the 2nd post in the blog series: An Entrepreneur’s Guide to Creating a Financial Plan for 2020.
If you missed the first post in this series, 2019 Financial Review: Knowing Where You Really Are, you can check that out here. In that post, I take you through recapping your 2019 financials.
Once you’ve done that, it’s time to start setting some goals for 2020. I’m going to walk you through setting goals for your salary, profit, expenses, investments, and how much revenue you’d have to earn to cover it all.
A quick side note before diving in – if you’re just not a numbers person, if this is feeling overwhelming, or if you’d rather have someone do this for you, you can outsource this! Book a 90-minute strategy session with me here.
How much you pay yourself: Your salary
The question to answer here is: How much do you want to pay yourself this year?
This can come out of the business as a salary. It can also be a combination of salary and profit. What’s the difference?
Salary is essentially the amount you’re paying yourself every month in a fixed amount. Profit distributions are money you take out of the business above and beyond that amount, and you can take those at any time.
You don’t have to figure out your mix between salary and profit just yet. Start by figuring out how much money you want to take out of your business this year.
You can figure this out by thinking of your personal goals.
Living expenses: how much you need to fund your lifestyle
Savings goals: how much you want to be saving into your savings and investment accounts
Sit down and put some numbers to these things, and however much money you’ll need to cover your expenses and savings, that’s your goal for taking money out of the business.
Money you spend and invest in the business: Your expenses and investments.
In 2019 Financial Review, you looked at your profit loss statement and saw how much you spent on your business last year.
Will your fixed expenses stay the same this year? Increase? Decrease?
Maybe you want to get rid of some software but you’re going to replace it with a new one. Maybe it’s getting rid of a team member or adding new ones.
How about your variable expenses? The money you spend producing and selling your products and services.
Do you plan to launch the same way? Will your team of contractors stay the same? Are you still looking to spend the same amount on ads or launch with an affiliate strategy?
How about investments you want to make?
Looking to buy a course, go to a conference, or hire a coach? What do you want to invest in this year?
You can map out all your different expenses and investments for the year, and break it down month by month, so that you know the timing of when these expenses will occur. This will help you better manage your cash flow each month.
This is essentially creating a budget for your business for the year. It’s about getting intentional about where your money is going and the purpose it’s serving.
Your profit aka revenue – expenses.
You can do a few things with your profit.
You can pay yourself more money above and beyond your salary. Maybe you want to take an extra vacation or put some money aside for a down payment.
You can reinvest back into the business. Maybe you want to finally hire that coach.
You can also keep the money in the business and build up your cash reserves. Maybe you want a few months of a cushion to feel more secure during a slow time.
How much you have to earn to make it all work: revenue goal
Once you know how much you want to take out of the business for personal goals, and how much you want to spend and invest back into the business, you can create your revenue goal.
Add up those two numbers, add in taxes (25-30% is generally a safe estimate but always consult your accountant for specific advice).
You can also add in any additional profit you want to make. Although that may be included as money you want to flow out of your business or spend or invest in the business.
BAM! You have a revenue goal for 2020.
How’s that number feel to you?
This can be the year you create a strategic vision for your finances! I would love to help you get it all worked out in a 90-minute strategy session. You can go from avoiding and feeling frazzled to feeling empowered and excited, all while talking to a supportive girlfriend who has got your back.
Here’s the link to go back to Part 1: 2019 Financial Review: Knowing Where You Really Are. In this post, you’ll learn how to review and recap 2019.