What is your persona sign for success in your business?

This is a tale of two businesses: and why I wouldn’t compare your business to another and why you shouldn’t either.

 

There is a trend I’ve noticed lately from business owners speaking up about how much they’re making. In terms of ‘number of figures’.

 

 

Like ‘I’m a 6-figure business!

or ‘grow a 7 figure business like me in 7 days!’

 

And I’ve realised that as it may be intended as a motivator for other businesses to grow, it actually doesn’t tell me anything about the health of that business.

 

So I’m here to bust that myth the number of figures your business matters!

 

You can still have your business serve you and help you live the life you want to live, no matter the number of figures you’re at.

 

 

++ Let’s first clarify what they’re saying

 

There are many different ‘figures’ in business, there is sales revenue also known as turnover, there is profit and there’s even profit after tax and profit before tax. So what ‘figures’ are we really talking about here?

 

People are usually referring to turnover and this means the dollar value of what has been SOLD. And in some cases, it is actually the dollar value of what has been sold since the business began. This could be 5 years in, or 20 years in.

 

It also could be that they are referring to their sales volume in just one year.

Who knows unless they have mentioned the time frame!

 

++ Why do I think that sales revenue is not the only indicator of success?

 

Sales volume is only one part of an equation that shows how well a business is doing. But for me- ultimately how much the business owner gets to take home to live off and what is the profit of the business also with matters.

 

So I have written a short tale of two businesses to demonstrate this for you.

(Please note: these are fictitious and simplified businesses for illustrative purposes only.)

 

 

Business One- our ‘6 figure’ business

 

The business owner of Business One is a sole trader, an energetic go-getter who has produced an awesome product that sells all over the world. Busily producing, packing and shipping this product everywhere you can imagine. Their figures are below for you to see how well they are doing.

 


BUSINESS ONE FINANCIALS:

Sales Revenue- $180,000

Expenses- $110,000

Profit before tax $70,000*

Profit margin before tax 39%

Owner withdrawn as wages $60,000

Remaining cash $10,000

 

*owner will still need to pay tax on the profit, irrelevant of the remaining cash. Tax calculations not included because there are many varying factors to work out tax payable.


 

 

Business Two- NOT a ‘6-figure’ business

 

This is business is a little more low key, they’ve only been running for a few years and work more as a service based business instead of the product based business above. The owner plans out the week in chunks of time for appointments and sets aside a little time for business ‘housekeeping’. They have kept expenses to a minimum, don’t have employees and don’t buy a lot of product in. They work from a room in their house and have minimal equipment.

 


BUSINESS TWO:

Sales Revenue- $90,000

Expenses- $20,000

Profit before tax $70,000*

Profit margin before tax 78%

Owner withdrawn as wages $60,000

Remaining cash $10,000

 

*owner will still need to pay tax on the profit, irrelevant of the remaining cash. Tax calculations not included because there are many varying factors to work out tax payable.


 

++ What’s going on here?

 

Business One has double the turnover as Business Two ($180k vs $90k).

 

They both have the same profit before tax and the owners withdrew the same amount as ‘wages’.

 

Business One is a ‘6-figure’ business, Business Two isn’t.

 

Business One has a profit margin of 39% and Business Two has a profit margin of 78%.

 

 

The two businesses are very different.

If you just looked at turnover you may think Business One is doing better? But their final results show they are pretty similar in the dollar value of profit, but their profit margins vary and so do they daily activities.

 

This example also extrapolates to ‘7-figure’ businesses and beyond. I see it all the time.

 

Don’t stuck on how many ‘figures’ your business is. Find other factors or indicators that tell you how ‘healthy’ your business is.

 

Ask yourself what matters in your business? In many cases is cash flow and profitability trump sales revenue.

 

And don’t forget non-monetary figures that matter you, like flexibility, freedom of work, autonomy or making a difference!

 

 

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