Hey Reader,
When I first started sharing HARMONY with you, I referenced the question ""Does the business I'm building actually fit into the life I want to live?" a bunch.
Since then, we've discussed Happiness, Alignment, Revenue, Metrics, and Optimization.
The N in HARMONY is for Numbers.
If you just thought, "didn't we talk numbers with Metrics?" I get it. That involved numbers, but today we're talking about different numbers.
Metrics helped us lay out goals for what we need to do in order to live the life we want. Numbers tells us whether we understand the financial reality of our current business and the business we're building.
When I talk about numbers, I'm talking about things like revenue, expenses, profit margin, etc. More importantly, I am asking the question "Do I understand what's happening with my money?"
*Note: I'm sharing the 3 questions I ask every day at the end of this email, so be sure to read all the way through.
The reality is, you won't know when you've hit your ENOUGH NUMBERS (Enough to Survive, Enough to Sustain, Enough for HARMONY) if you don't understand what all the numbers in your business mean.
Let's say your business generated $50,000 last year.
That's awesome...maybe.
How much of that $50,000 did YOU get to keep?
How much did it cost you to generate that $50,000?
How much went to software, your website, travel expenses, ads, transaction fees, subscriptions, or your VA?
Most importantly, how much was left?
$50k in revenue with $10k in expenses is very different than $50k in revenue with $45k in expenses.
Same revenue...very different life.
>>Continued after this note from our friends at Morning Brew<<
This is why I separated Numbers from Metrics and Revenue.
When we talked about Revenue, I asked you to figure out your Enough Numbers. But those numbers don't mean a whole lot if we don't understand what money is coming in, when it is coming in, where it is coming from, and where it goes, when it goes, and why it goes.
Revenue is not profit. And good revenue does not always mean good payouts for you.
We have expenses, taxes, money we want to reinvest into the business, money we want to keep as reserves for cashflow gaps. We might need to pay employees or contractors or professional service providers like lawyers and accountants.
All of these things will look different for every business, but you need to know how they look for yours.
So, how does this connect to HARMONY?
Knowing your Numbers allows you to make better decisions about your life.
Let's say you've decided that the life you want is going to require you to take $80k per year from the business. How much revenue does your business need to generate for that to happen? $90k? $100k? $150k?
I have no idea. And neither do you...unless you understand your Numbers.
Two businesses generating the exact same amount of revenue can create very, very different lives for their owners.
I want to be clear that I am not saying you need to become an accountant. I am certainly not.
I'm also not suggesting your Friday nights should be spent reading and re-reading your P&L statements.
I'm not even saying you need to know and understand all the traditional accounting terminology.
All I am asking you to do is to look at your numbers and make sure you understand them.
Here are the very basics I want you to start with.
If you do not already know these numbers, take some time this week and figure them out for your business.
Revenue
- How much has your business generated this year?
- How much are you projecting it will have generated by the end of the year?
Expenses
- Do you track your expenses? If so, great. If not, start doing that ASAP.
- How much has your business spent this year, and on what?
- How much are you projecting it will spend by the end of the year?
Profit or Loss
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Revenue - Expenses = Profit or Loss
- *In most businesses where revenue and expenses are recognized on a consistent accounting basis. So if your structure is different, this may be a less simple calculation. I always recommend working with a professional accountant.
- What is your profit or loss so far this year?
- What is your projected profit or loss?
How are you paying yourself?
- Taking all or a percentage of profits? Drawing guaranteed payments from future profits? W2?
- How much have you made this year?
- How much are you projected to make by the end of the year?
- How does your pay impact your expenses and profit? (Depending on how you're paying yourself)
Cash Flow & Cash Gaps
- How much cash do you have on hand? (meaning, in your business's bank accounts)
- How long would that cash last if you did not make any more sales? (I call this our Cashflow Runway)
- What money is coming in (Revenue), and what is going out (Expenses), over the next 30-90 days?
We can go deeper into all of those numbers, but we'll save that for another time. For now, I just want you thinking about and looking at these numbers. And if you are not yet tracking these, that is okay. Today is a great day to start!
Once you have these essential numbers laid out and are tracking and projecting them, you'll be able to answer the 3 questions I ask myself every day, and those are:
- How much money is coming in? (When and from Where?)
- How much money is going out? (To Where and When?)
- When do we run out of cash?
Knowing our Numbers allows us to know the true health of our business, so we can keep it alive and keep building it to where it needs to be in order to give us the life we want.
Next week, we'll wrap up HARMONY with the Y: Yearly. Because the reality is, no matter how well we do working through all of this, it's likely your answers will change. That's expected, okay, and part of the process.
I hope this helps.
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~ Jeff
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I appreciate you.
Jeff Gargas
COO / Co-Founder, Teach Better Team
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P.S. When you're ready, here's how I can help:
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