Friday, June 15, 2012

Life Beyond the Profit & Loss Statement – Do You Know Your Lifestyle Ratios?


Each month, you may anxiously await the reports that provide the numbers that help you manage your business.  Revenue, net income, total expenses, and payroll costs are just a few of the items that you may be monitoring on your profit and loss statement.  Those numbers will help you meet and improve your business goals, but the question is, what numbers are you using to determine if you are meeting your life goals?   

It might be fun to come up with a few lifestyle ratios to help you measure and move toward your personal goals.  Here are a few for your consideration:
Passive vs. Active Income

If you’d like to work less as time goes by, then you’ll want to create your passive vs. active income ratio.  Make a list of all of your sources of income (not just business) in a spreadsheet.  You might have interest income, rental income, and investment income along with your business income or salary.

Then write down how many hours you spend working to earn each type of income.  For interest income, it is likely to be very little.  Investment income will only include the time you take selecting your investments and managing your portfolio. If you are active in your business, this will be the lion’s share.

Income is passive if you spend almost no time earning it.  Income is active if you spend time earning it.  (These definitions correlate to your time spent, not the IRS definitions.) Put the income in the appropriate column, passive or active.  You can allocate if necessary.

In the example below, this person is well on their way to retiring.  They also might question why they are spending so many hours working so hard for a fraction of their monthly income!

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The “aha” comes when you see the numbers.  The numbers often drive people to action.  You might decide to be more intentional about moving your income to passive sources so you can do the things you want to do.  

Leveraged vs. Unleveraged Revenue

Leveraging your business revenue is a way to work less while making more money.

Measuring leverage is business-specific.  Examples of revenue that are not leveraged include seeing clients one at a time and selling hours-for-dollars services without a staff.  Revenues that are partially leveraged include group programs such as classes and events like webinars and conferences as well as hourly consulting that your staff performs with your limited oversight.  And revenue that is fully leveraged includes product sales.  Once the product is developed, it takes little incremental time to sell (unless you’re in retail).

Here’s an example, assuming this business owner has a staff of five people.  Both hourly consulting and training classes are partially leveraged because the business owner spends time teaching, consulting, and supervising.

Click to enlarge
If your revenue streams are flexible, you can work on moving more of your business income over to the leveraged side.  To create more leverage in the example business, the owner could sell or develop more products, hire another teacher, hire an additional consultant, and/or hire someone to review the consulting work of the employees.  

Days Off vs. Days Worked

This ratio measures how much time we are able to spend away from the office.  It’s simple to compute, and you can estimate it if you don’t track your time.

Assuming a 5-day work week, there are about 250 working days in a year, not including about 10 holidays.  Estimate the numbers of days you were off, and divide by 250.  For example, if you took 5 1-week vacations from work last year, that would be 25 days, resulting in 10%.  This assumes you worked the rest of the year.

Your Lifestyle Goals

What’s on your “bucket list?” (This is a list of things you want to do in your lifetime before you die.)  Figure out the metric that will get you thinking about doing your dreams sooner rather than later.

You can have fun with metrics and ratios in and out of your business.  Here are some more ideas to think about:

The number of customers you have that really fit your ideal client and how many more you need to go.
How many countries (or states) you want to visit each year vs. how many you’ve already visited.
How many volunteer hours or dollars you spend vs. how much more you like to.

When you put your goals into numbers and on paper, they seem more real and achievable.  You can get an “aha” just by computing these ratios.

Tuesday, June 5, 2012

The Power of Permission


What have you been wanting to do in your business for a really long time?  Perhaps you’ve been wanting to raise your prices.  Maybe you want to hire an assistant or another team member but haven’t gotten around to it.  Or maybe you want to work less and focus on personal time, but you haven’t taken action for one reason or another.  

Ask yourself what project you’ve been thinking about forever but haven’t taken action on.  We all have a wish list.  The question is, why are we waiting?

What causes us to put these important, yet inconvenient or uncomfortable items on the back burner?  In many cases, there’s a really simple answer.  Here are three questions you can ask yourself if you would like to get unstuck and move forward with your list of items.

1. What’s it costing me to delay this decision?  In six months, will I be better off or worse off having done nothing?  This helps you bring a sense of urgency to an item.

2. Do I simply need to give myself permission?  It’s surprising how this simple revelation can create the shift you need to gain momentum.  Going deeper, this can be a deservability issue, i.e., do I deserve to charge a higher fee?  If that’s the case, working on your confidence is something that will help you get unstuck.

3. Am I getting stuck because I don’t feel like I have the skills, or is it possibly a mindset issue?  Making the distinction between the need to build skills and the need to work on your mindset can help you determine the next logical step to take.  Often, however, it can be both, and in that case, start by parsing out the skills you feel like you need.  When you do that, often the mindset will take care of itself.

By habit, we wait for other people’s approvals since we’ve done this all our lives.  We’re used to getting the approvals of teachers, parents, professors, bosses, spouses, and relatives, but when we’re in business for ourselves, we don’t need to ask anyone!

Is there something you’ve been delaying that you need to give yourself permission for?

Giving your business or yourself a long-wanted gift?
Starting a long-awaited project?
Hiring someone or making a staffing change?
Launching a new product?
Raising prices?
Making a purchase?
Working less?
Taking your business to the next level?

If there is, ask yourself what you’re waiting for.  The power of permission might just set you free.