You probably have run into an ad like this:
“I made six figures running my own business, click here to learn how you can do the same!”
When I see this through the eyes of someone who runs a multi-million dollar business and regularly signs off on five-figure checks, I have to question whether that's revenue (most likely) or net income. It makes me roll my eyes; that's not much of a business.
A business with only $100k in revenue is a guy working out of his garage, probably working all hours of the day stressed out, making less than he did in his 8-5 job. If you've got five employees making $30k each ($14.42/hr), you'll need to be in the mid-six figures each year in revenue even to break even.
Many Employees Make More Than Owners With a Six-Figure Business
The reality is that only hitting low six figures in revenue as a business owner means that a lot of regular employees are making more than you are. It's why doctors often sell out their practice to hospitals, they want to practice medicine, and have realized that going on their own comes with a lot of headaches plus may not even pay better.
Six Figures is a Sign You're Heading in the Right Direction
Don't get me wrong, hitting $100,000 or $200,000 in revenue is a milestone for any startup. We knew we were on the right track when we hit $100k in the first year with my wife's cleaning business, but she wasn't making as much as she was when she was a nurse at that level.
If you can get to six figures, you probably have the foundation for a scalable business. But let's take a typical example of a coach, we'll call him Fred.
Photo by Alejandro Escamilla on Unsplash
A Typical Six-Figure Coach
Fred is making good money at a company but wants the freedom he keeps reading about from all these coaches and bloggers who make the independent lifestyle look amazing and decides to strike out on his own as a coach. At first, getting clients was tough, but eventually, he started getting some paying customers.
After many months of struggling, Fred finally breaks the six-figure mark but then realizes something. He is bringing home significantly LESS than what he made working at his regular job while working many more hours, especially after he got that massive tax bill and a penalty from the IRS for not paying quarterly estimated taxes and being properly registered to do business in his state (ouch, harsh lesson Fred, welcome to being a business owner). After a few years, he may return to work, realizing it is less stressful than owning his own business.
I hate to hear stories like that because people like Fred are making a massive difference in the world by helping people, and it is possible to live the traveling lifestyle as people like Ryan from Blogging from Paradise have proved, but it happens every day. Why would Fred close down shop if he makes six figures a year and loves helping others? That's pretty good, right?
Hidden Expenses Kill Businesses
The reason people like Fred close-up shop is that there's a massive difference between revenue and net income, but they didn't fully understand that when creating a business plan. As an employee, Fred didn't see any of those hidden expenses like the cost of goods, sales & marketing costs, registration costs, legal fees, insurance, rent, utilities, equipment purchases, software fees, travel fees, depreciation, interest fees, or any other of the long laundry list of expenses that business owners incur.
He didn't realize that to produce six figures in his pocket, it would probably take five or even ten times that amount in top-line revenue, so he didn't plan out how he would do that. He also didn't realize that he might have to make many adjustments to his lifestyle to build his business and that creating a business from scratch is more than a full-time job in the beginning.
Had Fred stuck with it a few years longer and invested in learning more about running a real business rather than just creating a low-paying high-stress job for himself, he probably would have been thrilled with the lifestyle he had created. Unfortunately, as Bill Gates said, “Most people overestimate what they can do in one year and underestimate what they can do in ten years.”
“Most people overestimate what they can do in one year and underestimate what they can do in ten years.” -Bill Gates
Making 10 Million is Easy if You Spend 20 Million
I can tell you how to create a ten-million-dollar business this year. Spend twenty million in ads, and sell 100,000 items for $100 each. Voila, congrats; you can say you have a business with a revenue stream of ten million.
You also have 100,000 customers to deal with, and you'll probably take at least a fifteen to twenty million-dollar loss buying all that stuff to resell and paying for the advertising. That's not to mention that you will likely need to hire employees, and they will want raises because the business is doing so well. After all, they will be working hard filling orders and can see all the money flowing in, right?
Profit is King
My point is your top-line revenue is essential, yes, but ultimately profit is king, and it's probably going to take a whole lot more cash coming in than you expect. Being a business owner can be incredibly rewarding and give you more freedom and income than any job. Still, if your aim is only to produce $100k in revenue and you haven't thought through your expenses or how many hours you'll have to work to get to where you want using your current strategy, you probably need to rework your business plan a little.
