Hot take: Your business revenue is only as strong as your personal budget.

Yeah, I said what I said.

If you’re a freelancer or even a solo entrepreneur/small business looking to build a business…

… Your revenue doesn’t mean shit unless you know what you need from your business before anything else.

You’ll never know your true business operational cost (or profit margin, cost of fulfillment, etc.) if you don’t!

Let me give you an example…

Let’s pretend we had a mutual friend, Brenda.

Some context… Brenda is a solo entrepreneur who has been working in her industry for 20 years. She has 2 people on her team who are contractors working part-time/fractionally on retainer. She’s invested in programs, masterminds, and networking opportunities in order to grow 2x next year. She works 40-50 hours a week.

Brenda’s annual revenue was just shy of $300k. Pretty good for someone working with a lean, fractional team.

She had her business bank accounts set up and had her revenue going into those accounts, and all expenses were linked either to a business credit card that got paid by that account or via debit from that account.

She’s set, right? She’s checked all the boxes of “how to set up your business” 101.

The problem was that she just paid herself whatever was left over every month after the expenses came out. And, there was no concept of what her expenses were month over month.

The actual salary her business paid her? Closer to $80k annually, but extremely variable month to month. That’s about 27% of her overall revenue, and if you break that down she makes about $34 an hour.

That said, her business had no savings or runway accounted for, and only had a fraction (about 8% of what was needed) of what was needed for taxes. So her expenses were close to 65% of overall revenue, and anything outside of her salary and expenses (i.e. taxes) will come from her personal accounts or a payment plan with the IRS.

How does that $300k sound now?

Sounds like it doesn’t mean shit once you dig a little deeper. Sounds like money in, money out with no intention. Oh, and stress every year in April here in the US… and stress any time the MRR took a hit or was inconsistent.

If you ask Brenda… she’s stressed, and can’t seem to make enough to provide the life she wants

The truth of the matter is there is always plenty of revenue coming in if you live in an abundant mindset, but it’s the decisions we make when we don’t know our numbers that cost us big time.

It’s about how we treat the abundance once it comes in the door.

I’m not here to tell you how to financially plan, but what I can tell you from experience is that until you know what you need from your business you’ll continue to make misinformed and unintentional decisions like Brenda did. 

From an operations perspective, I’d be calculating and questioning the ROI on a lot of investments in that camp.

Let me give you another example…

Let’s pretend we have another mutual friend, Allie.

Some context, Allie is a freelancer just starting out who has had to make several business investments this year to get herself set up. She doesn’t have any team members, but she does outsource for some projects. She is a part of one group mentorship program in her field and pays affiliate fees based on referrals she gets from her current network. She also works 40-50 hours a week.

Allie’s annual revenue is just shy of $100k. Pretty good for someone just starting out trading time for money with no team to support fulfillment. 

She has a separate bank account that her revenue goes into, and all her business expenses go to a business credit card that she pays off every month from that account. She saves 25% of everything she makes into a separate business tax account and 10% of everything she makes in a separate savings account.

That’s a great setup! It’s working well for her. She’s also ticking all the boxes of “how to set up your business” 101.

Allie’s salary ended up being about $30k and is consistent every month. That’s about 30% of overall revenue. That means expenses were around 35% of overall revenue. That’s about $13 an hour if you break it down.

Seems like not that much…

But, percentage-wise – they are making about the same ratio in salary. But Allie’s expenses were 35% of revenue while Brenda’s were 65%, and Allie had accounted for taxes as well as beginning to save.

If you ask Allie.. She’s feeling empowered and proud at how far she’s come so far and is looking forward to growth.

There are some key variables within both examples at play – cost of living, dependants, partners, personal debt, business debt, lifestyle, privilege, and more. Those would be different and would contribute to what each of these friends needed from their business, and even what business model they were in.

Let’s just consider things for a moment, not to reach a specific answer, but just to consider.

Suppose Brenda took a hard look at her personal finances and realized she needed her salary to be $150k – 50% of her revenue. How do you think that would invite her to look at her expenses and business differently?

Suppose Allie’s stable situation, which allowed her to bring in a lower salary, changed and she needed to increase her salary to $50k – 50% of her revenue. How do you think that would invite her to shift her budgets and expenses?

Again, I’m not a financial planner. They would be the ones to ask about your specific situation around taxes and investing.

I’m just telling you to think about things another way through the Operational Lens, and let Operational logic support your longevity.

It’s important to know what you need from your business so you can make your choices informed and accordingly. And that goes not only for salary, but also for how much you want to be working, and the type of business you want to build! 

Maybe you want to work less hours on fulfillment so you intentionally have a higher expense category to accommodate that.

Maybe you’ve got a luxe lifestyle and you are willing to sacrifice some hours of your time if it means you get to bankroll that.
Maybe you don’t want to work at all so you’re watching all expenses so you can increase your profit margins which allows for higher owners distribution.

We all have choices to make, individually for what we want. But without planning and understanding your P&L and some intentional planning for core operational expenses, you’re leaving things to luck and are disempowered within your decision-making to know if it’s actually supporting what you want!

So with that, work on your personal budget first! Know what you need and want. Then, take a good hard look at your business’s budget.