Did you read the subject line? If not.. It reads “When it doesn’t make sense to make $1,000,000.
When could making a million dollars EVER be a bad thing?
Do you know what I hear so often in the coaching, marketing, sales (you name it) service business industry?
“I want to be a 7-figure business” What this translates to is “I want to make 7-figures in my business” which means “I want 7-figures worth of revenue.”
I’ll get straight to the point with three examples, using Sally, Shaun and Patricia. .
Sally makes $1,000,000 top line revenue in her business. “Yay!” She is thrilled and is happy to report that she’s a 7-figure business owner. But wait. There is more to the story. What’s not told is that it cost her $1,000,000 to make the $1,000,000. She spent her money on Facebook Ads, affiliate fees, technology, copywriters, email marketers, etc. etc. The truth is, Sally didn’t make any money. Not to mention, she’s already racked up some serious debt from the previous year or two to get to this glorious day.. What’s crazier is that she likely doesn’t know she didn’t make any money because she’s only looking at her top line. As a result, she starts spending like a millionaire.
Shaun makes $750,000 top-line revenue in his new business. He understands that profit is the name of the business game and hits his 20% profit margin goal. He has $150,000 to pay himself. But he thinks, “I want to hit $1,000,000 top line so I better put my money back into the business.” So, he immediately joins a $25,000 mastermind to learn new tips and tricks for a 7-figure business and spends another $25K to pay for his “growth strategy.” The business pays him the leftover profit of $100,000. But wait, that’s not all. He has to pay taxes on that 6-figure income leaving him about $75,000 take-home pay. That $6250 per month is quickly eaten up by his mortgage, car payment, fancy dinners and luxurious trips. He feels like he’s making a lot in his business and spends accordingly not realizing that he’s spending more than he’s making each month, slowly going deeper into credit card debt. But regardless, he’s betting on the income, so in his mind, he doesn’t have to pay close attention to his spending habits because he’ll be able to pay those growing credit card balances sometime soon.
Patricia’s business revenues $500,000. She is playing the wealth game and not the income game so she’s working a totally different business strategy. Because she’s in the wealth game she pays close attention to her money — both business and personal. She keeps her business burn rate tight and as a result, pulls a 25% profit margin after taxes profiting $125,000. Pat knows that she doesn’t get rich from her business but from her personal wealth strategy. So, she moves all the money out of her business and into her household account. Upon deposit, she Immediately sweeps 20% into her “wealth creation” bucket. That means she just increased the amount she has to buy investments by $25,000. While her friends above are buying into debt, she’s buying assets! Pat smiles at watching her money grow and then happily spends the remainder on her lifestyle.
Let’s see where each of these individuals is at in 20 years >>>
Sally is coaching others on how to be a 7-figure business but is barely paying herself and has dug herself into debt. She’s now 49 and has little savings and no net worth to report. She’s burnt out and tired of the hustle. She feels like she’s on the hamster wheel where no matter how hard she works or how big she grows her business, she never feels ahead.
Shaun is living a fabulous lifestyle. He drives a fancy car, has a luxury home perfectly furnished, a vacation home on the coast, and takes many trips to Aspen. He made a high income for 20 years (it continued to grow over the years) but spent every bit of it on his lifestyle. There never appeared to be anything wrong with that plan until the economy crashed, and his business crashed along with it. Without the big check coming in to cover all his monthly payments he realized how leveraged he was. How was he going to pay the mortgages, car payments, and credit cards? He had nothing saved and no other income. His business was all he had.
Patricia’s business stayed consistent over the years. She never experienced real growth but stayed true to her plan. Because she kept a work/life balance and built up a nice cash reserve she never experienced burnout and enjoys the feeling of being financially secure. Her investment of $25,000 per year for the past 25 years has grown to $1,750,000 of net worth that pays dividends (passive income) of $100,000. She is ecstatic because this year her passive income from her investments matched the working income from her business. She is financially free and at 49 she is thinking about what she is going to do next in her life.
1. Do you consider your money strategy closest to Sally, Shaun, or Patricia?
2. Which strategy do you like best?
MYTH: You build wealth in your business
TRUTH: You build wealth in your household
MYTH: You need a high income to become wealthy
TRUTH: You need consistently and a plan to build wealth
Bottom line. Your top-line revenue in your business is only one concern in the grand scheme of your wealth strategy. Yet, it’s the one and only focus of most entrepreneurs, like Sally in this case. Or, for the business owners who do focus on the bottom-line profit (Shaun in this example), they end up spending their profit on an expensive lifestyle. At the end of the day, both Sally and Shaun wind up in the same place 20 years later. They have no wealth (net worth) and therefore have no choices but to continue to grind in order to pay the bills. Although Patricia had a much smaller business, she was able to create financial freedom by knowing her numbers and staying true to her 20-year wealth plan.
Being an entrepreneur sounds glamorous. But, most entrepreneurs are broke (regardless of how much revenue they are generating). By broke I mean paycheck to paycheck. They are just a few missing paychecks from financial disaster and crisis. ← this is what causes the consistent financial stress and anxiety that most entrepreneurs feel on a regular basis.
The moral of this story is: Get out of the revenue game and into the wealth game. They are radically different strategies!
If you wish to chat about how to get out of the rat-race, click here to set up a call. I look forward to connecting.