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Bookkeeping and business education company dedicated to helping online entrepreneurs create profitable and healthy businesses.

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TBL Episode 1: What does a successful online business really look like?

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Ever wonder how much earning potential your online business has? Every business owner does, but in the online space, it’s hard to know what’s really possible, especially if you’re selling to a niche market. Not every online business needs to be a multi-million dollar enterprise, which is why in this episode, we examine what an average “successful” online business looks like in terms of revenue, expenses and profit. You might be surprised to learn that you don’t need your business to be a seven figure monster to make a good living from it. Link mentioned in the podcast https://evolvedfinance.com/sixandsevenfigurebusiness

Video:

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In last week’s blog post, we discussed the perspective shift that online entrepreneurs experience once they realize they aren’t treating their online income like an actual business. We shared our observation that many online entrepreneurs spend so much time focusing on generating revenue that they neglect other aspects of their business that are essential for future growth and stability. When online entrepreneurs begin to truly see themselves as business owners, they inevitably start to think about their business differently as well.

They develop a long-term strategy.

In the beginning, generating any sort of revenue seems like such a difficult task that many entrepreneurs don’t envision what their business might look like years down the road. Whether you’re currently making money or getting ready to launch a new business, there are some key question that you should be asking yourself:

  • How will your operations change as the business grows?
  • Where will new revenue streams come from when you’ve exhausted your current channels?
  • What is your role and how will it evolve? How large can the business grow before you reach your maximum capacity for managing clients and/or projects?
  • What areas will require investments to help the business grow?

They track and organize their financials.

Bookkeeping and taxes are a big part of managing your business, and we’ve seen online entrepreneurs really stunt their potential by either avoiding this aspect of their business completely or handing it off to someone who isn’t capable of managing it properly. It’s difficult for an online entrepreneur to envision a bright future when their finances are a mess and tax problems are constantly looming.

They utilize financial data to monitor the health of the business.

Many online businesses wait until the end of the year to have their accountant sift through their bank statements and homemade spreadsheets for tax purposes. Although we commend these owners for taking their tax liabilities seriously, not maintaining the books on a monthly basis means they miss out on the opportunity to analyze financial data when it’s actually useful. It’s far more difficult to spot issues and opportunities if you have no grasp of the state of the business from month to month. For more on this, check out our earlier post about why every online business needs a bookkeeper.

They understand the importance of leadership.

Just because you’re running an online business from your home doesn’t mean your leadership skills are any less important. Your ability to make smart decisions, strategize effectively, manage contractors or employees, and develop a clear vision for the business are all important leadership qualities to cultivate. The business starts and stops with you, so your limitations and weaknesses will decide how far the business can go.

They get smarter about using their profits.

New online entrepreneurs (and even some seasoned veterans) focus so intently on how to make money that they don’t always know how to manage it effectively once it starts coming in. If you’re not sure what to do with your newly earned profits, we recommend the following:

  1. Save for taxes each month.
  2. Pay off your business debt (loans, credit cards, etc.).
  3. Create a savings account with enough money to cover 3-6 months of expenses.
  4. Establish a retirement plan for yourself.

They bring on professionals.

As much as some wish they could, it is virtually impossible for online entrepreneurs to effectively manage all aspects of their business themselves. There are three key people you’ll want to bring on once you can afford them.

  1. A bookkeeper to track your finances and provide valuable financial reporting
  2. An accountant to file your taxes and help you develop a tax strategy
  3. A lawyer to advise you regarding the creation and maintenance of your business entity and the protection of your assets in case of a lawsuit

Learning how to generate revenue is important. Knowing how to connect with your audience is important. Developing products and services that add value to your customers and clients is important. There is no question that mastering these things will be vital for your success, but as your income grows, it will only become more important to learn how to manage every aspect of your online business, not just the parts that generate your revenue.

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We’ve noticed that successful online entrepreneurs often experience a perspective shift once they reach a certain point in the growth of their businesses. Typically, this shift significantly and permanently alters the strategic, operational and financial aspects of their entrepreneurial endeavors.

So what is this mysterious shift?

It’s the realization that they haven’t been treating their online entrepreneurial income like an actual business.

With many of the online entrepreneurs we’ve talked to and worked with, they start their online businesses with a simple mindset: “I want to learn how to make money on the Internet.” This may sound like a “No duh!” statement, but wanting to make money on the Internet is a much different goal than “I want to start an online business.”

You might be unclear what the difference is here, but let’s compare two different business models to better help you understand.

Someone who is opening a brick and mortar business like a restaurant needs a great deal of expertise and capital to both start and manage their operations. They will have to deal with challenges that many online entrepreneurs will probably never have to face, like taking out a six-figure loan just to get the business started, filing for permits and licenses with the city, and hiring employees before they even open their doors to the public.

With a more classic business like this, there is very little room for learning as you go. From the start, the business is usually in debt, and the business owner is likely not making any income from the venture until months later. These entrepreneurs can’t afford to ignore any aspects of running their business if they want it to succeed.

Things tend to be a little different for online entrepreneurs.

Most online businesses have far fewer startup expenses or liabilities compared to our restaurant example. Often, these entrepreneurs start their businesses while still working a full- or part-time job. Then, once they begin to create some momentum in their new business, they make the transition to working on it full-time.

Being able to support your livelihood with your online business is a huge accomplishment, but getting to that point usually involves far less risk than starting a brick and mortar business because you don’t have bone-crushing debt or huge liabilities right off the bat. The only thing most online entrepreneurs tend to have at risk is their time and any re-occurring revenue they’ve managed to generate so far to support their living.

A low cost business that doesn’t involve a lot of big upfront costs is a great opportunity. That’s why starting an online business is appealing to so many people. But because of the minimal risk and low expenses, early efforts for online entrepreneurs are almost exclusively devoted to generating more revenue.

This is all fine and dandy… except for one thing:

These entrepreneurs spend so much time trying to figure our how to market and sell their services and/or products that they neglect to learn the other aspects of managing a small business.

For many online entrepreneurs, this can mean a rude awakening when they discover how complicated an online business can get once it starts making some real money (typically in the 6-figure range).

All of a sudden, hiring employees or contractors becomes necessary, filing your taxes becomes much more complicated, finding new revenue streams is necessary to help keep the business going, and tracking and utilizing data becomes critical for decision-making. It doesn’t matter if you’re an affiliate marketer or a personal/business coach. If you want your business to grow and experience any sort of longevity, you have to manage the business in its entirety, not just the part that makes the money.

No matter what size your online business is, it’s never too late to plan and prepare for the challenges ahead. By knowing what you’re working towards, you can make decisions now that will make the business easier to run in the future when it’s larger and more complex.

In part two of this article, we share how entrepreneurs who have experienced “the shift” think about their businesses differently.

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We get it. Finance is hardly the most fun aspect of running your online business. It takes you away from creating products, driving sales, and managing marketing efforts. That’s the fun stuff that leads to cash flow and sweet entrepreneurial glory. However, as you’ll hear us say time and time again, generating revenue is only half the battle. If you want stability and growth, you need visibility into the operational and financial aspects of your business. The only way to achieve this level of clarity is to utilize the financial data your bookkeeper is organizing for you.

With our clients at Evolved Finance, we go over their P&L (profit and loss statement) with them every month so they can see exactly how much money they made and how much money they spent. Seeing this data opens their eyes to a side of their business they simply weren’t in tune with before. If your bookkeeper isn’t sending you a P&L every month, or you’re not taking the time to look at it when they do send it, you’re missing out on valuable insights into your online business.

Here’s why:

Knowing where you stand financially allows you to make critical adjustments to keep your business healthy and thriving.

Looking at the P&L every month allows you to find potential issues before they become big problems. While there is no question that trusting your instincts is important as an online business owner, running a business solely on instinct is not wise. You might have a general idea about your cash flow for any given month, but once you see the actual numbers in front of you, it becomes apparent where you can make adjustments to correct profitability issues.

Additionally, you don’t need to have a master’s degree in finance to recognize obvious overspending. If you can see how much total revenue your business generates every month, as well as how much you’re spending to keep it running, it becomes pretty obvious where cash is getting chewed up. You can then make the necessary adjustments to your spending and/or operations and get your profitability back on track.

You can’t plan for future growth if you don’t know how much the business is actually making.

Growing pains are part of building any business, but knowing what to do when they happen is another story. Without financial clarity, it can be tough to determine where you need to invest to better support the influx of business. That’s where utilizing your P&L can be a huge help, allowing you to answer questions like:

  • Do you have enough cash flow to hire another employee?
  • Can you afford to overhaul your website and e-commerce platform?
  • How much can you really increase your advertising spend?
  • Will you have to take a cut in pay so you can further invest in the business?

Here’s another way to look at it:

If you were to take a cross-country road trip from Los Angeles to New York City, I imagine most of you would grab a map and use that to plan out your trip. You would probably do this for two reasons: 1) you wouldn’t want to get lost and fail to reach your destination, and 2) you’d want to take advantage of any sights or special locations along the way. This is in essence why having financial clarity is so important for the future growth of your business. Without it, you’re essentially traveling without any sort of a guide, putting yourself at risk for getting lost and missing out on key opportunities to grow.

Seeing your business making money is satisfying!

Entrepreneurs love looking at their numbers when they’re making money. It is both satisfying and motivating to look at your P&L and see that your hard work has paid off. You also get a warm and fuzzy feeling when you see that the business you have created is supporting the livelihoods of others, be it full-time employees, part-time employees, or independent contractors. Obviously, you don’t want to shamelessly bask in your success, but it’s meaningful to know when you’re doing something right. It’s important to not only develop a sense of pride in the amount of revenue you generate, but also in the community of people your business supports.

And, sometimes you need a dose of the truth.

We talk to almost every one of our clients at Evolved Finance on a monthly basis. Sometimes those conversations aren’t easy. If one of our clients sees a negative number at the end of their P&L, meaning they spent more than they made, it’s usually a big wake-up call. They typically know that they didn’t have a good month before we get on the call, but looking at the actual numbers allows them to see exactly why the business lost money for the month. It might sting at first, but our clients tend to bounce back more motivated and focused to get their business back on track.

If you’re lacking financial clarity in your online business, you can make that change. Whether you need to hire a bookkeeper or you need your current bookkeeper to start sending your P&L to you every month, gaining the financial clarity you need to manage your business more confidently and with better insight is just a matter of making it a priority. It could provide the perspective you need to developing a more reliable and stable online business.

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When entrepreneurs start making money for the first time with their online businesses, the last thing they want to do is worry about bookkeeping. After all, they’re enjoying the high of finally generating revenue, so why ruin it with thoughts of balance sheets and income tax? It’s such a buzz kill!

If you’re an online entrepreneur and your business is starting to generate revenue, it’s really important that you get your finances in order as soon as you can. Good bookkeeping practices are the foundation to accomplishing this. It might not be as sexy as managing your sales funnel or running your social media campaigns, but establishing good financial practices in your online business can mean the difference between thriving and simply getting by.

If bookkeeping is a new concept to you, or you’ve never really understand the full benefit to having good bookkeeping practices in your business, the five reasons we’ve shared below should make it very clear why bookkeeping can make running your business less stressful and provide some real benefit.

1) You shouldn’t be spending your time doing bookkeeping

As an online business owner, there is enough work to do as it is, so why add bookkeeping to your list? The best thing you can be doing for your business, no matter what stage you’re at, is focusing on driving revenue, which is why reconciling your bank accounts every month is hardly the best use of your time. Plus, unless you have previous experience doing bookkeeping, you’re probably making mistakes that will need to be fixed by your accountant, which means more billable hours they’ll ding you for when tax time comes around.

2) Monthly bookkeeping makes your accountant bill cheaper at the end of the year

Hiring a bookkeeper is actually going to make your accounting bill at the end of the year cheaper. By working with a bookkeeper every month, your finances are organized and ready to go for your accountant when it comes time to file your tax return. That means he or she doesn’t have to round up all your bank statements or sift through your homemade spreadsheet to try and figure out how much your business made. Additionally, when a bookkeeper is maintaining your books throughout the year, the data will be much more organized and accurate. Having your accountant try to get everything done right at the last minute (especially when they’re trying to do the same things for numerous other businesses at the same time) leaves a lot of room for mistakes and missed tax write-offs.

3) It’s easier to estimate your taxes during the year

Does the thought of your tax bill keep you up at night? If you’re one of the many entrepreneurs who stress about what they will owe the government at the end of the year, it’s because you don’t have accurate financial data for your business! When a competent bookkeeper reconciles your accounts every month, it becomes ridiculously easy to look up how much profit your business has made. With that kind of visibility, estimating your tax bill is something you can keep track of month-by-month instead of waiting until the very end of the year.

4) Real financial data helps you make better decisions for your business

A lot of online entrepreneurs think that bookkeeping is just for tax purposes. This is a perception we’re trying to change at Evolved Finance, because although bookkeeping is definitely a way to keep yourself out of trouble with the IRS, it’s also the most valuable tool for monitoring the health of your business so you can make better strategic decisions. When you’re able to clearly see how much revenue you generate every month, and exactly how you’re spending your money, it becomes obvious where potential problems and opportunities lie. If you wait until the end of the year to have your accountant compile all of your financial data, you’re missing out on an opportunity to utilize valuable information that can help you make smarter and more informed decisions.

5) You’ll be better prepared for an audit

The “a” word is any business owner’s worst nightmare, but it really doesn’t have to be. The IRS performs audits on business owners and corporate entities all over the country every year (around 1-1.5 million audits), and if you’re one of the unlucky chosen, there is really no reason to stress if you have good bookkeeping practices. When your books are clean, organized and properly maintained, it becomes far less grueling and painful for the IRS to see the state of your business and make sure you are not underreporting your income or overstating your expenses. Any bookkeeper worth their salt is going to have organized financial data on your business that will show the IRS that you’re playing by the rules.

Remember, the need for a bookkeeper is good! It means your business is making money, and that’s a beautiful thing! Don’t wait until your finances are a mess or the IRS is knocking at your door. You’ll not only sleep better knowing tax time will be dramatically less stressful, but you’ll start thinking like the CEO you need to become in order to make your business more stable and reliable.

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