I really enjoy working with consultants and professional service firms that are new to the six figure earnings level. What I find when I’m sitting down with a client at this level is that many of them are earning six figures, however they are still experiencing cash flow challenges and business building stress.
Here are three reasons newly six figure CEOs are not happily enjoying their new level of financial and business success and what to do about it:
Lack Of A Money Management System – Before earning six figures many business owners keep track of their revenue and expenses by using a manual software or system. This not only takes up a lot of time to maintain it also doesn’t provide the financial insight needed to properly manage a six figure earning. As a six figure business owner, you should be reviewing your financials weekly and monthly. You should also spend time examining your KPIs and industry trends. In order to accomplish this, I recommend using virtual software that allows you to access your financial data from any device that has internet capabilities. In addition, your money management system should be used to not only send invoices but track expenses, prepare reports, monitor your budget and accept payments. My recommendation is QuickBooks Online. This is the number one accounting software in the world for small business owners.
Confusing Revenue With Cashflow – The next struggle for six figure business owners is confusing the amount earned with the amount they currently have to spend. In most cases, there is a delay between the time the business makes a sell and the period in which the money hits the bank account. This gap is most likely due to the payment terms extended to their clients.
For example, when invoicing a client you may immediately record the amount earned and mistakenly believe you currently have that amount available to spend. However that amount is not available until the client actually makes the payment. The trouble comes, when you are spending the funds before you actually receive them. This leads to potential hardship and financial challenges.
Confusing Revenue With Profit – One of the major challenges with earning six figures is not differentiating if the amount earned is revenue (top line number) or profit (bottom line number).
With permission I’m going to provide you with an example of one of my client’s cash flow cycle before we begin working together:
- As a six figure earner they provided services and products for sell that allowed them to earn $9,000 each month for 12 months, equaling to $108,000.
- In order to operate the business they had expenses such as overhead, accountant, attorney, payroll, marketing, rent, subscriptions, education and training and additional expenses that costed $6250 per month over 12 months, equaling to $75,000.
- After earning $108,000 and subtracting the total expenses of $75,000, their Net Profit was $33,000.
This was discovered by implementing an accounting system and preparing one of the top three financial reports – the Profit and Loss Statement.
Revenue – Expenses = Net Profit
With only $33,000 remaining after earning $108,000 suddenly a six figure business doesn’t seem so appealing.
If we were to dive deeper and factor in cost of goods sold and taxes that $33,000 decreased even further.
So what does it take for the Net Profit to result in six figures? Ideally the business owner must determine their percentage of expenses against their revenue then work backwards in creating a plan, pricing and proper money management in order to double even triple their top line number.
No Financial Accountability – Congratulations on your success because earning six figures is not easy. It takes a lot of hard work, dedication, money and determination to build the business of your dreams. Now that you have reached a level of success that over 80% of small business owners never achieve you must build a team that will support you and pushes you to the next level.
At the six figure earnings level, you will experience many new financial challenges, such as new tax compliance, proper payment collections, time management, small money leaks that add up over time, business restructuring and the list goes on. This is the perfect time to enlist the help of someone that is familiar with the new change of structure and business operation that six figure CEOs face.
At this level, you will benefit a great deal from an accounting and business advisory firm that offers not only outsourced bookkeeping and accounting services but most importantly Virtual CFO and advisory services. At the six figure earnings level you will need in-depth financial expertise and industry insight along with reliable and accurate financial intelligence at your fingertips. By having an accountant that specialize in this area of expertise this will enable you to reach seven even eight figures in less time and less stress.
Are you a newly six figure business and you don’t have anyone guiding you financially we should talk. Click here to schedule a free Profit Health Check with me today.
Octavia “The Profit Maximizer” Conner is a profit acceleration specialist, accountant, business advisor, speaker and best-selling author of the book titled Say YES To Profits: 3 Methods For Building The Profitable, Successful Business Of Your Dreams.
She is the CEO of Say YES To Profits, a virtual accounting and business advisory firm that specialize in helping six figure consultants and service-based businesses accelerate cash flow, growth, performance and profitability.
Octavia is not your ‘typical accountant”. She works proactively with her clients as a business development partner. She has been featured in YFS Magazine, Women Creating Wealth, the Atlanta Business Chronicles, Smart Hustle Magazine and many more.
For more information contact her team today at SayYESToProfits.com