309 - What you need before and beyond 6 figures
On today's episode of the podcast I talk about what you need to implement to get to six figures and beyond along with some hot takes.
I want to note that when I say "beyond six figures" it's pretty arbitrary. You might need it at $50k or you might not need it at $50k, maybe you never aspire to be a six-figure business owner. That's okay.
In Episode 195 of the podcast I shared why I feel $200,000 is the new six figures, though I could adjust that this year for inflation. It had to do with how if most of use are putting 25% towards taxes and 25% to business expenses, that's 50% so our gross revenue is $100k, our take home pay is $100k and if you have debt to pay off, want to buy a home, etc. that's around what you would need especially in more expensive cities. That being said, your finances are personal and I have friends who make a lot less and are very comfortable doing so. It's about living a happy lifestyle.
Here are somethings you don't need when you start out as a business owner that I think are often hyped up I did crowd source this with some of my students on our group call. My student success specialist Connie said that for her business it's a CRM because she's doing ongoing work and not regularly onboarding clients so it's not worth the cost for her when she can send her invoices through Novo. Personally I feel like a CRM makes you look more professional, and will be something that you want if you are onboarding clients on a more regular basis, even just once a month. But it depends on your business. Currently I have email templates instead of automated emails that go out so I don't have to rewrite them every time until we've done it so many times we don't need to rewrite them. For me it's more of a time waste, for other business it's more of a cost waste where paying for the CRM isn't worth the money.
Another student, Jean, said complicated funnels. I agree. This is more for my online course people who have freebies that lead to low ticket offers and create tripwires, etc. This only works at scale meaning a very small percentage will convert to the highest ticket thing. I have tried really hard to build great funnels and we have pretty decent traffic and we'll still get like two conversions a month for like a couple hundred people go into it every month. When you only have like two people go into your email list every month, spending time on a funnel doesn't make sense, they don't really work until you have clear messaging and you know what people want to buy.
For me, something you shouldn't do until you're making five figures a month is hiring a integrator/online business manager. If you don't have a team, this project manager would just be making a to-do list for you. When you're new in business I see too often people think that one magic strategist, whether it's a social media manager or an ads manager or something else is going to get them the income they need but until you have the money and an understanding of your target audience and messaging, it won't be very helpful.
On the flipside, here are some (non-tax) things you need starting out.
- A good cash flow system. You need a system to figure out how you're going to save for taxes and pay yourself.
- You need an onboarding system. Not necessarily a CRM but how to sign a contract, send an invoice, a welcome email template, etc.
- A task list scheduler
Here are some tax and legal things you need starting out. I talk about the legal layers of protection. I tell people the absolute essentials are:
- A contract (you can get templates for this through out Contract Club at notavglaw.com/club)
- Insurance - get an insurance agent for this
- Simple bookkeeping - A spreadsheet is typically best, Quickbooks might be overkill starting out and a bookkeeper you don't need unless you come out of the gate hot with a lot of sales and expenses.
- LLC - I recommend this early however in some states they are expensive so make sure you are invested in your business. If you're still dabbling and are unsure it's okay to hold off.
Things I eventually recommend but not right when you start:
- A tax accountant. If you want to hire someone to do your taxes then do that but the thing is you don't need to go hire an expensive tax strategist when you start (unless you're a high networth person with money coming from somewhere else) but a tax strategist can't help you make a lot of money. I don't discourage hiring a tax preparer starting out but there isn't anything super fancy you need to be doing there.
- Trademarks - I used to say that you really didn't need one until you're more established but I've kind of back pedaled on that because especially if you come up with a unique brand you should try to stake ownership on that sooner rather than later but if nothing else you should try to secure intellectual property protections as soon as you become really known for any kind of branding.
Once you're approaching six-figures and beyond, what do you need?
- My hot take is by the time you're making a few thousand dollars a month you probably need a contractor, a virtual assistant of some kind if you're starting to get bogged down by small tasks. While this may sound like a luxury, they can take the small tasks off your plate so that you can do more with less. Having the space and time to think about the future of your business is mental clarity and a money making idea or cost savings can come out of that ideation time.
- Think about an S Corp or higher level business entity strategy that can save you taxes.
- You need to commit to a more serious cash flow system now. Improve your spreadsheet system or move to Quickbooks or hire a bookkeeper which I think tends to happen toward the multi-six figures.
- It may be time to hire a tax strategist who can give you the basics.
It's hard to put a dollar amount on it but depending on your busines model you probably need to start hiring employees around the $150,000 amount because like it or not, a lot of the stuff people like to hire independent contractors for are tasks that independent contractors should legally not be doing. If you're unsure if someone should be an employee or a contractor, check out our Contractor Classification Cheat Sheet at notavglaw.com/cheatsheet.
- Join our legal subscription. Having an attorney on demand is great for just $200/month once you're making six figures, but that's overkill most likely if you're just starting out.
I want you to keep in mind when I throw these numbers out that there's another big variable we need to keep in mind and that's how busy you are and how much money you have and what your time is valued at. For example, are you fresh out of college and should be spending time DIY-ing or do you have $50,000 saved from a corporate job over the last 20 years? Every scenario in business has asterisks and vary person to person.
If you're on Threads, tag me at @notavglaw and tell me what you thought about the episode.