As we near the end of the year and I start preparing to file my taxes, I think back to an epiphany I had when I finished the Profit and Loss statement for the year before. I was so excited because I knew I had done the most business I had ever done in a year to date. When I tallied up everything on my Schedule C, my expenses totaled nearly 85% of the revenue I collected.
OMG is all I could say.
After doing the math, my profit was equal to me committing one hour per week to my work, and that realization was just disheartening. According to Schedule C, the time I spent away from my children and away from sleep, wasn’t properly compensated for and completely undervalued—though I know the work I completed for my clients brought their businesses great value.
This harsh reality revealed in the numbers taught me three important lessons about how I value my time and my work and I hope you, as an entrepreneur, can learn how to make every minute count from my errors.
1. Evaluate your revenue and expenses quarterly.
Some of you may already be doing this, but because I opt to pay taxes annually, I didn’t make a habit of evaluating profits and expenses regularly. Doing so on a monthly or quarterly basis can help you correct any trends in overspending, underpricing, or giving too much time away before it’s too late. It will also help gauge your progress toward your projected revenue for the year and help identify busy and slower periods of revenue.
2. Set prices for your services according to business costs, service value and target audience.
You know the value of your time. Any time devoted to my business away from my family has to be well worth it. So, when setting prices for my services, I considered several things: the cost of running my business, the value of my expertise, and the target audience. I know many of you may be asking why I consider my target audience in pricing my services. The reason is simple—my target audience aren’t Fortune 500s, or large corporations. I work with startups, small businesses and nonprofits trying to get to the marketplace, not those that are well established. While the value of my time and expertise could be much higher, I have to consider the people I want to serve and price accordingly. So when prospects ask for special discounts, I can explain that my prices are deemed the minimum costs and reflect both my needs and the needs of the target market. If they can’t accept that, I will suggest we work together at a later date or accept that I can not service that client.
3. Set limits to your discounts.
You have to accept that there will be prospects that won’t be able to afford your services, or don’t see the value of your services or time as you do. It took me some time to get over my superwoman syndrome because I wanted to everybody’s business to shine. I quickly learned I was losing priceless time with my family and after a while, neither the money nor the work was worth it. To avoid burnout, I thought to implement a flexible payment option for clients, schedule quarterly or seasonal promotions for discounted services, accept no more than two pro-bono projects per year, and accept barter agreements if an only if I felt the value I could gain would at least equal the value of the services I gave away. Setting limits to your discounts helps keep your business from greater losses than profits.
I hope you learned something from my experience. Do you have any other tips on improving business cashflow? Please share them with me.