[00:00:00] Emma: So I was having a conversation with one of my clients and she is a pretty brand new business and we were talking about what she needs to bring in
from a family revenue perspective. You see, when you go into your own business, You need to sit down with your partner and work out what you actually need to bring in , from a family perspective.
And then you need to work out what you actually need to bring in from a business perspective two quite separate conversations. A lot of business owners start as a sole trader. And so they think all the revenue they bring in is theirs to do with what it is. And to some extent it is. But also you need to put money aside for costs of running the business.
And so when I left the corporate world, I sat down with my husband and I said to him, what do we need as a family? And he said, well, I need you to bring in the same amount of money that you bring in from your corporate role. I'm like, great. Now it felt like a lot of the time and I kind of went, Oh, I would love some relief on that.
But That is just the way it is. We had family expenses, and so
I needed to contribute that amount of money
to the family coffers. And sometimes as an entrepreneur, our financial situations can ebb and flow. It's one of the banes of our existence that we have lumpy cash flow, isn't it?
Lumpy cash flow means that we don't get to do all the things that we actually want to do. It means that we worry about the finances. Sometimes there will be leaner months and other times you get an avalanche of income. Having a monthly recurring revenue or MRR, is great for stability of income. So if you can somehow have a revenue stream in your business, that is monthly recurring revenue, which means we can actually charge the same amount of money for the same output month on month, perfect as a base, but not every business can do that,
and not every revenue stream works like that. So you still need to have some kind of buffer set up so that you're able to weather the storms when they arise. and feeling financially free as an entrepreneur takes planning. It does not just happen. Oh my goodness How I wish it just happened Sitting down to think about how much money
you actually need is the first step.
Let's say you sit down with your partner and you agree I need to bring in a thousand dollars a week in order to make sure that the family is taken care of. You also then need to take into consideration what it costs to run a business and what investment you may need to put into your business, right?
I sat down with my daughter the other day, she is 10, she's in grade 5, she was doing some maths.
The way she worked it out blew my mind. I said, where do you get your maths genes from? I get my maths genes from Daddy. She's right. She does. I said, Oh, okay. And what about mum? And she's like, I get my business woman jeans from you, mum.
And I thought that was really cute, but we're not taught at school how to run a business. it's like, you just have to learn on the job, which is great in one way, but it also means that sometimes we can go for years without working out how to sort our finances out, how to work as a sole trader, when to flick over to a company, all the things, right?
So the first thing is you need to work out what income do you need to bring in for your family every week or every month. So let's say I've sat down and I said, I need to pay myself a thousand dollars a week. So then the next question you need to ask yourself is what business income do you need
to pay your bills and your expenses?
So really, if you want to bring in a thousand dollars a week that you pay yourself, you need to bring in
$2000 a week revenue
for the business because you would pay yourself half of that and the other half goes to things like insurances, website setups and costs, any marketing investments, all the things it takes to run a business.
And so from there, you're able to establish what your lowest operating income needs to be. And then you can start to put together a system To either scrape off the top or as I do scrape off the top before I pay my bills. I'll get to that later. Financial freedom to me looks like not worrying about money in the bank because I have six months worth of buffer, but I have to tell you, I'm almost seven years into my business and it took me working on that goal for three years to make sure I had six months worth in the bank account as a buffer.
We as a family have a personal goal to pay off our mortgage by the time I'm 50. And this motivates me, but it also means that we make choices in order for that to happen. It means that I work hard,
and I'm able to have downtime. I don't mean naps,
I mean proper downtime.
It means I can take a week off of school holidays. I used to take the whole school holidays off, but I felt like my business didn't run quite as well. So we've boiled that down and now I have the first week of school holidays off. And it also means we closed down over Christmas and the new year.
And so I have six weeks off there. That is financial freedom to me. Knowing I've got money in the bank account and can have a break and can switch off. And it will look different. It will look different depending on
who you are,
what your values are,
what's important to you. Some people want a stack of cash because not having that gives them anxiety.
some people, um, want to buy material things. Some people want to invest in other things. we have a share portfolio that I have. I bought an electric car because that's really what I wanted. And we are moving, we are in the middle of building a house, which means it will be eco living. and so some of the choices that we make
are based deeply on our values.
Some people just want to live a simpler life. Some people just want less. So the numbers are going to vary along with whatever your values are. Yeah. I think the beauty of a financial buffer is that it means you can take the ebbs and flows as they happen. It means you can take those leaner months and just you can work with them.
It means you can have a little bit more choice on what you do. Choice leads to hope and freedom. I also think having extra money in the bank account means you can actually be a bit more creative about some of the services or some of the offerings that you actually put out into the world. And when we're leaving a corporate , job, we don't want to just say, well, let's bring in the bare essentials.
When you have your own business, you have the opportunity for uncapped potential. when you're first starting out, you don't see that when you're first starting out. It's like, right, we need to make this much amount of money and then we need to go from there. But if you're not adding 20 percent on each year and you want to grow, then I would suggest that that's what you do.
If you're sitting there going, Emma, I'm happy making a hundred grand or 200 grand a year, et cetera, et cetera. Awesome. But if you want to make more money,
you have the opportunity to do that. I will put a caveat around that. I don't know if you know my views on this, but if you are charging an hourly rate, it will feel very capped because of that situation.
So my first piece of advice would be to get out of charging an hourly rate and start thinking about output based. results, not hourly rates. Since the start of my business, I have used Profit First, but it's not a traditional way to bookkeep. So every week from Profit First, and we are barefoot, investors as well, but every week I move a 10 percent and I have done since I started my business, I moved 10 percent of whatever is in my bank account each week on a Wednesday morning.
Very specifically, I move 10 percent into a profit account, and then I work with the rest as operating expenses. And that's where we pay, out our wages, we pay our subcontractors, we pay all of the other expenses. But knowing that I've got 10 percent buffer week on week, and sometimes it doesn't feel like much, other times it feels like a lot.
I just put 10 percent away, and that is what helps me create a buffer. I'm curious about what financial freedom might look like for you. Does it look like getting clearer on your numbers? I had a love hate relationship with my numbers and so now I spend an hour a week lovingly staring at my numbers, wondering what we can move, what else we need to do.
I've set up a budget in zero because it has that, capacity. And I love looking at my numbers just to, to tweak them and to work out what's working, what's not. We need to get comfy with our numbers and we need to have a date with our numbers. So This week's homework, if you choose to take it, is to actually go back and have a look at your numbers and make a date every week to stare at those numbers, to get really good at those numbers, because financial freedom is in the details
and if you don't know the details,
you don't know you're trying to achieve. Anyway, I hope you have found this episode helpful. This is all about financial freedom, which I love. I love it when people come to me and say, I've got money in the bank account. I'm not worried about this. I can go on holidays.
Bang, bang, bang. Beautiful. Beautiful. All right. Until next week. Have a great week.
