How To Replace Your Income After A Job Change By Starting A Business
Starting a business is the fastest way to replace your income when you have a sudden or prolonged job change. It is the lack of knowledge, fear of not being able to pay your bills, and little structure that interferes with business success.
There are 25 million small businesses according to the U.S. Small Business Administration. 49% of business owners according to the 2016 American Express OPEN Small Business Monitor do not pay themselves. May 2020 unemployment is currently at 13.3% and many people are making income decisions since over 40% of small businesses are currently shut down and may never be able to re-open. Many people start a business endeavor out of necessity to make ends meet due to job loss, wanting a lifestyle change, or needing a flexible schedule. This may be you. You are not alone. You want to be successful in your new endeavor and support your family and yourself. There are three things that can help you set up your new business foundation and replace your income.
You Need A Blueprint
Think of it this way, you as the owner are the seed. In order to grow the plant that comes from the seed it has to be planted and nurtured. You have to equip yourself with knowledge like Bill did.
Bill contacted me because he was at a loss on how to grow his business. He’d recently been laid off and started a lawn service to keep his family fed, and it was going excruciatingly slowly. He had two consistent clients when we first spoke, paying roughly $70 every two weeks and although he was dealing with a lot of inquiries, they were all friends and family who either asked for the “Friends and Family Rate” for a one-time service or managing to not pay him for the services at all. He had already hired one employee and split the $70 revenue with his employee and took what little was left over.
When we first sat down, this amazing, gentle, big-hearted 6’ man broke down in tears, it was heart wrenching. He and his wife were overwhelmed, some bills hadn’t been paid in weeks and they were reaching the point of having to decide between groceries and the car or paying the mortgage.
As we sat there, Bill shared that he wasn’t sure what to do next. He’d exhausted all of his mental and physical reserves. So the first thing we laid out was a path to stable revenue and cash flow for his business and his life. Over the next six weeks, we were able to dig into his business structure and adjust his pricing so he actually had margin to pay himself first, and be taken seriously. Having a solid strategy for pricing also eliminated the guilt he felt when friends and family asked him for discounts since he now knew WHY he had to charge the price we calculated and it wasn’t a random number pulled out of thin air.
After we stabilized, we began to review other revenue streams he could pursue to expand his business and he was able to start landing landscaping projects, janitorial services, and government contracts.
Today, Bill’s business is thriving. He just celebrated his third anniversary with the business, has two employees who work for him, and is able to purchase all the equipment he needs, and still has a profitable business that allows him to feed his family and pay his bills. Most importantly, the sleepless nights sitting across the dinner table from his wife, having to decide if they want to buy groceries or pay the mortgage are gone. He’s able to be present with his family and be part of the memory making process as his children grow.
Pay Yourself On A Regular Basis
You may have heard that it is common for business founders/owners to not pay themselves during the first several years of the business cycle until there is a profitable business even when they need the income. Carol had these same thoughts until she learned how to build her business to pay herself on a regular basis.
Carol, a young vivacious woman in her early 30’s, had been in business for seven years as a contractor when we first met at a workshop and asked if we could grab lunch together so that she could talk about a “few issues she was having in her business.”
She shared, ”There is never any money to actually pay myself and it is taking a toll on me and my husband. I think I paid myself $700 in total last year even though the company made $75,000 when my taxes were done. I am now hiring subcontractors who are sub-par because that is all I can afford after I have to purchase the materials for the jobs upfront before I receive payment to start the jobs. My husband is working two jobs just to keep us afloat with our household bills. This year so far I’ve only made $30,000 in revenue that had to go to pay business expenses.”
Carol with her husband sat down with me to develop a blueprint. Over six-months Carol stabilized her household and her business. First, she stabilized the personal income over an eight-week period of time by covering the household income gap by writing herself checks first when she got business payments before business expenses.
Once the personal household revenue was stabilized, she began phase two of the plan to address the ongoing business revenue and cash flow concerns. We reviewed each of her services, put a cost factor to the services, and determined her new pricing structure. Through coaching sessions Carol learned that she deserved the money she was charging as an expert in her field.
Carol and her husband were elated at the end of the six-months. The business was stable and thriving. She’d hired six primary subcontractors she can depend on along with adding two paid full-time employees. Commercial contracts increased from two to four and ten new residential contracts were added. Her revenue increased to $30,000 to $90,000. And, her husband got to quit his second job.
Create a Business Structure To Drive Income
It is normal for new business owners to be really busy and to do things on the fly, even for years sometimes. They have gotten paying jobs or sold products before establishing legal and business structures.
Tina, a middle-aged, very friendly outgoing small petite woman, has been in the real estate business for 25 years and only recently thought of herself as actually being in business. When she approached me earlier this year she was in tears and said, “I'm calling you because I think that you can help me. I know you help businesses and people like me.”
She explained “I don't know what to do with not consistently getting paid. I feel like I never have any money to do anything for myself including going on vacation. It is a constant fight with my husband as he wants to use the money he is earning above the 50% he puts into our household budget to do other things. The last time that I saw a commission check several months ago I had to use the entire check to catch things up and now I have no money to do anything with after paying all of the bills.”
So we sat down and looked at her business structure which turned out to be non-existent after 19 years in business. She was successful she closes $1,000,000 in real estate annually. She has a 90%/10% commission split with her broker. She averages $100,000 per year in net commission payouts after the split with her broker. She didn't have a team nor an assistant. She always paid herself last behind all expenses.
We created a three step plan to stabilize income. During step one,Tina learned how to pay herself before any other expenses were paid. She started with taking 5% of the net commission for herself. She then paid all of her bills for the business and household with the remainder. She literally sent a text the first time she did this, “OMG! I actually have money left over even after paying the bills like you taught me and in the order you taught me for this check. I’ve been able to do it without touching the 5%.” In step two, she built a team starting with an assistant as the first position. In the last step, she built a passive income stream around the mentorship activity she had been doing within the brokerage firm for over a decade..
At the end of six-months she was relieved to not be worrying anymore about incoming income and paying bills. Her relationship with her husband had taken on a new life. Her assistant had helped her to obtain 30 new leads each week, increase her contracts from two to four per month, and put her on track to close on over $2,000,000 in real estate thereby almost doubling her income.
If you started a business out of necessity your WHY is not because you are doing it out of passion, even if you are passionate about it. You started because you need the income, the flexibility, or a lifestyle change. No matter what your reason is for starting, you must have a blueprint to set up your business, learn to pay yourself on a regular basis, and develop a structure for sustainable business operations. All three of these will enable you to be successful.