How much do you need to make each month? While it’s going to vary from person to person, you should know how much you need every single month in order to be able to continue in the lifestyle that you have made for yourself. You need to know what you’ll need to continue paying yourself, your bills, your overhead, your contractors and your employees.
Over the years that I’ve been mentoring, coaching, and consulting with appraiser business owners across the country, I’ve found that very few small business owners know what their finances are. I know it sounds crazy but it’s something that I see on a regular basis and it is more common than you would think.
I’m sure that’s not you. It’s none of you reading, it’s your neighbor, it’s your colleague, it’s your peer, but there’s a lot of appraisers that don’t know what their finances are. They don’t know what their hourly pay is either, they also don’t know what it takes to run a business and they don’t even sit down and crunch the numbers.
I’m only a numbers person because I’m forced to be one. For the first twelve years of my business I only knew what my financials were on a high level, I didn’t look too closely at the details. I didn’t know how to look at a balance sheet and I didn’t know how to read a profit/loss statement.
As a small business owner, it’s nobody else’s job to know the financials of the company. You don’t have a CFO, you are the CFO, CEO, the President and everybody else in one. You’ve got to know where your finances are.
I’ve found it very helpful to know what my “monthly nut” is. This is the amount that I need to achieve in order to make things work. I might not reach the goal every once and a while, but, in general, I have a level that I need to be at to meet my goal. This is the financial push I want to meet so that all my bills, my contractors, and my employees have been paid. I can cover my taxes, take home a salary and put a little away for savings. What is your monthly nut? How does that translate into orders you need each month?
The appraisal business is a service business. In general, you should allocate about 20% for operating expenses like your gas, software, hardware, membership fees, and so on. If you have employees or contractors, they should take up about 50% and, as the owner, your salary should be around 20%. The 10% that is left should go into a savings and slush fund to carry you through if you have a slow month.
These are a few financial benchmarks for you to consider. Most importantly, you should know what your monthly nut is. What is it for you? Where do you need to be? Do you know what that number is?
For more information on this subject, please download and listen to The Appraiser Coach Podcast Episode: 448