Understanding the Cost of Doing Business ~ Pamela Jean A New Life Coaching

Hello and welcome to Tuesday's Talk. This is Pamela Jean. Thank you so much for joining me today. It's an honor to have you here. Today's topic is challenging. It is a tough one for most business owners. This is the day that we're going to talk a little bit about the cost of doing business. Trust me, it's a complicated topic. We are just scratching the surface. If you have questions and need help with this and and want to just inquire about more information, feel free to reach out to me because I promise you this is a challenging and a difficult topic. And don't be afraid if you have questions. It would be normal that you would have questions about this. So what I'm hoping to do is open your mind today and help you have a good strong understanding of what it costs you to run your business. It doesn't matter what you are in the business of, whether you have a portrait studio, a hair salon, you're a realtor, if you have a direct mail business, a direct marketing business. It doesn't really matter what you're in the business of. Even if you have an attorney's office or if you're an architect's firm, you have certain fixed costs that go into running your business every single month. And how can you price yourself appropriately if you don't understand what your cost of doing business is? You know, it's everybody's goals and dreams to hopefully retire someday and have a good living. And as a business owner, you deserve that too. You deserve that opportunity to retire someday. And because you are in business for yourself, you don't always have the luxury of 401ks and retirement plans. You have to do this all your own. So it's a little bit trickier for people that are selfless employed. But what I'm hoping to enlighten you on today, or at least start a narrative in your business, is how much is it costing me to open up my doors every single day to serve my clients? That's where we're going with this, this little talk today. So what you need to do, get out your pen and paper. It's important that you start making some notes. I need you to figure out exactly how much all of your fixed costs are fixed expenses for your business. This would include your rent, your utilities, your company vehicle, if you have one, office supplies, Internet expenses to have high speed Internet at your office, all of your equipment, your insurance, how much do your employees cost you? Those are fixed expenses. Those are expenses that you're going to have every single day. Regardless of how many clients come through your door, that's just simply what it takes you, costs you to unlock your doors and be open for business. And what I want to do with you today is we're going to break it down into how much it costs you per hour to be open. So for instance, take your rent. If your monthly rent is $1500, what you're going to do is divide $1500 by four weeks. There's typically about four weeks in every month and the 12 months out of the year. So go by divided by four weeks and then you're going to divide it by 40 hours per week. That's going to get you establish how much your rent costs you per hour for the 40 hour work week. Now if your business is open to the public 35 hours, you would take it, divide that by the 35, but you're going to take that same formula. So it's your monthly expense regardless of what the expense is. Rent, car payment, etc. Take that monthly expense, divide it by four weeks and then divide it by 40, representing 40 hours in your work week. And that'll get your hourly expense for each of those categories. And don't forget any expenses. It's easy to overlook something, but this would even include professional fees. Education. If you go to a seminar every year, figure out how much your education is going to cost you. Everything that is a fixed expense for your business that you simply cannot operate and function without. It goes into figuring out your cost of doing business. Now I want to give a quick little, just a little example and I'm going to pull that from the photography industry because that's the industry that I've come from. If my cost of doing business per hour is $200 an hour, after I've gone through all of those expenses, all of those fixed expenses for my business, it's $200 an hour. And that would be relatively normal for a brick and mortar type of business. And again, that doesn't necessarily just isolate to photography. It can be any business you're in. So approximately $200 per hour. And let's say we're just going to go through a scenario with a client that would come through my studio. If I had an hour spent with a consultation for my client, then I do an hour photo shoot with them. My production time is approximately an hour and then an ordering appointment would approximately be an hour. So you have four hours invested into this one session. It's costing me, take that by the $200. It's costing me $800 to create and produce this one session. That is what it is. Take a look at your expenses. There's always ways to trim the fat, to be more efficient, etc. But we're just going to go with easy math here. So that's $800 to produce this one particular session. If that client came back to the studio and placed an order of $1,000, and we subtract the $800 of fixed expense, your cost of doing business out of that thousand, that leaves us with $200 left. Now, of that $200, you still have your cost of goods. Cost of goods are going to. Gosh, they're going to range anywhere from 25% to 40%. Depends on what business you're in. But even if it's 25%, that's only leaving you with around $150. So you have worked essentially for four hours with one particular session, and that's left you with less than $150 to invest in your company to pay yourself to work on your financial future. Now, what if that same client came in and they only spent $500 with your business, they only invested, placed an order for $500. Well, if $800 is your cost of doing business minus that $500, you're actually losing $300 on that particular session. The reason why I want you to figure out this information on an hourly basis is because that's a good way to gauge, okay, how can I cut down on how much time something is taking me in the portrait world? Perhaps you can spend less time in the production segment. Maybe there's something there that is not very efficient. Perhaps you can find a way that a consultation would only take 30 minutes as opposed to an hour. There's ways that you can figure out how you can financially make your ends meet a little bit more. So cost of doing business is a very, very important factor in your longevity and the future of your business. If you don't have an understanding of how much it's costing you to be in business, you're not going to know how to price properly. You're not going to know if you can afford to hire an employee. You will not be able to reach your financial goals for your personal life and for your business and your family. If you don't have an understanding of how much it's costing you to run your business, it's so important to know and understand this. Now, I realize I've given you the absolute scratch the service, bare minimum information here. This is really, really A very complex topic and it does take a lot of time to go through and work through the process of this. So please take the time to start writing down all of your expenses for your business. Talk to your accountant if you need help in figuring out all of these details. The information is so important. You can never reach your personal goals and your financial goals without having this knowledge. And I'm going to just, you know, take a stab in the dark here. But most businesses fail because they don't have an understanding of what their cost of doing business is. And the reason this is intimidating to most people is they don't know where to begin. Really, really face the fear of this head on. Knowledge is power. If you know and understand how much it costs you to do to open your business, how much it's costing you to run your business, you can price appropriately. You can potentially cut out products and services that are making you lose money simply because of the they're designed. It gives you the opportunity to redefine your future, gives you the opportunity to redefine the success of your business and ultimately your personal financial success and reaching those goals. Everybody has a goal of how much money they want to make per year. And I want you to think about it like this. If you were to go get a job working for another company for a bank or you know, any company that you want to work, work for, it doesn't matter what it is, but if you're working for someone else, how much would you expect to earn from that company? Would you think 50,000? Do you think you're worth 70,000, 80,000, 100,000? It doesn't matter what that number is for you, but we all have that number that what we think we're worth. That if I went to work for someone else, how much do you think you would be worth if you went to work for another company? But you would be surprised at how many self employed people don't pay themselves what they would expect to be paid working for someone else. So why would you work for nothing? Why would you undervalue yourself as your own employee and not pay yourself what you're actually worth? What you know you're worth, your business really you, you couldn't run, wouldn't be a business without you. You personalize it, you make it what it is. So be sure that the owner compensation is part of figuring out your cost of doing business and that will help set you up for those future goals to be met. So thank you so much for joining me today. It's been great sharing this with you. I know this is just a tiny little scratch the surface of on cost of doing business. It's such a complex, such a complex topic. But I want you to start thinking about it. Feel free to reach out to me if you have any questions regarding cost of doing business. And I would love to answer those questions for you. Have a really, really awesome day. Just thank you again for joining me.