I’m writing this post because over the years I’ve never seen a internet marketing blog talk about managing your finances.
Sure, they talk about how much you can make. They sell shiny new products.
…nobody seems to ever talk about managing your finances.
And if you don’t do that correctly you can still go bust even if you are generating a lot of revenue.
Before I carry on, it’s important to say that I’m not an accountant and any advice written below is my own personal experience and you should check with your accountant before following it.
With the disclaimers out of the way, let’s move onto the main topic of this post.
Breaking down the costs of a business into their most simplistic elements means that you will have:
- Staff costs (including yourself)
- Running costs (website hosting, auto-responders, traffic, payment processors etc…)
- Development costs (creating new products, updating old ones)
- Marketing costs (sales copy, sales videos, affiliate payments etc…)
The number one mistake is to forget about yourself in your staff costs. If you decide not to take a salary initially then this needs to be a fully framed decision incorporated into your overall business strategy.
If it isn’t, then you’ll quickly find that you’re turning over a decent amount but spending more than your business can afford if you’re going to take anything out.
And… if you don’t take anything out you’ll feel like you’re spending a lot of time working and not getting anywhere.
It’s a very psychologically important to take some profits out of your business for yourself.
Whether you’re starting your business alongside another job or focusing on it full time, you need to determine how much you want to take out now and how much you want to be taking out in twelve months time.
Now that you know that make estimates of your other costs, and don’t forget that your time costs.
When starting I would give rough figures to certain jobs assuming someone other than yourself was doing it.
Running Costs are the easiest to determine as other companies set them. You will know how much your hosting, auto-responder and similar services are going to cost.
But be careful not to buy into services that you don’t use. It’s very easy.
Every couple of months go through your monthly payments and get rid of any services you’re paying for and not using or isn’t worth the cost. This will help to keep your monthly running costs as low as possible.
Next come marketing costs. It may be that you’re going to do all of this yourself, but if someone else was to do it you may have:
- $3000 for a sales letter
- $1000 for follow-up-email sequence
- $300 to setup the website and sales funnel
You get the idea 🙂
Affiliate payments will most often be a percentage of sales.
Finally development costs. How much is it going to cost you to make your product?
If you’re going to do it yourself then work out how many hours you think it will take and what you would charge as a minimum hourly rate to someone else.
Now you can work out how much it’s going to cost to set up a launch for your product and you can determine how many sales you need to cover your costs and make the profit you want from it.
Is it going to be possible to make this many sales based on your current business?
Reduce your costs.
This is where you can either eliminate elements that aren’t necessary at this stage of your business, or you can do the work yourself on the understanding that you will only be able to charge out your own time at a percentage of what you would have to pay others to do the work.
It’s great, you’ve got the finances sorted for your product launch, and the money is rolling in.
Now it’s time to consider the other costs. All this money doesn’t belong to you!
First of all a percentage of it is going to be your affiliates.
Next a percentage of it is going to go to the tax man. There are two types of tax, there will be the sales tax you’ve charged your customers and the tax on your profits.
You want to make sure you can afford it when the bill comes in!
The way to do this is to separate out this money into another account. Never touch this account except to pay the tax man from.
Doing this prevents you from ever being in the position where you have used your tax money to grow your business
This is the second most common reason most small businesses fail.
After you’ve removed the tax money and paid affiliates, next you need to pay out for the services used (including your own time).
What is left is profit… congratulations.
You can choose to spend this how you like. Personally I always put a percentage into future developments, leave some for cash flow in the account and take some for myself of course.
In summary you should be looking to make sure that you have a full understanding of how your accounts are working before you start any product launch
Doing this will ensure that you are never in a position where you can’t afford something or you have an unexpected cost. Plan your product launches carefully not just from a marketing perspective but also from a financial perspective.