Transcript:

You're a high performer.

Maybe you're the king of sales. You close deals in the blink of an eye!

Or maybe you're a marketing wunderkind. You can create a need for your product so well it becomes the air people need to live.

Perhaps you're the most savvy operational thinker this side of the supply chain.

Whatever your talent is, you're the absolute best at it. That's why you started your business! To channel and monetize the inconceivable skills you have.

But there's a problem: anyone you hire to do your job - sales, marketing, operations - well, they suck at it.

At least, they're not nearly as good as you are at it.

These people aren't working for a company; they're working for you. Relying on you to perform like you always do. Relying on you for their success.

You have become the business.

[Intro music]

Welcome back to The Profit Plot, a podcast where we help small business owners unlock the story behind their profitable business by unpacking one complex financial topic at a time. I am your host, Jeremy Millar.

Running a business centered around yourself isn't a bad thing. Many small companies that generate millions of dollars rely on their founders to generate revenue!

It's incredibly common for high performers in service-based industries to break out on their own and start a new business.

The problem is, most of the time, the business that gets started isn't a business; it's a job.

You may be self-employed, but you're not building a sustainable machine that can generate revenue and grow independently of you.

Without the freedom to grow independently, your business will always be limited to only what you can accomplish!

For business owners that are already doing a few million dollars a year in revenue, this is a widespread problem.

Your business is generating cash, you've got a few good employees who can do critical tasks, and the money is coming in, but you're still the one driving.

You end up working more than ever, questioning whether your business is worth the stress, and start contemplating what it would be like to shut it all down.

If you find yourself in this position, know it's not hopeless.

You can build a business that grows beyond yourself! You can pilot your ship toward a brighter horizon. You can take the weight off your shoulders without giving up.

But it's not going to be easy.

You need to change your mindset, implement new standardized processes to revolutionize your business, and understand your financial position.

Many single-person businesses making between 250 to 500 thousand dollars annually find themselves making good money but doing too much administrative work.

You're a high performer - you need someone who can get the administrative monkey off your back so that you can make more money, right?

Your first hire as a business owner is a pivotal moment. It's a move that unlocks your time so you can focus on the things you find most important.

What most business owners in this stage neglect to think about is the bigger picture!

Every business is made up of multiple departmental functions. You have sales, marketing, finance, administrative operations, customer support, and more.

Single business owners often operate on the idea that they can do everything themselves. Their first hire is usually an administrator to help them continue to fulfill obligations to their existing customers.

For example, if you're running a law firm, you've got a steady stream of clients you need to help regularly! You're processing checks, corresponding with multiple parties at once, and making changes to documents while trying to track your billable hours.

It's only logical that your first hire would be someone in a supportive role to help you continue to fulfill your duty to your customers.

A problem arises here, though. Suddenly, your business is now entirely positioned around helping you. This problem begins to compound itself over time if you remain unaware.

It's this mentality that business owners often find themselves trapped in. They build an entire ecosystem around themselves.

To break out of this habit, you've got to separate yourself from your business. You have to create a way for your business to operate independently of you!

High-performing salespeople often start businesses where they plan to recruit other salespeople over time. They begin first by making a good amount of money in their business! Their costs are low and their profits are high.

The problem they run into is that every subsequent hire in a sales position will never produce as much as a high-performing founder. Typically, the people you hire will only perform work at 75-80% of the rate you do.

Hiring a new person means that you're taking on additional expenses to support them. This means that your profits will never be quite as good as when you were solo, ultimately creating a divide in which a founder has to hire enough people to make up for their loss in production.

It can feel like a dangerous trade-off.

For sales-focused founders, it's crucial to accurately track how much money you bring into the business instead of your sales team. If you plan to work with and train your team, your personal sales figures will dive while you get everyone else up to speed.

This starts with defining the processes you use for each aspect of the business. How do you conduct sales calls? What steps go into creating your marketing collateral? How do you send an invoice to your clients?

Each departmental function of your business - sales, marketing, finance, administrative operations, customer support - need a clearly defined process that someone can come in and pick up with minimal training.

Here's how to get started: sit down and list out every job that gets done in your business. From answering client emails to sending an invoice, what are the tasks that go into getting things done? This exercise can be helpful no matter the size of your business: from 500 thousand to five million in revenue, every business is built on a set of tasks.

Once you've defined the tasks that need to get done, assign them to a job title. Detail out the responsibility for each role in the company. If you don't have any employees, that's okay! Think of what position would take care of the tasks you're assigning and go from there.

Defining your processes allows you to extricate yourself from the symbiotic relationship that your business has with you; it will enable you to exist independently! This exercise allows you to identify the gaps within your organization and define your steps forward.

Who are you going to hire next? What about after that person? And after that?

Creating a plan for expanding the business is integral to keeping the separation between self and company.

Understanding who you need to hire next is a pivotal point in the growth of your business. It allows you to plan ahead and evaluate your direction!

Once you've reached this point, the next hurdle becomes clear: how will you afford it?

Hiring someone costs money.

Recruiting can get obscenely expensive! You may need to offer benefits, competitive pay, and more to get the person you want to hire into the door.

For these reasons, it's vital to understand how your business is making money and what it will cost to hire the right person. Not just how much you have to spend, but how it's coming in in the first place.

Your business needs a financial forecast.

Forecasting the future allows you to model scenarios in which certain variables change.

It also affords you an opportunity as a business owner to evaluate where your money has been coming from in the first place. Have your marketing campaigns been effective? Are you seeing sales generated from networking?

Are you the sole reason your business makes any money?

Understanding the way that your business is generating cash can help you unlock a deeper understanding of the following steps to take. Whether it's a person in a supportive role meant to facilitate you making more money or a critical position that will take you to the next level.

Playing out the impact of that hiring decision from a financial perspective can give you a superior level of insight into how your business will perform as a result of your decision.

How do we create a forecast?

First, you need excellent financial data. Without accurate information, you're going to get an incorrect model.

It's most common to build a forecast off of your historical data. Generating a Profit and Loss from a past month, quarter, or year can give you a good starting point. Find the averages of each line item and roll them forward into future periods.

For example, if you're forecasting your hiring plan for the next six months, look at the last six months of financial data first. Then, roll forward the averages you see there for six months.

When your baseline is down, you can start changing the figures you plan to adjust. Perhaps your wages expense will increase, and so will payroll taxes, benefits, etc.

Creating a forecast is a means of testing your hypothesis, weighing your options, and considering your own approach before moving forward with your decision.

Forecasting is a tool that can facilitate confidence in your business decisions and create a vision of the future that helps break the mentality of a business completely reliant on its founder.

So, let's quickly summarize the key points we've discussed today:

Recognize the difference between being self-employed and owning a business. Your business should function independently and not be overly reliant on you.

Start defining processes for every aspect of your business. This will allow others to pick up tasks with minimal training, freeing up your time for more strategic decisions.

When you do hire, plan it strategically. Don't just hire to assist you; hire to complement and expand your business operations.

Finally, understand your finances and forecast future scenarios. This helps in strategic planning, particularly when making hiring decisions.

Aim to create a business that can operate and grow without your constant involvement so that you can take a step back without risking the success of your enterprise.

With these key points in mind, let's strive to build businesses that aren't just extensions of ourselves but sustainable entities capable of independent growth. Remember, your entrepreneurial journey doesn't have to be lonely; you can build a team that supports and propels your vision forward.

Make sure that you're subscribed to The Profit Plot podcast on Spotify, Apple Podcasts, or wherever else you get your podcasts from. If you found today's episode particularly insightful, please share it with a small business owner so that other entrepreneurs can benefit from our conversations.

The more knowledge we share, the better off we'll all be.

Join us again soon as we venture to unlock the financial story behind your profitable business. Looking forward to having you here with us next time, on The Profit Plot.