It’s been said that if you don’t have a plan to grow your business within the next five years, you’re likely to hit stagnation at some point. Whether you’re a freelancer, contractor or consider yourself an entrepreneur, even if your financial goals are small, it’s worth setting them so that you have something concrete to work towards.
On the other hand, some people are afraid to set big goals either for fear of failure or because they don’t believe they’re capable of achieving them.
Consider for a moment that you want to earn $100K/ year, gross, working only 20 days/ month, for a maximum of 50 weeks/ year. If you’re only earning $40K/year from your business, it might be emotionally difficult to believe $100K is possible, let alone anything more. But if you break that down into a daily rate ($400), the number is not so intimidating.
Here are some tips for setting your business financial goals.
1. Have a concrete financial goal. For the sake of argument, say it’s to earn $240K/ year in revenue from all sources, active and passive. Can you do it? Absolutely. Will you do it? Maybe. Do you have an emotionally strong reason to reach this financial goal? Is it strong enough to carry you through tough times.
2. Make the goal easier. Break the goal down into stages. For example, $240K/year might be emotionally difficult to accept. Break it down to monthly ($20K), weekly (~$4.6K), or even daily (~$660) earnings.
3. Build multiple streams of income. An earnings rate of $660/day might seem intimidating, might be hard to accept emotionally. That’s because the tendency when you’re starting out is to think, “What job could I do that would earn me that much?” If you think that way, then you’re already defeated already.
If you’re building your own business, then you have to think like a business owner, even if you’re just freelancing or contracting. Successful businesses typically offer more than one product and/or service over time. In a similar vein, you can build your financial goals from multiple streams of income. You’re building your revenue in multiple ways, never reliant on just one.
Key to making multiple streams of income work for you is that you maximize the passive streams. There’s no point in trying earn extra income if you have to work day and night to do so. However, if you spend some extra time initially to build passive streams, they may pay off in the future. There are many online opportunities for building passive income.
Having multiple streams of income, especially passive, gives you several benefits. Firstly, because you’re not reliant on one stream, you’re less likely to be in a situation where you have to take a gig or contract that you don’t like. Secondly, because you lift the feeling of desperation, the positive state this creates carries over to your entire way of running your business, doing your work.
4. Know what you need to do. Understand what your financial goal means mechanically. That is, how many hours of work, how many projects at a certain rate, how many units of sales, etc. Determine this for all your streams based on historical information.
Obviously, some income streams will earn more than others, but it’s far easier to emotionally accept the possibility of achieving your goal of $20K/month if you have multiple sources.
5. Build your timeframe. Step backwards. Use reverse tunneling to move backwards through your goal, to break it into easier to achieve smaller goals. For example, if you want $200K/ month in Dec 2009, what do you need achieve (sales and actions) in Nov 2009? Now what about in Oct 2009? Step backwards in consistent increments (in this one month).
If you’re only earning your income from one source, say freelance writing, then think about how much work you have to produce each and every day to earn $660. Unless you’re one of those fortunate (and skilled) few commanding high rates per project, then that’s an awful lot of planning, researching and writing. Instead, think in terms of a number of services (multiple streams of income) at different rates. Include as many passive income streams as possible.
Types and Sources of Income
Here are few types of income you should consider:
- hourly rate
- daily rate
- project rates
- monthly income
- passive income – note that there’s no restriction in terms of earning period, but often passive income is paid out monthly if you’re working online.
Here are some possible income sources, generically speaking:
- passive/ semi-passive
- advertising revenue
- ebook sales
- web service subscriptions
- capital gains
Which combination of income strams you aim for is really up to you, and dependent on the kind of work you’re interested in. It depends on your current situation, your knowledge, available time, and career and financial goals.
It’s important to keep in mind that passive revenue streams do require some initial effort. If you don’t have large blocks of time to devote to building what will become passive streams of income, then you may have to take a piecemeal approach.
An example of passive income is royalties from a book. The advance you get for writing it is active income. If you get asked to write a second edition, the earnings from that are semi-passive.
Semi-passive income refers to streams that require some ongoing effort to maintain. Another example is a subscription-based website. Keeping the site active with either a moderated forum or with fresh new articles, or both, is what will keep people coming back. This will also draw new visitors who might become subscribers. These new people will either supplement your current subscriber base or replace those that leave.