What numbers do you need to know to achieve the financial goals you have? Learn how to turn your big goals into manageable action steps that we can all take in this training taught by the Small Business Administration's "Entrepreneur of the Year" Clay Clark.Sign Up to Watch
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-My name is Caleb Taylor and I'm one of the hosts here at the Thrive15.com, the online platform that provides trainings on branding, pr, time management, sales and more. Today I'm talking with Clay Clark about accounting and finances-- specifically, goal setting by numbers. We're going to be breaking it down and finding out exactly what numbers you need to know in order to achieve your financial goals. Here at Thrive15.com, we believe that knowledge without application is meaningless. So Clay's about to bring the knowledge. But then it's up to you to apply it. So as he's speaking today, as he's dropping those lesson nuggets, ask yourself, how do I apply what he's saying to my business and my life? Because if you don't, today's episode could be more meaningless than trying to get me not to do this dance.
-Clay, welcome to your own studio. It's good to have you.
-When I knew that I was going to be on the set today, I got excited.
-Ah. I look forward to it every time.
-Yeah. I knew you did.
-Mostly because I don't know what you're going to say. It keeps us all on the edge of our seats.
-I was actually on the edge of my seat just a minute ago until I kind of adjusted.
-Good, good. Well, you know what? You're going to stay on the edge of your seat this whole time, because we're talking about some fun stuff here. We are talking about accounting and financial planning. But specifically, goal setting by numbers. And I'm glad that we're talking about this with you. Not just because you're an attractive pale man, but also because you didn't grow up with a trust fund. You didn't grow up with a lot of wealth that just propelled you to the success that you have now.
You learned how to set specific goals in your business, financially, and you learned how to save, you learned how to reinvest it. You learned what was necessary to succeed. And that's how you made where you are today. And that's why I'm excited to hear from you.
-I appreciate that. I might-- honestly, I'd like to joke around and keep things light. But I will tell you, if you're watching this and you're coming from a place of financial desperation or frustration, it can be tough.
CALEB TAYLOR: Yes.
-And the Gallup poll came out with research on this. There's a lot of other studies. But they were showing that 13% of American employees are engaged in their jobs. Some of their stats show 20% of Americans are engaged in their jobs. But the point is that very few people are actively working in something that they're passionate about. But yet there's all sorts of data that we can pop up on the screen here and I know we've got a lot of data we can show you here, but most Americans can't afford to retire. So it means that most people are doing a job that they don't like, and then they can't retire at the end of a lifetime of working at that job.
And I do believe that life is not a dress rehearsal. And if we'll just take ownership of the numbers in our life, we can do awesome things and live a life of abundance and not just to get by. And we're going to teach you specifically how to do it with numbers today.
-Good. Yeah, you have a book about that. You talk about how life's not a dress rehearsal. Make it epic.
CLAY CLARK: Absolutely.
-Make your life epic.
CLAY CLARK: Yeah, absolutely.
-And by setting these specific goals financially, that will help you get to the point where you wake up every day and you do something you love doing.
-Yeah I can honestly say-- I mean, there's things that you always-- hindsight, I wish I would have done this, wish I wasn't doing that, but I can honestly say when I go to the store I don't sit around and look for the best price anymore. I used to. That used to be the number one focus. I used to just go, gosh, how am I going to afford this or that? Now our cars are paid for. We don't really have debt. But at same time, we don't spend like a bunch of crazy people either. We're pretty frugal. I buy five blue suits a year to wear those suits every day.
-You've got a couple of red ties, don't you?
-Yeah, but it's a plethora. A plethora. I don't know if that's a word you're--
-Yeah. No, I'm familiar.
-Your mind would understand, but--
-Good. Well, let's jump right into this. I know that I've heard you say one of the most important things when setting goals by the numbers is identifying that break even point in your business. So at what point are you no longer losing money.
-Can we show up here on--
-This is big. If you're driving your car, and I'm hoping that you have a car that has some of these features. One of the first cars I had was a Ford Escort, and the car just didn't have certain features that other cars would have--
Here's one of my steering wheel. And over here you have a gauge, maybe here you have a gauge, maybe here you have a gauge. But this one is the empty. This is the fall. This is your gas, right? And you say, I'm on E, right? Well, then you have one that's like yours here. Oil pressure or your RPMs. Let's just say it's RPMs. So you have one here. And again, this tells you whether you're driving the engine really hard or not so much at all. And then you have these other gauges here.
Well in business what we're going to want to do is we want to have three basic gauges that are very important. So one is the break even point. We need to know how many transactions we need to do every month to break even. How many transactions do we need to break even?
-At what point are you no longer losing money in your business.
CLAY CLARK: That's right. That's a number we need to know. Very important. I don't want to skip ahead, but that's just-- you have to know that. And I would bet you 50% of business owners I meet, maybe even 70% of business owners I meet who hire me as a coach or want me to help them, have no idea what that number is. So if you're watching this right now, how many deals do you have to do a month just to break even?
-But with this break even point, you have to specifically know-- like you touched on just briefly-- is how many customers get you to that point. So how did you do that, and what does that look like with the DJ business?
-For the DJ business, if we were going to do a wedding for a bride and groom-- and this is indicated by her dress, here, and this will be the guy, here, OK-- well, I had to realize that every wedding I did, I charged the customer around $600. That's what I charged them. But my profit, after paying all the employees, was only-- OK, because I took this $600, and I only got to keep 33% of that, right? So after paying everybody, I always thought, well I've got $200 left, right?
Well no, I don't. Because how many $200 deals did it take me to pay my $3,000 a month lease? Well, I found out that every month it took me-- I'm just making up a general number, because I don't have the numbers in front of me-- but it roughly took me 20 events. So 20 events per month, right here, just to break even. It took me 20 events every month just to break even. And here I was spending like that money was profit, that I could use right now. A lot of business owners make that critical flaw.
-So, we're touching on this now, but I'm just going to hit on it again. The first point in this, goal setting my numbers, is what is your break even point? That cannot be a general number. I think it's roughly about this number-- you need to know that number by heart, specifically, at what point is your business no longer losing money?
Step number two here, like Clay's already touched on, is how much profit do you take home per customer? OK? Not how much revenue comes in with each deal, but profit. After everything's been paid, how much profit do you make per customer? Why is that important for us to know?
-Well, the profit per customer-- some people will call the PPC, but its profit per customer-- the reason why you need to know this is that, when you are running your business you have to get excited. And a real excitement. You have to know, man we have 200 people eating dinner at our restaurant tonight! That means that we're going to make $1,000. Or whatever that total means to you. But you also have to have that little bit of healthy fear, where you go, man, we have four customers in our restaurant today. We're up a creek, and if we don't get serious about our numbers we're going to go out of business. So you have to have a clear grasp of how many customers it takes to break even.
-And if you don't have these clear numbers-- if you don't know exactly what your profit is per customer, or at what point are you no longer losing money, you can never improve or grow your business. Because I've heard you say, Clay, if it's not measurable, it's not manageable. You can't make adjustments, and grow, if you can't measure it.
-Absolutely. And I will just say this, doing accounting for a lot of people's not fun, but it's something we have to do. And I'll give you another example. I have a friend of mine-- I was sharing with this on some other episodes-- but he lost 90 pounds this. And all he did, literally, was he counted the calories he ate every single day. He had a little phone app, and every time he ate something, he put in the calories. And he never ate more than 1,000 calories. He lost 90 pounds.
-And that's not possible if you're not measuring it.
-He's sitting there going, nope, can't have that. So he was eating stuff there would fill him up, but that wasn't high calorie-- like carrots-- that kind of thing-- or celery. [CROWD CHEERING] And he found out, gosh, carrots have more sugar that this other kind of vegetable. So he's like, I'm not going to eat carrots anymore. It's just-- you have to measure it. You have now know that.
-You have to. Good, so to the third point here is the numbers of customers that you need to achieve your goals. So we've outlined, at what point in our business we're not losing money.
-Yeah, so what you're going to have, is you're going to have your profit per customer-- that's area number two that we talked about. You have your break even point. OK? So this is going to be, again, your break even point.
-And the number three is the number of customers that you need to achieve goals. Number of customers.
-Yeah, I'm just going to put this-- because this is big. So let's just pretend that your goal-- my goal, honestly, was like this, man. I said, I really want my super sweet wife-- I mean, my wife was working all the time. I worked at Applebee's, and Target, and tax and accounting software. A lot of people watching this, you know what I'm talking about. You're working 70 hours a week. I was working 70, 80 hours week, every week. And my goal was to let my sweet wife stay home with our kids. And we didn't have a kid at the time, we had one on the way. And I remember, as my sweet wife-- she's looking over at me every day, you know, and starting to get the little belly going here.
And she's looking over at me, and she's encouraging. And then pretty soon the hands go up, and she's like, you better take care of me! And this baby's is getting bigger, and that pressure is gath-- I knew, man, to take care of her, every month I've got to do 40 events a month. And if I do 40 events, I can take care of my life the way she deserves to be taken care of. I can feed our new child. She can stay home-- my wife can stay home with the baby. We can provide for insurance, and the things we need. But I had to know that number. And when I got to 40 I was celebrating, man. I was pumped. I was like, yes! When I was at 37, I'm like, no, press harder. Press harder. Because I cared, and I was so deeply passionate about getting the 40, I pushed to it.
But if you don't keep score, it's like playing a game where you don't know the score. It's like playing hockey, or baseball, or something where no one's keeping score. If no one's keeping score, there's no press at the final minute of the game. But when you watch an NBA game, or NFL game, when the score's tied or close, the game gets exciting. And people actually tune in just for the final few minutes of the game. That's at your business should be. Your people in your business should tune into the final days of the month, because they're excited. Your employees should go, we are almost a 40! We can do it! We can do this! That's how it needs to be. Without that number you're shooting in the dark-- it's fuzzy, it's ambiguous, It's foggy, it's bad.
-And you'll be complacent. You could very easily feel good about, dang, man-- we did 35 events this month. Sweet!
-Today we had a lady who reached out to us about hiring us to come speak to her group. And we celebrated your success today. We were able to bless these 20 people that we're training-- we have this great training coming up. We were all excited about these 20 Thrivers-- that we get to help grow their business. That was exciting. But if we didn't know how many events we were doing, or how many people would be at the event, we can't get excited about, well there might be some people there that we might be able to help. Be we wanted to know-- there's 20 great people at this event. That's exciting!
-Yeah, and we knew exactly what our profit was per event-- so how many events we have to do. It all makes sense.
Number four, here, we have is-- I'm just going to throw that out, I don't need that paper. Just get rid of that one-- the number of weekly transactions you need to achieve your goal. So you say monthly as well, but it's often helpful to break it down to a weekly level. Correct?
-I love to break everything down to weekly, because, honestly, let's talk and let's be real. Nine out of 10 business owners in our country, 90% of business owners, according to the SBA, have 10 employees or less. We're talking about businesses that are a million dollars a year revenue or less.
And so lot of us are in a tight spot financially when we start a company. But the number of transactions is different than the number of customers, because check it out. One customer can come in, and if you do it right, he can buy from you twice.
So one of the businesses I'm a part owner of is a men's grooming lounge. So what we do is a guy comes in, he looks like this. He comes in, he's got this big old mustache. That's kind of popular to have a mustache and beard right now. He's got this weird hair going on here.
INTERVIEWER: Yeah, look at that.
CLAY: Yeah, so he's got this hair going on. And what we do is we say, hey, sir--
INTERVIEWER: That's pretty impressive.
CLAY: Yeah. Well, it is. He comes in, and he says, hey, hey, buddy, if you come in here-- and he says, oh, ooh, yeah, he says, I do like this place. But he comes in and he says, hey, if you come into our place and you get your haircut here, we recommend you come in twice a month to maintain that look. Two times a month you come in here to maintain that look.
-Maintain that look with the hair. That look?
CLAY: He says, by Jove, I do want to come in twice a month to maintain this fu manchu and this hair. By Jove, I want to-- yeah, so what happens is is he does want to come in twice a month.
But by him coming in twice a month, he is now two transactions a month. He's one customer but two transactions, very important we do not mess these numbers up. You don't want to mess them up or confuse them. We need to know these as separate numbers here.
-And you did that with the DJ business. You broke down all four of these steps to where you knew if you were achieving those goals or not each week, each month.
-This is called your financial dashboard. If you don't do this, you're going to get a ticket. In business, you don't receive a ticket, you just go out of business.
INTERVIEWER: Right. And I've even seen you do that with Thrive. I mean, you've mapped it out to the point where you know, if we have this many subscribers, we reach this profit margins and we're able to get to this next stage.
-And Thrives a unique business, because we quantify Thrive. Every time that someone subscribes to Thrive, we get a chance to help one person in the military. And a lady came up to me today named Sharon. And Sharon, if you're watching this or your husband-- unbelievable. She came up to me-- her husband served our country overseas-- and she came up and said, can my husband get free access to Thrive? Does he owes you guys anything?
I'm like, no. He already served the country. It's free. So we track our success in two areas. One, how many people we can bless, and two, how profitable are we? So we can keep growing this and building something special.
-But you really can't build anything special unless you're actually keeping track and measuring these.
-If you cannot measure-- you only measure what you treasure. And if you can't measure it, you're not going to build any treasure.
-So here's my thing. If I'm an entrepreneur, and my thing is sales. Man, I am just, woo, I'm the sales wizard.
CLAY: Sales wizard.
-But numbers, you lose me, and I don't really enjoy doing that. So I don't want to do that.
-Well, you got two options. One-- and if everyone were to do this, it's easy to have a problem-- but one of our Thrive mentor's name is Tim Redmond. And Tim built a company from two people to 450 people. He was a CPA by trade, but he also knows business.
Hire somebody like Tim to come into your business if you can. And he'll just come into your business, and he'll help you identify your financial dashboard. If not, if Tim's not available, or if you don't want to hire Tim or whatever, a bookkeeper. Just go get a bookkeeper in your local community. And usually for about $200 to $500, they'll help you set up your financial dashboard.
-You're telling me that's worth my money.
-Absolutely. And tell this person, specifically, those four metrics we talked about today. I want to know this information so that I can run my business successfully, because your four numbers should serve as like a compass. So you'll know, oh, that's north. Oh, OK, that's north. You need to know that.
Your numbers should be your compass. You should lead with your financial numbers. You shouldn't like look back in the past and go, that was bad. Lead with the numbers.
INTERVIEWER: Right. So we've touched on these four principles for you. These specific numbers that you need to know to grow your business. Now it's up to you to actually sit down and do it. Hire somebody if you need to, but you've got to know these numbers.
-Absolutely. And I want to tell you this. Sometimes prayers go unanswered. Sometimes hopes and wishes don't materialize. But things that you schedule, that you assign a set time to do, have a much higher likelihood of happening. So it's very important that you schedule a time to do these things.
CLAY: Hey, for a while there I was worried about you having maybe a communistic, sort of a socialistic world view.
-No, that's not true.
-But those views have been replaced with a new concern, but I'm not going to tell you about it.
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