New year, new outlook — part one

This new year is a time to celebrate. Gone are the trials of 2020, and now we look forward to a new year with new hopes and ideas.

We also need to reflect, looking back at what we did right, what we did wrong, and how we can improve things moving forward.

And you’ll hear a lot about people’s resolutions. They vow to lose weight, save more money, spend more time with the family, and create more enriching experiences. But for those with a side hustle or business, it’s time also to look beyond the personal goals and think about what you want for the new year professionally.

A new year awaits. What are you going to do with it?

In a short series of posts, let’s explore some business resolutions that will kick start you to more profits and happier life.

Resolution #1: Assess the past and plan for the future.

Your financials from the previous year are a valuable tool. What were your profits last year? Exactly how much did you make? Here are two excellent statistics for you to use to see where you’ve been and where you’re going:

1. Hourly value. This number is calculated by figuring out what your average monthly profits were. If you made $24,000 last year, then your average monthly profits will be $2,000. Divide your average monthly profits by the number of hours you work each week.
   
   Note that for this number to be accurate, you need to track how many hours you work. If you don’t track this information, you have another new year’s resolution: start tracking your time!)Assuming you work 10 hours a week on your side hustle, your hourly value is 2000/40 (40 is the number of hours a week multiplied by 4 weeks in a month.) 2000/40 is $50 per hour.
2. Why is this information important? Knowing how much you make per hour is helpful in many ways. It can help you set goals for the upcoming year. Maybe you’d like to double this rate to $100/hour. It also helps you to know how to prioritize your workload to the most profitable tasks.
3. Profit margin. This may be your best measurement of success because it tells you how much you’re earning per sale. It also helps you evaluate your costs. It may be easy to know how much you spend on web hosting or how much you spend on office supplies, but you get a better idea of how they affect your business when you see your profit margin.
4. The formula is: Profit margin = Net income/Sales Net income is calculated by taking your gross income (all of your profits for the entire year) and subtracting your costs and expenses. For instance, your sales are $40,000 while your net income is $25,000, you profit margin is $25,000/$40,000 = 62.5%.
5. So for every dollar in sales, your business is making more than 62 cents net profit. While this may seem pretty good, the only way to truly use this statistic is to calculate your profit margin every year and compare the numbers. Obviously, your goal is to increase your profit margin. The more you take home from every dollar, the better.

Clearly, this can get daunting. As a matter of fact, I hate this stuff. I prefer to create cool products. Yet, I only have a few hours a week to work on this (since I have a full-time job I love and am a parent). So if the things I am creating aren’t profitable, I need to look at other ways to create. It’s all about focus.

Next time, I’ll be sharing my favorite business resolution. Stay tuned.