When I talk to aspiring business owners about their financial goals, many express a desire to replace their current income as quickly as possible. While this might seem like a reasonable objective, it doesn’t truly address the financial milestones necessary for building a successful business. After all, your previous salary was an arbitrary figure set by an employer—it has little relevance to your entrepreneurial journey.
To set yourself up for long-term success, there are three essential financial numbers every business owner must understand:
1. Total Initial Investment
The first critical number is the total cost to launch and operate your business. In the world of franchising, we call this the Item 7 Total Initial Investment—the amount required to open your business and sustain operations. Before taking the leap, you must ensure you can afford this investment and have a clear financial strategy in place.
2. Cash Flow Break-Even Point
The second key financial metric is understanding how long it will take for your business to reach cash flow break-even—the point where your business generates enough revenue to cover its expenses but not yet provide financial benefit to you as the owner. During this period, it’s essential to have a plan to cover your personal living expenses since the business won’t be able to support you just yet.
3. Personal Income Replacement Timeline
The third milestone is determining when your business will generate enough profit to cover your personal living expenses. For example, if you require $5,000 per month ($60,000 annually) to sustain your lifestyle, how long will it take before your business can reliably provide that level of income?
While every entrepreneur dreams of maximizing profits, reaching this third stage means achieving financial freedom—where your business generates enough income to support your lifestyle. At this point, you’re no longer dependent on an employer. Instead, you own an asset that provides financial stability, allowing you to make strategic decisions about future growth rather than operating from a place of financial pressure.
Once your business covers your personal expenses, the next step is achieving time freedom—where your income-producing assets generate wealth without requiring all of your time and energy. This is the ultimate level of entrepreneurial success, but it’s a discussion for another time.
This approach may seem simple, but it’s the exact strategy my wife and I used when we started our business 23 years ago. The goal was never just to replace my salary—it was to achieve financial freedom, and then, eventually, time freedom. Achieving these simple goals gave us the ability to live life on our terms.
Wishing you success on your entrepreneurial journey!
