When I ask MSPs to share their business goals, they often reply with their revenue or sales goals. “We’re at two million today, but we want to hit 2.8 million in two years,” they say. When I ask individuals about their financial goals, they often share their income goals. “I make $60,000 today, and in so many years, I’d like to make $100,000,” they say. But here’s the thing: Setting business and personal goals is nearly impossible if your net worth goals aren’t clear.
For an MSP, your revenue goal should always be relative and related to profit goals. For example, “We’re two million at 12 percent net profit, and we want to be 2.8 million at 20 percent.” It’s profit that measures your return on investment as an MSP, not revenue.
Also, as an MSP, profit is the primary driver of valuations. Not all businesses are this way. If you’re a software company, for example, your growth rate and gross profit have more of an impact on your valuation. So, be sure that profit, both total and percentage of revenue, are part of your goals.
Now, let’s talk about personal financial goals that apply to everyone. It’s critical that you set net worth goals as well as income goals. Your career and business choices should be in the context of your long-term net worth goals. Everyone’s goals, time horizons and starting points are different, but the power of net worth goals is the same.
Here’s an example of a common decision that you would make differently based on your situation. Let’s say you’re buying a new home. How much money should you put down for the down payment? What mortgage term should you get? Do you pay cash?
One person may say, “I’m going to put more money down and have a shorter term on my loan and pay more per month because I know I need to or want to own my home in 10 years to reach my goals.” Someone else might say, “I can put that money to better use in their business or in as an investment, so I’ll mortgage the most I can at the longest term.”
In my life, I’ve made both of these decisions at different times. Based on the situation I was in, my net worth goals guided me. I mentioned this concept of net worth a few months ago, but I feel like this is a great time of year to set or reset net worth goals the same way that vision and values provide perspective that inform a business plan. Net worth goals provide guardrails from a personal perspective.
Now, many people don’t stick with the concepts I discussed in this article because they don’t immediately change your life. Even though they manifest over time, the returns are life changing.