YOU’RE DOING IT WRONG– HOW TO GUARANTEE PROFIT IN YOUR BUSINESS
Are you continuously putting in the work in your business but feel like you are not making enough profit?
Well, if you are, I got you covered.
I spoke to my friend Jenni Davis in my first interview of the podcast about the Profit First method. We talk a lot as it relates to how business owners feel and think about their finances and the perspective that they use.
We dive deep into this perspective shift that is centered around your cash flow and Jenni brings us so much insight and knowledge in this area.
So what is profit?
WHAT IS PROFIT?
Profit is what is leftover in your business after you’ve deducted all of your expenses.
This generic definition of profit is what we have been taught our whole lives to run our businesses.
It simply means that whatever the business has at the end of the day, that’s what you get to take home, pay your taxes, yourself and in case there’s anything additional for reinvestment into your company or reserve, it comes from that line.
However the term profit is being used in many different ways in our industry , that people are confused on what they’re actually looking for in their business.
It seems like it has just been redefined to mean revenue/income and when people hear terms like profit margins, KPIs and metrics, they get even more confused.
What has led to this confusion?
WHY IS THE MEANING OF PROFIT SUCH AN ISSUE IN THE FINANCE INDUSTRY?
According to Jenni, this is because profit is money and a great marketing tool used by so many experts who promote how their programs will increase revenue for entrepreneurs and make them profitable.
Yet that’s not the truth because you could raise your prices, make more money and spend more. This leaves you on a roller coaster until you have the right tools in place to actually manage your cash flow, and your finances.
And in an industry filled with people promising to help you make six or seven figures, it’s important to think about if you would be comfortable making $10,000 and retaining $5000 or make over $100,000 and retain just a couple of grand.
So how does one actually take profit from their business without being lured into industry marketing tactics?
HOW CAN A NORMAL BUSINESS TAKE PROFIT?
It is possible for a business to make a profit however in order to do so, it will need more than just passion and delivering a service to achieve that.
Business owners need to be equipped with the basic fundamentals of finance inorder to learn how to make profit or they will be left with scraps from their business.
Getting acquainted with these fundamentals will let business owners know that there’s a system and a way that works for them which enables them to benefit so that they can be free from stress, and truly have real money in their business.
This system is Profit First.
WHAT IS PROFIT FIRST?
To begin with, Profit First is behavioral and because of this it pushes us to drop our old ways of managing cash like the envelope system where we place our money into different envelopes for specific needs.
It replaces those envelopes into seven accounts to cater for different needs in the business so overall Profit First is a cash management system that does have aspects of budgeting and accounting in it.
These are not similar to what you’ve been raised with because Profit First teaches you how to think differently about your money.
HOW DOES IT ACTUALLY WORK
There isn’t much required when applying Profit First in your business, it is just a mindset shift.
As a business owner, you start thinking logically about what to add to your business, its expenses and above all if you are being catered for as the owner.
It is really centered on the owners benefit and this is sometimes hard for business owners to get past that because they have been used to compensating themselves last.
With that in mind,the business finances need to be organized and Profit First suggests that one should have upto seven bank accounts.
ARE SEVEN BANK ACCOUNTS NECESSARY?
Yes they are, because you are changing the way you think about money and if you have just one bank account you will not be able to get an understanding of how your money is going to pay your employees, buy new business equipment, pay taxes, pay yourself among others.
Therefore the accounts needed are:
- Income account- where all your revenue flows into
- Profit account – this holds ths savings
- Operations account- caters for expenses used to run the business
- Owner’s Pay account- this is how you pay yourself
- The Tax Account- used for settling taxes
The above are the five fundamental accounts one needs to operate within the framework of Profit First and the other two accounts are offsite accounts which are temptation accounts to cater for when one falls short.
The offsite accounts help you not to pull money from other accounts to cater for other needs of the business.
HOW DOES ONE ACTUALLY GET TO PROFIT FIRST?
The first step is to assess where your business is. You can look back at least 12 months back and identify how you have been operating and if there is any profit in your business.
You then take that assessment and make small steady steps with Profit First to incorporate change. For instance if you are operating at 70%, your business will need to operate at 65% drawing what is in the income account to other accounts to cater for the business and with time gradually operate at 50%.
So how does one get started?
HOW TO GET STARTED?
Jenni noted that the first thing should be reading the book Profit First by Mike Michalowicz and in case you would like additional support, reach out to experts in the Profit First field to help you work your business towards that.
She also said, business owners should not be afraid of starting because much as everyone is talking about their businesses doing good, sometimes the reality is they are still struggling in certain aspects however the first step to claim profit in your business is to seek ways to reach it.
PRODUCTS TO HELP YOU WITH THE PROFIT FIRST METHOD
For entrepreneurs who are just starting out or those looking to create a change in their business, it can be chaotic however with Profit First Simplified, you are walked through every step and given an instant assessment allowing you to compare the levels in your business.
It will also help you create a roll out plan for your business and tell you how much allocations you need for each account.
In case you are having a hard time understanding the book or find it quite expensive to hire a Profit First professional, the Profit First Simplified tool offers you the support a professional would.
WHO IS PROFIT FIRST SIMPLIFIED FOR?
It is suited for any business owner who feels the weight of running a business whether they are just starting out or have been for a while.
Are you sold into the Profit First Method? I hope you are because it can definitely be a game changer for your business.
CONNECT WITH JENNI DAVIS
Jenni Davis is a Certified Profit First Professional, CFO and owner of JMD Business Solutions. With over 25 years of experience, Jenni has learned how to step into service based business as the “Chaos Tamer”, the “Money Manager” and their #2 in the day to day financial operations. Jenni is passionate about eradicating financial stress for business owners and equipping them to plan for profit like they’ve never seen before. Jenni is a Profit First coach, consultant and educator in the online business community.
At JMD Business Solutions, Jenni and her team are breaking the mold in the accounting/CFO space, by combining financials and operations in a way that skyrockets cash flow and plans for profit. Through profit strategy and cash flow design, Jenni and her team come alongside their clients with a “can do” attitude and take ownership of the financial aspect of the business so they don’t have to anymore. Jenni believes it’s not about how much you earn, it’s about how much you keep!
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