Profit First Changed My Life
Three years ago I was working long hours and stressing out about cash flow. One late night, I followed the internet fairy to a webinar by Mike Michalowicz with Sabrina Starling. The subject was “How to Hire the Best”. I knew I needed to hire and this Mike guy might know people who could help. I knew he wrote books, some were already on my shelf. So I signed up for the free masterclass. I had two… no three, problems common to a lot of my business clients.
- Not enough cash flow to be able to hire someone competent enough to do my job without reducing my pay
- More work than I could reasonably handle
- No surefire way to make the jobs easier and more consistently handled.
That internet fairy gave me great directions on cash flow. I knew if I could get the cash sorted out, I could solve the rest.
First – Cash Flow
The way Mike talked on the webinar inspired me to go back and reread his book. Jumping in, I set up bank accounts and started with moving cash to my profit account – just 5%. How could that small a number be a problem? It was a problem! I was transferring money daily. This was getting crazy, it did not feel like Mike painted it in the book. I was at a turning point and needed to choice a path forward:
Should I stick with it , or do I give up and go back to what I had been doing?
I really wanted a profitable business with less financial stress, so I went back to the source, downloaded the audible version and listened to that. Maybe I needed some help staying on track. A call to Profit First headquarters was my next step. Learning about how they worked with accountants and bookkeepers appealed to me and I signed up. In my world, the best way to figure out how something works is to teach it to someone else. The certification process forces you to work through your own issues and SORT them out. The goal is to have you ready to help others at the end of the process.
Working with a Profit First Guide
The process is simple but not easy. Do the assessment, really sort out the personal expenses that are part of owners comp ( health insurance, fringe benefits, etc).
Add in a small shift in spending. Go look for expenses to remove. Repeat quarterly.
The initial assessment had profit at -4%... I was spending more than I was earning and that is why just pushing 5% into a profit account did not work! Owners pay was close to the target, but my operating expenses were high at 68% of revenue. I needed to get them down significantly. I also needed to increase prices.
My first allocation felt so small. How would this make a difference? I was working with current numbers and just shifting them by 1% in tax, owners pay, and 0% to profit that first quarter. Even that 2% move meant I had to get serious about cutting expenses. Mike recommends finding 10% to cut, as it can take time for expenses to decrease. So the focus initially is on the spending part of the equation.
Another excellent suggestion from my Profit First guide was to set up an account and transfer the money I was planning to spend on payroll into it so the business could get used to the spend without putting anyone’s livelihood on the line. It gave me a real feel for how the cash would work.
Quarterly Expense Review
The best way to start is to review the recurring charges. Those pesky subscriptions that are commonplace today can be sources of profit.
One large expense was the big copier/printer/ fax on a monthly lease of $365 a month. I knew I wanted it gone but had to wait out the lease term for another 10 months. We then bought a refurbished professional printer from a local company that more than served our needs for less than $900, toner included! Getting rid of the copier allowed us to provide a paperless credit of $17.50 to our tax customers if they were okay with secure document delivery in our portal (lowered our paper cost). This encouraged more efficiency for us (less to handle in-person) and eliminated a road trip for them. Forty-seven customers took advantage of that discount.
Computers were our next big expense. Our network support was running at $10,000 plus a year. We found a new solution. I used to spend $2,500 on each computer but found refurbished units at a really low cost of $350. We currently use a remote setup that reduces our IT support spend, we no longer have the fastest, most up to date desktops, but we have wonderful capacity on the remote server. This has increased our ability to serve customers and made it easier for us if we need to work from home. We did spend money on larger monitors, but nothing was over $300.
We provide coffee and water at the office. By being intentional with purchases, the cost has gone done by 54% and it should be down an additional 30% at the end of this year. Office supplies are down 47% for a saving of $6,054 annually. A new HVAC system at the office made it more comfortable year-round and lowered the utility bills by $1,100. Over the course of the first year, I found $22,317 in savings through intentional spending, delayed spending, buying refurbished, stepping down in service levels, or just stopping something that was not necessary. Service to customers was unaffected.
My company is setting aside money that makes my life work
Every deposit builds on my financial security. I feel grateful for that. I accept the consequences of my decisions if expenses are over budget. My family has less cash available to pay bills and create real wealth. The balances in the bank account are a concrete reminder of where I intend to spend the business dollars.
Clarity is what I have gained.
Erin Moger, at PF Headquarters calls it
” Clarity without Clutter” .
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When I first started using profit first, this felt impossible. I want you to see how it unfolded for me. I found the expense review to be critical at the start of the process, and ongoing I repeat it. Quarterly reviews of expenses weed out things that pop up and I find new solutions. I just eliminated $321 a month in different recurring subscription fees.
Is your pricing right?
A healthy business has to change the way it works in order to change the profit equation. Each service has to be profitable. Each customer has to be profitable. Over the last 18 months, we have adjusted our services to provide a better profit margin. We did our first price increase in three years and plan on increasing annually going forward. We are helping clients do more on their own if we are not making a profit providing the service.
Focus on what you do best with a sufficient margin to meet your income goals. Really define and serve your best customer. We know that our better clients spend on average $9,000 a year with us using multiple services. Pricing for payroll services did not generate profit. It could be handled at a lower cost by specialists. We stopped offering payroll and helped all the clients transition to a better solution for them. This stopped a profit leak for us.
End result, cash flow on its way to being handled.
Next, Hiring Help
If I wanted to build the business I needed staff to provide the services we were selling. Good tax preparers have analytical skills and the temperament to deal with tax solutions and tax preparation. Culture is important, our office is small, there are only a few of us and having the wrong person on the team makes a big impact.
That course I told you about with Sabrina Starling How to Hire the Best Course helped me find the resources I needed. She understood how hard it can be to hire good people in a small business. Her Leadership Program helped Becky find the role that we are custom designing to support business growth and profitability. Leadership Bootcamp
I was learning what I was good at and what I enjoyed. A capable tax pro was next on my shopping list.
Sabrina helped me determine what position I needed to hire for and offered numerous tools to help find that right person. A friend, CPA and fellow Profit First Professional Susanne Mariga, helped me walk through the numbers and figure out the money side. I highly recommend working through the numbers, for me that made all the difference.
Insight : An employee’s role is to free up your time and produce more income than you pay them. When I realized that I thought this was an expense I could not afford and instead started looking at this as an investment to provide more and better service to customers. What a difference that perspective makes.
I enjoy using Mike’s cash flow system. It continues to change my business in a positive way. My next goal is to have 3 months of operating expenses in reserve.
What have you done to improve your business this week? Book a 15 minute video call with me today
