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 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.

• More work than I could reasonably handle
• Not enough cash flow to be able to hire someone competent enough to do my job without reducing my pay.
• 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. Profit First, it all seemed so simple. I set up bank accounts and started with moving profit – just 5%. How could that be a problem? It was. I soon found that I was not able to stay on track. I shifted back to my old habits. I downloaded the audible version and listened to that. Darn. I realized I might need some help staying on track. I called Profit First headquarters about their coaching program. 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. So off we went.

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.

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 switched providers and made a decision to replace computers instead of paying for support to fix them. 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.

I also have to share how I feel as I move part of every dollar to Owners Pay. My company is setting aside money that makes my life work. I am so grateful for that knowledge. It also makes it very clear that in order to increase that amount additional changes need to be made. It forces the reality that if expenses are over budget, I take money out of my family budget to pay those bills. It provides a clear picture of how much of the income is really mine and how much goes to overhead. 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” .

Our services have to be more profitable to provide and more valuable to our customers in order to justify more salary income. Over the last 18 months, we are really looking at how and what services we provide and at what profit margins. We did our first price increase in three years and plan on increasing 3% annually going forward. We are helping clients do more on their own if we are not making a profit providing the service. Incoming clients are carefully screened.

I provide all this detail because when I first started the process, I could not see how to make these moves. You really have to review expenses and decide if it is helping your company provide profitable services. It has taken quarterly reviews of expenses to weed out things that pop up and find new solutions. Three years in, I just canceled or was able to find a less expensive solution for $321 a month in different recurring subscription fees.

The next focus is to increase pricing and focus on what you do best that also has a sufficient margin to meet your income goals. Really define and serve your best customer. We know that our better clients spend on average $8,000 a year with us and use multiple services. Our best clients are spending at least twice that and talking with us every week. There is so much more to do to fine-tune our client profile and best services.

End result, cash flow on its way to being handled.

Next, Hiring Help

I had hired before and had great admin help. If you have been in the office or called, you have met Becky and Debbie. Both have been with me for a long time and I couldn’t work without them. I had not been so lucky with professional hires. I needed them to have good analytical skills and the temperament to deal with tax solutions and tax preparation. Our office is small, there are only a few of us and having the wrong person on the team makes a big impact.

That webinar I told you about helped me find the resources I needed. I hired Sabrina right away. She was impressive. She had a great story and 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. I was learning what I was good at and what I enjoyed.

Well, in October of last year I got serious about hiring someone who could do the work better or at least as well as I could. 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. That is what helped me pull the trigger. An employee’s role is to free up your time and produce more income than you pay them. I realized that I thought this was an expense that I could not afford and instead started looking at this as an investment to provide more and better service to customers that would generate more income to the Company. What a difference that perspective makes.

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. It worked well and I have been able to hire a wonderfully analytical tax pro. Kristina is leading our tax department.

As I write this we are documenting systems and processes and using a really cool management process that was suggested by another friend, Christeen Era. I will share more about that later. The support of friends and mentors has opened up my world. SO many valuable connections……

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.