It seems like it was just yesterday that we couldn’t wait to put 2020 behind us. And then it was hard to know what to expect from 2021.
But things are generally looking up for the fitness and wellness industry. As consumers come out of isolation, they’re having a newfound appreciation for the in-person activities and services we provide. And they’re adjusting to a new normal and forming new habits. Now more than ever, physical and mental health is a life priority for so many people.
So while business owners had to do a fair amount of winging it these past 18 months, next year looks to be more predictable—and hopefully, more profitable. Have you started to plan for financial success in 2022 yet? Profit First is key to this (but you knew we were going to say that).
If you’re already using Profit First, this final quarter of the year is the time to set annual goals and quarterly target allocations for 2022. Trust us, goal setting leads to growth and profit gains. Skip ahead to read our advice on how to do this—it’s a combination of big picture thinking and number crunching, and we’re always here to help.
If you’re a Profit First newbie (or just need a refresher), start here.
If you haven’t implemented Profit First yet, now’s the perfect time to set up your system so that it’s in place and ready to go at the start of the new year. This is exciting! You’re about to pump some new life into your financial health.
Begin by downloading our Profit First Overview. This includes super simple steps—and a formula using your current business numbers—to get started right away with this cash management system.
The gist of Profit First is in its name. With this system, you will take out a profit from your revenue as it comes in, first. You’ll also set aside portions of your revenue for an owner’s salary, and for taxes (which, let us remind you, become unavoidably due). You will use what’s left—and only what’s left—for your operating expenses.
With Profit First, you move money into separate bank accounts earmarked for Profit, Owner’s Pay, Taxes, and Operating Expenses (OPEX) so that you cannot be tempted to “borrow” from them. You do this on a regular schedule, usually twice a month.
How much of your incoming revenue should you allocate to each bank account? Profit First works with allocation percentages—so when your revenue goes up or down, all of your accounts will adjust in proportion, as they should. See page 8 of the overview to calculate your suggested target allocation percentages for each account (and what that translates to in real dollars) based on your actual business numbers. The target allocations are just that—targets to aim for, to get your business running optimally.
This is an excellent place to start, but this is also the place where some business owners get stuck—say, when they’re comparing target allocation percentages with their current figures. Maybe you’re currently spending 50% of your revenue on expenses, but your Profit First instant assessment suggests you allocate just 30% to OPEX. As it is now, you never have enough to pay the tax bill when it’s due, let alone give yourself a profit—so you know you need a better system. But it’s a gradual process to make this shift. You may not be able to make such a drastic cut to your expense budget overnight.
That’s okay. As Profit First creator Mike Michalowicz says, “The key to successful Profit First implementation lies in stringing together a series of many small steps in a repeating pattern.” This is where a Profit First professional can really help. We’ll do the calculations and show you how you can move from your current allocations to your target allocations, incrementally. Small steps.
And that’s why we suggest setting up Profit First now in preparation to start using it in 2022. Because it does take a few months to get into the habits that make the system successful. So give yourself a quarter to get going. And you’ll refine and adjust the target percentages quarterly moving forward, to get you closer to the ideal setup for your unique business.
If you’re experienced with Profit First, it’s time for annual goal setting and refinement.
Every year I set a new financial goal for my business. You should too. For example, it could be to increase my revenue by 50% in 2022. Once I’ve set a big picture goal like that, then I’ll apply it to my Profit First system already in place. I’ll calculate how much additional revenue I need to be taking in every quarter to reach my goal. And as my revenue shifts, I might need to reassess my target allocation percentages, per Profit First. What do I want my target allocation percentages to be for every quarter in 2022, to achieve the business growth I’m looking for by year’s end?
Then it’s a matter of knowing the data that’s unique to my business, so I can figure out how I’m going to actually get there. What’s my average revenue per client? How many new clients will I need to add at that rate to achieve my goal?
But it’s not just the incoming revenue. I also must consider what I might need to spend from OPEX in order to acquire those new clients. How much marketing do I need to do to get new business leads, and what will that cost? Will this process divert labor from my team that I need to account for?
If you intend to plan for business growth and not just wish for it, you should get familiar with the ins and outs of your business at this level. Make 2022 the year you can answer all of these questions.
As you can probably see, planning for success requires a bit of reverse engineering. You set a goal, you do the calculations, you identify the steps, and you take action. It’s often a process of trial and error. Profit First is great because you can build your goals into the system of target allocations and continually customize it for your business. It’s a constant refinement.
So what’s your goal for next year? With some thought and planning (and Profit First), 2022 can be your most successful year yet.