It's hard to believe that we are almost 3/4 of the way through 2019. In the US you just sent your quarterly tax payment in (it was due Sept. 16).
Or did you?
Take it from me, you DO NOT want to owe taxes to the IRS. I have been there, and it's the worst. Talk about sick to your stomach.
It's crucial you are proactive regarding your tax situation. Here's what you need to do going into Q4.
1) Check in with your accountant and/or tax preparer today and have them report to you on your tax position for the year so far. If you have grown this year it is very likely you will owe more tax than you have been sending in quarterly. Starting to prepare for that NOW will save on your antacid bill on April 15th.
2) If you haven't already, separate the taxes you will owe from your operating account. It's too tempting to "borrow" money from your main account and then never put it back. The minimum you should be putting away is enough to cover quarterly payments. Take it out of your Operating Account and leave it alone until you have to write that wonderful check to the tax man. You'll be glad you did.
Those two simple steps will help make sure you don't dread the next tax deadline, by being prepared and having managed your cash well.
Now go do it!
But to trust the process, you have to have a process that is proven to work, time after time.
When it comes to making every dollar count, do you?
In one of Eric Cressey's latest articles, he reminded me that "Bigger Isn't Better, Better Is Better", and went on to state...
"I think you're better off taking home 50% of a $500,000/year fitness business than net 5% on a $5 million/year one." Do the math. 🙂
Couldn't have said it better myself (no pun intended). A business that is 10x bigger is probably going to cause you a lot more than 10x the headaches, for the same take home.
Now I am not here to crush dreams. If you want a $5 million company that brings tremendous value and impact to the world, do your thing. All I am asking is you count the cost first. One of the mistakes I see many owners is chasing a big business before they nail down the fundamentals of business.
I used to think that getting bigger would solve all my problems. More income = more money = more flexibility, right? More stress, yes. More money in my pocket, not so much. As Profit First author Mike Michalowicz says - It's easier to control a $10,000 a month cash eating monster than a $100,00 a month cash eating monster.
Here's my advice.
Get REALLY good at what you do when your business is small. Perfect your craft. Develop your systems. Crush your debt. Learn to use every dollar to its maximum potential. You may find nailing down those skill gives you exactly the business you want. And if you do decide to scale, they will give you the foundation to do it right.
Better Before Bigger.
Because bigger isn't better. Better Is Better.
The original meaning of the word "coach" was as a description of transportation; a means of getting from Point A to Point B.
The same applies to a coach as we usually hear it today. A football coach, a basketball coach, a business coach. They all are trying to get their players/clients from Point A to Point B; from a good player to a great player, from flawed mechanics to good mechanics, or from one level of success to another.
My role as a Profit First coach is no different. It's to get your business to next level.
The truth is most of us didn't get into business to crunch numbers all day, and struggle to answer financial business questions like;
How much should I be making as the owner?
How do I know if I have a healthy profit margin?
Am I going to have enough for taxes this year?
Can I afford to hire some more people?
When is it the right time to scale?
Will I be able to sell my business and retire?
Not knowing that stuff kinds sucks, and usually leads to a lot of second guessing.
So I help solve that problem by coaching you through a system so you can easily manage your cash and give a purpose to every dollar you make.
The biggest benefit? The two "C's" - Clarity, and Confidence.
Clarity around your finances; we take the complicated right out of the equation. That clarity in turn creates the Confidence you need to hit your goals, grow your business, and keep more of your money.
Get from Point A to Point B. Faster and more easily.
If that sounds good to you, let's talk. Just click the button below.
One of the first business books I ever read was "The E-Myth" by Michael Gerber. And while this book certainly was foundational in the way I thought about business I also believe it is one of the most misunderstood business books out there.
As a brief overview, the concept of the E-myth revolves around the fact that many businesses are started by people who are really good at what they do - the "Technician" - not being able to make the leap to true "Entrepreneur", thereby never allowing the business to reach it's full potential. For instance a genius computer coder who loves programming so much he never develops the skills needed to run a viable business, so his amazing work never achieves any significant market penetration.
The fact is that it's not always the best products and services that win. It's the company that best communicates what they have to offer, and then delivers that offering efficiently (has good systems - another Emyth core concept) that usually wins.
That's why the book tells us we as Entrepreneurs need to work "on" the business, not "in" the business. The role of the Entrepreneur is to develop systems and processes that answer the question "How will this business work best?" And while this is true, this is also where I see a lot of business owners really screw up.
You see working "on" vs. "in" is not an "either/or" proposition. It's "both/and".
In other words it's very unlikely you as the owner can be doing nearly all the "technician" work one day, and then the next day handing it all off to someone else so you can go "create systems".
I see a lot of businesses get in financial trouble trying to pull this off. They hire too many people too soon, which almost always results in the owner earning less than they should from the business. The justification is that they need people to grow the business, so they'll take less until sales increase to where they need to. And 5 years down the road they are still stuck.
And selling the business? No buyer is going to touch a business where they can't step in and earn a return on their investment, the baseline of which is what they will make as the owner.
It's better to think of "on" vs "in" as a continuum. You gradually hire and offload technical tasks as sales increase, not hire and hope. You forecast how the additional payroll will affect your profit margin and labor rate, and you leave owner's pay out of the equation. When our clients are ready to add employees, we set up a "new hire" account and allocate into it for 2-3 months before the actual hire is made, which allows us to evaluate how cash flow is affected before a new employee is on-boarded and then "whoops, what happened to all our cash?" That can get really awkward, really fast.
Work on your business, yes. Just keep in mind that it is usually years before a business is mature and financially stable enough to support the owner doing none of the technical work. Do the work necessary to understand what size team your business is able to support and where you currently are on the "on" vs "in" continuum. Then create a plan to get you from where you are to where you want to go, without unnecessary financial risk or stress.
I am here to help.
One of the things Alwyn Cosgrove taught me is that you need to be constantly tracking progress to goal. Every year he sent out a post at the beginning of July which reminds you that it's halfway through the year, so you should be 50% to your (insert weight loss or fitness performance goal here).
The same thing is true of your business.
By now you should have your Q2 numbers in hand and be evaluating your company's performance over the first half of the year.
Now is the time to compare your actual Year-To-Date progress with the goals you set for your company at the end of 2018 (You did set goals, right?)
At the least you will want to see how your sales are tracking compared to Q1 2019 and also compare to Q2 2018. You can pull a Profit & Loss and Cash Balance report from your accounting software and run those comparisons. You will also want to compare your total expenses for the same periods and evaluate the ratio of expenses to sales. Evaluating expenses on a quarterly basis, and working to increase revenue at a greater rate than expenses, is one of our primary focuses with my FFP clients, as this is how greater profits are created.
One of the other things I do with my clients is make their financial lives easier. The less time it takes to get information that matters (eg. helps make better decisions) the more time you have to focus on other areas of your business.
For my clients using the Fit For Profit Dashboard, there is no extra work involved to comparing their quarterly financial performance at a glance. Every time they calculate and record an allocation, the dashboard automatically tracks performance on a monthly, quarterly and yearly basis, and shows progress to goal.
Here's a (not so) top secret video walkthrough of "Tab 6.0 - PF Allocations", a Fit For Profit exclusive available only to FFP clients.
Please expand the video to full screen for best viewing.
The fact is that if it's not easy to do your financial comparisons, you are probably not going to do it. As a small business owner you are pulled in a hundred different directions, I get it. My mission is to simplify your life and make your cash work for you. This is one more way to make that happen.
Q3 will be over before you know it. Schedule your Profit Maximizer Call today and let's talk about how to make managing your cash easier.
The vast majority of business owners I know don't want to bury their heads in Spreadsheets, Profit and Loss Statements, and Balance Sheets every day. Or even at all.
Yes, it's important to know some key financial numbers when you own a business. Having objective data that answers our financial questions and helps us make good decisions is more than just helpful, it is crucial to long term business success. But if you are like me (and I like numbers), you don't want to live your life by the numbers.
The financial plan for your business needs to answer your "Why?" and serve you, not be your boss.
Why did you start your business? What do you hope to accomplish by owning your own company? How do you want to spend your time and energy? What do you want to use your money to enjoy?
Answering questions like these, and then creating a business financial plan around the answers is ultimately why Fit For Profit exists.
My goals for Get Fit NH, the personal training company we sold last year in a seven-figure deal, were very modest when we first started out in the first decade of the 21st century.
I just wanted to find a way to work myself out of a job I didn't want to spend the rest of my life in, and find a viable business model to do what I wanted to do and enjoyed doing; helping people lose weight, get in shape, and feel better.
What we were doing worked, and we started growing outside of my capacity to serve my clients by myself. As I started to hire trainers who had the same mission and passion I did, my goals changed. I saw an industry that was churning through people, good people, at a crazy rate because they had no career path. In our area it wasn't uncommon for a trainer to work at 2 or 3 different gyms, because that was the only way they could make it work financially. Benefits were non-existent.
My new goal become to provide the coaches that worked for me a viable career; a good salaried position, health care benefits and retirement. And there is a practical side to all this as well, of course. Happier employees stay longer, and employee turnover is a killer to any business.
My question became "How can we as a company make all that happen, continue to be profitable, and still support my personal financial goals as the owner?"
The answer was to create a business financial plan, and support it with a cash management system and strategy that allowed us to incrementally accomplish every one of those goals.
It didn't happen overnight. It took several years until the entire full-time team was on salary, we added a 401k, and finally company sponsored health insurance. All while maintaining profit margins and paying ourselves a market based wage.
That story is not to brag or tell you how great I or my company are. The reality is I could not have done it alone, or without a system that had the configurability and flexibility to support those goals.
Your story is no doubt different, and that should excite you.
Like the gym owner who wanted to take his entire team to the Arnold Classic every year.
And the business owner dad who was getting crushed by tens of thousands in debt, but still wanted to take his family to Disney World.
They both created a plan that worked for them, and both made those things happen.
The point is to create a strategy that makes your story possible, by wisely allocating current resources, creating a sound plan for growth, and preparing for your future and the future of your business.
So you can have a business that means something to you.
And enjoy the freedom that comes with being a successful entrepreneur, no matter what your definition of that is.
Without having to live with your head buried in a spreadsheet all the time.
If you want to get started with a plan like that, I'd like to invite you to reach out. Get in touch with me here, and let's talk about what you want to accomplish with your business. If you have questions, I'm here to answer.
To your best success,
We all have rules that govern how we live life. Even the freest countries on earth have laws, rules and regulations. I had rules growing up and living in my parents household. Some I was ambivalent towards, some I despised. It didn't matter. I understand now that for the most part they were put in place to protect me, usually from myself.
It's like the yellow and white lines on the highways. I don't know about you, but I want the guy coming the other way to stay between his lines so I don't get wiped out. And I'll return the favor. Rules like this really keep us not only safe, but alive. I can chafe against the restriction of my "freedom" to drive on the other side of the road if I want to, but it's probably going to get me dead.
And the rules of the road don't mean I have to drive in a straight line. If I find I am not headed in the right direction, or there is an unforeseen obstacle like a traffic accident in my way, I can always change my plans and take another road.
That's exactly the function of a good cash management system. To put a set of guidelines in place so your business doesn't wind up in a head-on "cash crash", while giving you the flexibility to pivot when you need or want to.
And the freedom part?
Look at it this way; would you like to be free to pay your taxes on time every time, and have a way to make sure you have enough put aside as your business scales?
Would you like to be free to make a pay off your debts, build up cash reserves, and take a profit distribution on a regular, systemized basis?
Would you like to have the freedom to pay yourself a market based wage?
From a business standpoint, that's my kind of freedom.
Every year in our business June is filled with all sorts of fun expenses. Property insurance on the gym building and professional and business liability insurance are due. Quarterly Federal, State and Partnership taxes are due. We had some equipment that needed to be replaced. It adds up into multiple 5 figures, which to us is not chump change. My wife Nancy, who is my business partner on the fitness side of things said to me; "Isn't it nice we don't even have to break a sweat about that stuff?"
Yes. It is nice. REALLY nice.
One of the objections to even having a cash management system, which I have heard more than once, goes something like this; "I got into business because I don't like being told what to do", or "I want the freedom to spend my money like I want to." I totally understand where that comes from, because that's me too.
But I got over it.
Because far from being restrictive, the Profit First system makes sure all the "have to's" are covered so I have more freedom to do the "get-to's". I'll give you an example. One of the principles of Profit First is to allocate a percentage of business income into your Owner's Pay account every month, but only pay yourself a fixed amount from that account each month. This helps cover your pay if you have a lean month, and if that account keeps accruing money, you then have evidence that it's "safe" to give yourself a raise. Pretty smart.
The cool part of this story was that I never really paid attention to the "excess" that was in there. It was "my" money in that it was methodically and specifically allocated to my compensation as the owner, but I hadn't touched it. When Nancy and I decided it was time to upgrade to a little more comfortable motorcycle we could do longer rides on, I knew I didn't want to borrow money for it. Instead we "found" the money in the Owners Pay account and used it for its intended purpose - to compensate the owner. I like getting paid in motorcycles. I love it when one of my clients tells me he paid his debt off, or took his entire team to the Arnold Classic, or created a profit sharing program for the entire company. That's the freedom that comes from "staying within the lines".
You have probably heard the saying "Freedom Isn't Free" as it applies to the privileges we enjoy here in the United States. As a veteran with an active duty son, I get it.
That saying applies here too. I see too many business owners make financial decisions in a vacuum, with no guiding principles that act as guardrails. If you want the freedom that comes with a high performing business, you need to make the relatively short-term sacrifice of time and effort to make sure that happens. Build some guardrails, configure them in a way that works best for your business, and stay on the road. It really is that simple.
Look, I didn't invent Profit First, but I have implemented it into my own business as completely as anyone I know, and now I get to show business owners like you how to do it as well. It doesn't make me any smarter than the next guy, but it does give me the peace of mind and yes, freedom, that comes with running a good business.
Most of us start our own business because, at least partly, we want what we just couldn't get working for someone else. Freedom to create, to innovate and to impact. Profit First can help. Profit First will help.
The sooner you get started, the sooner you can make it happen too. Let's get after it!
If you been in business for any length of time you have heard the term KPI - Key Performance Indicator.
But exactly what is a KPI, and why do they matter?
Investopedia defines a KPI as: a set of quantifiable measures that a company uses to gauge its performance over time.
You can have many different types of KPI's that you track; financial, marketing, and quality metrics are just a few examples.
I like what Klipfolio, an app for creating dashboard, reports and visual analysis contends makes for effective KPI's - a KPI is only as valuable as the action it inspires.
In other words, all the data in the world doesn't do any good by just sitting there looking pretty, you need to know what it is telling you and by extension, what you need to do about it.
There are 5 KPI's I have adopted and call "Healthy Business KPI's".
Each of these KPI's has a goal attached to it, and we track monthly progress toward goal, and review and adjust goal as necessary. Note also that each KPI corresponds to a Profit First Core Account.
Here is a brief overview of each and how they align with the Profit First cash management model:
This KPI is as simple as it sounds. How much are we allocating into the Profit account?
Read this article for a discussion on MBW and why it matters. This KPI is tracked as a % of how much the owner(s) is actually paying themself compared to their Market Based Wage.
Again very simple. How much is being allocated into the Tax account? Don't be fooled into thinking lower is better. As Greg Crabtree says in his book "Simple Numbers, Straight Talk, Big Profits", if you aren't paying taxes you are either not making any money or you are cheating. Take advantage of every legal and smart way to minimize your taxes, but understand that successful companies are going to pay taxes. The more you are paying, the more you are making. And that's a good thing.
This KPI tells you how much Gross Profit you are making for every dollar of labor you are spending. As payroll is most likely your biggest expense, you need to be tracking this number carefully. This KPI can be used in forecasting what effect additional employees will have on your bottom line and what productivity (eg. more dollars earned) will need to be reached to regain your target Profits. An important note: we always calculate this two ways; actual Labor Productivity Rate (LPR) and True LPR.
True LPR is the rate when the owner(s) Market Based Wage is added in, which is a critical difference.
Here's an example:
In April company X had $25000 in Gross Profit and $12,500 in Total Labor Cost. In this case their Labor Productivity Rate is $2.00 ($25,000 Gross Profit/$12,500 Total Labor Cost). But this doesn't take into account the owner is paying herself $5000/mo, while her Market Based Wage is actually $7500/mo. To get the True LPR, we need to add the additional $2500 to the Total Labor Cost, which gives a True LPR of $1.66 ($25,000/$15,000). Ok, I'll stop with the acronyms already! In chart form it looks like this:
Why does this matter? Read this article, "Stealing From Yourself" for more detailed insight.
Debt reduces profitability, creates higher risk in an economic downturn, and less flexibility to direct your cash when opportunity arises. The unfortunate truth is many of the business owners I talk to know this, but do not have a system to pay it down. It starts with calculating and tracking your total debt load. You have to stop paying expenses with debt, and live within your means. The goal is to have this KPI as ZERO!
We keep these "Healthy Business KPI's" all in one place on a scorecard. At a glance we can detect patterns and trends, and take appropriate action when one is off track. The beauty is they all work together, so usually taking action on one effects the others positively as well. For instance a strategy to pay debt off more quickly will free up cash to get me to my Market Based Wage, which in turn makes my business more valuable to investors and/or buyers.
If all these numbers make your head spin, I get it. But I promise this is not as hard or time consuming as it looks. A few key pieces of data entered on a monthly basis will make these KPI's you can truly profit from. We can show you how.
Here's a dirty little secret about business that I learned pretty quickly - most entrepreneurs and business owner's aren't nearly as financially successful as they appear to be.
Early in my career I remember going to fitness conferences where we were regaled with stories how this or that business was producing record sales, had hundreds of training clients, and was moving into bigger and better real estate. Looking back now I don't remember profit ever being talked about, or how much the owner was actually taking home as pay.
The topic of owner's compensation remains a huge problem in most small business. It doesn't matter how much you are producing in sales if you are living in a van down by the river (RIP Chris Farley).
Here's the bottom line; the owner of a business needs to be paying themself a market-based wage.
The simplest way I have found to determine what a market-based wage in your industry and for your role is to ask yourself this question:
"What would I have to pay someone else to do the job I do?"
If you aren't making that, you are stealing from yourself.
I get it. Your business in new and you can't afford to pay yourself that much - yet. You actually have an advantage over a more mature business, as you most likely don't have the overhead that comes with a lot of employees. You have more control of the situation, but you still need a plan to close the gap between your current salary and your market-based wage. And you need to be tracking all this.
Now to the "not so new" business owner. What is your deal anyway? Why do you continue to add overhead (more employees, fancier "stuff") and leave yourself scrambling for scraps?
Let me put it to you this way. You have a job opening in your company which is slotted for a salary of $75,000. You decide you want the job, but only if the owner (you) agrees to pay you (the employee) $30,000. How long do you think a new hire would be satisfied in their $75,000 role if they were only getting paid $30k?
Why are you?
"But I'm NOT satisfied", you may be thinking. Then what are you doing about it? An owner who finds themself in this situation has some hard decisions to make, and too often just never gets around to making them. Getting serious about things like overhead, debt, and excess employees and wages is necessary for long term viability, not to mention your sanity.
But there is more to this than you just being your most underpaid employee, as bad as that is.
You are also severely devaluing your company. No matter the size of your business and how big you want to grow it, you need to think about the value of your business in the terms of an outside investor. Would I want to buy your business today? Why or why not?
When I sold my first service based business its value was directly linked to "benefit to owner".
In other words, what could the new owner reasonably expect to draw as salary, profit distribution, and other wage related benefits after purchase? Numbers don't lie. Your business is going to be far less valuable, if not practically worthless, if you can't show you have been making good money.
And realistically, these are just a few things in the "market-based wage" discussion. There are potential tax implications in paying yourself too little (in the eyes of the IRS). From a practical standpoint, if you can't pay yourself General Manager money, how will you afford to hire a GM and have anything left over for you?
You wouldn't put up with an employee stealing from you. How long will you put up stealing from yourself?
The first step to paying yourself a market-based wage is actually sitting down and doing the work of defining what roles you are currently filling and how much they are worth. What's the number you came up with? What's the gap between that number and what you are currently paying yourself? What are you going to do about it?
And one more pet peeve. You are just fooling yourself if you aren't adding in Owner's Compensation when you calculate your net income and margins. As we discussed before, the value of the business is related to how much benefit it is creating for you as the owner. An audit will reveal that. But beyond that, what would your net income be if you were paying yourself a market-based wage? I have seen margins drop below zero if you run those numbers. Not cool, and dangerous to the health and long-term viability of your company.
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