Don’t be Eligible for the Next Stimulus

As I write this, the latest round of COVID-19 related stimulus checks are starting to hit bank accounts. People and businesses are hurting, and some relief is welcome.

My purpose here is not to debate the merits, the methods, or the size and scope of the bill that allows for these payments.

My purpose today is to start you down a path where your business is so solid, and your finances are in such incredible order, that next time you won’t be eligible for checks like these. To have a business that is resilient and able to weather the inevitable storms that come our way. A business that is able to generate the kind of cash flow that allows you to pay yourself and your team generously, pay your taxes on a quarterly basis, and build a “core capitalization” account that makes sure you have cash on hand when “stuff” happens.

It can be done, it has been done, and you can do it too.

At Fit For Profit, we contribute to building your business like this in two primary ways.

First is world-class bookkeeping. You have got to keep your books in order if you want to maximize the benefits of owning a business. Tax law favors the intentional and prepared. If every time April 15 rolls around you are running around like a headless chicken, stop it. Trying to get a business line of credit without good books? Yeah, good luck with that. Did you struggle to put together the paperwork for EIDL and PPP over the last year? A good set of books could have saved you a lot of hassle. And do you really want to do the books yourself? You could. There’s a lot of things you could do. But should you?

The second way we help you build a resilient business is through implementing the Profit First Cash Management system. Having your books in order is one thing. But having a system that puts every dollar to work in the right place at the right time takes your business to the next level.

When it comes to making strategic business decisions related to cash flow, cracking open QuickBooks doesn’t cut it. It’s a lagging indicator – it tells you what has already happened. At Fit For Profit, we guide you in implementing a system that allows you to see in real-time what is happening, and provide a logical way for forecasting what will happen. All while helping you create a more valuable business, for you, your team, and your clients.

Most of us have some mindset work to do when it comes to money. If you are getting a stimulus check, have you thought about how you are going to put it to best use? What will give you the most bang for the buck? Think invest, not spend. Some may think it’s a lot of money, and some not very much at all. But either way, it’s more than you had yesterday. How you use it can say a lot about how you view money.

Look, you can’t change what has already happened. If you are in a hole, put down the shovel and stop digging. Truth be told, I used to be horrible with money. Truly terrible. Debt out my ears, owed 5 figures to the IRS, the whole thing. There is a way out if you are willing to do the work.

And next time?

Personally, I’d rather there never be a “next time” for pandemics, or business shutdowns, or stimulus checks. But if there is, what are you doing now to be better prepared? To be “not eligible”? Building a better business means building a better future for you and those you care about.

We can help you make it happen.

Why Profit First Works…Really

If you’re like most people, you have a healthy dose of procrastination in you. You have a project you need to finish, maybe something you don’t want to do, and you put off getting it done until the very last minute.

Let’s say it’s your taxes. Maybe you’re not as organized with your paperwork as you need to be and you’re putting off digging for receipts and 1099s. You know you need to get this to your accountant by April 1 if you’re going to avoid filing an extension. So in the wee hours of March 31, you’re frantically searching your files–both physical and digital–to gather what you need.

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Revenue Streams or Trickles?

There is a lot of thought/opinion/advice when it comes to diversification and creating different revenue streams within a particular business model. The “don’t put your eggs all in one basket” theory. And it sounds good. If one “stream” starts to dry up, another one will help mitigate total disaster.

Here’s the rub. Too often in a business, I see “multiple streams of income” become “throw a bunch of stuff on the wall and hope some of it sticks”.

When it comes right down to it, how many Revenue Streams does it take to have a great business?

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When Your Accountant Doesn’t Use Profit First

Accountants can sometimes get hung up on the principles of Profit First. They balk at the idea of taking profit first because they operate under the antiquated system of set a budget and stick with it.

Sure, it’s important to have a budget, but it doesn’t need to look like what accountants learned in accounting school. (Trust me, I know. I’m a trained accountant and Profit First bookkeeper.)

Here’s the thing though: Your accountant doesn’t actually have to be on board with you using Profit First. Because your accountant doesn’t actually balance your books for you and they aren’t creating your profit and loss statement or balance sheet–that’s your bookkeeper’s job.

Sometimes one person fills both these roles, but that’s not always ideal. (Though that’s a story for another blog post.)

Your accountant, on the other hand, is preparing your taxes based on what your bookkeeper provides. It shouldn’t matter to the accountant how you get there.

accountant profit first

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Steady Salary Amid Uneven Revenues

I started my business as a tax preparer before I started serving as a Profit First Professional. One of the major issues of my business was the uneven revenue throughout the year.

From January to April, revenues were strong, so I paid myself a lot–and frequently. But after April 15th, revenues would drop dramatically. I’d be able to pay myself from the excess throughout the summer. But fall and winter months, I was barely able to pay myself anything from the business, if at all.

Here’s how Profit First allowed me to pay myself a steady salary throughout the year WITHOUT having to earn extra revenue:

Set-Up

The Profit First system required that we set up our 5 core accounts, and allocate predetermined percentages to each account. The core accounts are income, profit, owner’s pay, taxes, and operating expenses. Here, we’re going to focus on owner’s compensation because you deserve to be paid for the work you’re doing!

Lifestyle Lock

It’s important to establish a lifestyle lock amount, the amount you need to maintain the lifestyle you want to live. It’s what you will pay yourself each month, consistently.

The lifestyle lock puts a limit on how much you will take from your owner’s compensation account, no matter how much money is in there, to support your lifestyle. My lifestyle lock number was $3,500 a month. So, during tax season, even though my owner’s compensation accounts easily had more than $10,000 in there, I’d only pay myself my lifestyle lock number ($3,500).

Slow Months

Revenue would still come after tax season, but much slower. But because I only paid myself the lifestyle lock number, I was able to pay myself consistently throughout the year from the owner’s compensation account, well into the fall.

The post-tax-season revenue, although much slower, would make sure that money was still being allocated to my owner’s compensation account. And there was extra revenue built up there from tax season to make up for that lower revenue. The end result was being able to now pay myself year-round, as well as greater confidence in my business’s finances, and a much happier wife (true story).

No-Revenue Months

Every year, especially since implementing Profit First, I have at least one month where I do not generate revenue. Using the lifestyle lock helped (and still helps) me to take a month off, but still be able to pay myself in full. This is huge because typically when solopreneurs stop producing revenue, the impact on the salary is normally felt immediately. The lifestyle lock helped me to break the month-to-month, check-to-check cycle.

Conclusion

Profit First works and paying yourself with your own lifestyle lock works wonders for any business owner who experiences high seasonality with their income. It offers peace of mind for yourself and your loved ones and takes the stress out of the question, “Where’s my next paycheck coming from?”

If you’d like to learn more about how to even out your salary or take-home pay using the Profit First cash flow management system, we’d love to see how we can help you. Schedule an appointment, and we’ll talk about it!

Why Would You Track Financials in Excel – A Rhetorical Question

A lot of business owners start out doing their books in Excel. It’s something they know, and they’re not ready to pay for a service like QuickBooks Online or to pay a bookkeeper.

In Excel, you can sort columns and rows, set up formulas to add up transactions, color code rows and fields based on type of transaction, even make notes right in the fields.

And sure, there’s probably a lot more you can do in Excel, but it has its limitations. Steep limitations.

That’s why we encourage business owners to get out of Excel and into QuickBooks Online as soon as possible. And then, once it’s out of the virtual box, it’s important to customize its setup to meet your business’s unique needs–something Excel couldn’t do if it wanted.

When done right, QBO gives you everything you need every month, with just a few clicks of the keyboard.

What else can QBO do that will make you want to kick Excel to the curb?

Create Recurring Payments

One of the best ways to improve your revenue is to create a system where clients pay for a service month after month. This makes sense in a traditional gym, with monthly membership fees. But so many other businesses in the health and wellness field can go this route too–and make the payments automatic for the consumer. (We have plenty of thoughts on how to do this. Let’s chat!)

Monitor Your Expenses

You may not need more revenue in your business; you may need to get a better handle on your expenses instead. It’s really easy to do this in QBO, and to do it on a monthly basis, because you’re categorizing transactions and reviewing your balance sheet and profit and loss statement regularly. If you wait until the end of the year to clean up your books and review where all the money went, chances are you won’t catch that subscription you should have canceled or those ads that aren’t really paying off. In the end, you’ll spend a lot more than you needed to!

Identify Tax Write-Offs

You know a lot of the standard write-offs but with QBO’s ability to categorize, it’s so much easier to write off certain expenses–and minimize your tax burden. It’s really easy to identify often-forgotten tax write-offs like bank charges, health insurance premiums, equipment costs, internet and phone expenses, and more because they’re right there in your books.

Everything in One Place–Electronically

Have you ever tried to build a P&L in Excel? Manually? (Whatever did we do before computers!?) Without something like QBO, you’re hunting for receipts and financials, you’re looking in one place for recurring transactions and another place for one-off sales. It’s a lot, and trust us when we say we’ve seen it all. With QBO, you have a one-stop shop for all things business financials. And it will change your life.

So when we ask, “Why would you track your financials in Excel?” we’re asking in jest. We don’t think you should if you want to have a thriving and profitable business.

Are you ready to get off Excel and onto QBO? Let’s chat!

The Art of Doing Taxes Without a Bookkeeper

Most people’s least favorite time of the year is coming. No, not Valentine’s Day. Tax Day.

As a business owner, you have the responsibility (and privilege) of filing your taxes with the federal government and at the state level. Tax time has a really bad reputation because it takes time away from business and life.

But we’d like to encourage you to shift your thinking around taxes. Paying taxes means that you’ve earned profit in your business. And while it might be painful to let go of those precious dollars, with Profit First you could be incredibly prepared.

When money is tight, it’s common to want to hold onto it and avoid paying for help in your business. But having help with bookkeeping and taxes is actually one of the best financial decisions you can make (and we’re not just saying that because that’s what we do).

Let’s take a look at what doing your taxes looks like without a bookkeeper:

  • Reconcile your books. If you haven’t been doing this monthly, you’ll have a whole year of transactions to take care of.
  • Review any unpaid invoices in accounts receivable and get aggressive about collecting them. Having revenue from last year carry into the new year isn’t ideal.
  • Ensure you have your employees’ and vendors’ correct addresses and prep both W-2s and 1099s for them, before the end of January.
  • Prepare a fixed assets register, calculate depreciation and make book adjustments as needed.
  • Perform account analysis on all other balance sheet accounts to make sure all balances are correct and current.
  • Match all transactions with their corresponding documents–receipts, bills, packing slips, etc.–to make sure you have the paper trail you need.
  • Download bank statements and store in a safe place.
  • Download payroll reports and store them in a safe place.
  • THEN get to work on your tax documents!

This is a truly abbreviated version of our 31-point checklist for the end of the year. So much more goes into ensuring your books are up-to-date and that you’re following the letter of the (tax) law.

Download the 31-point checklist here!

On the plus side, tax time is a breeze with a bookkeeper on your side. Not only does a good bookkeeper take care of most of the above for you, they’ll also work with your accountant so you’re not the one in the middle. There shouldn’t be any hunting for documents and forms because your bookkeeper makes sure they’re already accounted for.

And even better is that a good bookkeeper will walk you through how to painlessly have the tax funds you need come tax time. So there’s no putting off your IRS bill–because that’s never a good idea.

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