Managing Quarterly Profits and Taxes

If you’re a Profit First business, you get to take profit distributions four times a year. It’s exciting to see the fruits of your efforts and be able to boost your income as the business owner.

It’s honestly the best thing about Profit First, that you’re not limited by your owner’s pay (though it is important to pay yourself a living wage!). You get quarterly “bonuses” that you can spend as you wish.

You might ask, why not pay yourself more each week or month and enjoy the extra income in the moment…so you don’t have to wait until the end of the quarter? Because your profit distribution is not part of your salary. Even though it might look that way on your taxes.

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Planning for Quarterly Tax Payments

You know tax time will come every year, but for some it comes four times a year. That’s right…quarterly taxes are due four times a year for those who expect to owe $1,000 or more at tax time.

The trick is determining your tax liability, which can be tricky when done right.

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What to Do With Debt: Paying Off Debt With Profit First

If you’ve experienced debt in your personal life or your business, you know that it can feel suffocating. Your financial walls are closing in on you, and you’re ready to get rid of it once and for all.

We’ve talked before about good uses of debt vs. bad uses of debt, and there’s an important distinction. But aside from that, we think it’s important to let go of consumer debt and other debt sooner rather than later.

But how exactly? We can and will help you with this. But before we get into our recommendations for conquering debt, we need to lay some ground rules.

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Use Your Summer Slow-Down Wisely

As the days grow warmer and people start taking vacations, wellness businesses often take a hit. Therapy slows down and people opt for outdoor workouts instead of the gym.

Hopefully you’re prepared for the financial slowdown that comes with seeing fewer clients. That means having a subscription-based revenue model and having an advanced account that holds your summer expenses for you.

But with the summer slow-down, your time opens up for so many opportunities behind the scenes while still allowing you to keep a steady paycheck. Let’s explore each one of these!

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How to Get Closer to Retirement

This is a guest blog post from Howard Polansky of Cash Flow Coach.

I consume podcasts more than any other media. I am subscribed to WAYYYY too many and have to listen to them at 1.6x speed to not get too far behind. One podcast I truly respect is Radical Personal Finance by Joshua Sheats.

Joshua is a husband, father of four, in his mid-30s who walked away from the traditional financial world and has taken his family all around the world to be a global citizen. He is highly intelligent, sometimes way too verbose, but has done something so elegantly simple. He has explained financial planning in 10 words.

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Good Uses vs. Bad Uses of Debt: Knowing the Difference

At some point or another, most of us have had a relationship with debt. That first credit card we got in college or the mortgage to buy our current home. Sometimes the debt is used for good; other times the debt wasn’t in our best interest. (Maybe some of those early credit card purchases weren’t the best idea.)

I don’t want to sound polarizing, but there’s a good time and a bad time to use debt. That’s true in your personal finances and in your business.

So how do you know when using debt is a good thing and when you should plan to use cash?

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It’s Time to Audit Your Expenses

This is a guest blog post from Howard Polansky of Cash Flow Coach.

While it’s important to raise your prices as you go because your value and expertise will continue to improve over time, This isn’t the area that creates the greatest impact to your business.

As Mike Michalowicz mentioned in his book, Profit First¸ he had a 7-figure business that was losing money. The average person would think to themselves, how could that be? It’s because the top line has nothing to do with what’s left in the pocketbook. If the million dollars of revenue costs you $1,000,001 to generate, you are not running a profitable business.

An audit of your expenses should be a required task every year, at a minimum. I know Profit First professionals (PFP) will help you with an audit of profitable/neutral/destructive expenses when a new client onboards. Why? Because they are guiding you into an operating expense budget your business needs to fit in.

At the start, it almost feels like those pants you haven’t worn since you put on the COVID-15. It’s tight, you don’t know where to cut, but your PFP is your guide to realize what tools are must-haves to your business vs nice-to-have. However, there’s a deeper reason that most PFPs may not even realize on why this should be done annually.

I credit Tim Francis of Profit Factory for making this concept simple to understand. Tim calls this the BLOAT of the business. Most people understand the concept of the profit margin of the business. If my business generates $100,000 of revenue and my expenses are $90,000, my profit is $10,000, or 10%. To generate an extra $2,500 of profit, I need to sell another $25,000 of goods and services. That may feel intimidating just thinking how much more you have to sell to barely create a bump in profit.

But have you stopped to think: If I can save $X from my expenses, how much less do I have to sell? This goes back to the BLOAT. If I can cut a one-time expense of $100 and my business has a profit of 10%, I won’t have to sell $1,000. If that $100 was a recurring monthly expense, I won’t have to sell $12,000!! It doesn’t sound real, but the math is the math. So let’s take this step by step.

First, figure out your profit margin. It’s simply revenue – expenses = profit. Divide the profit into your revenue to get your profit margin.

Next, we figure out the BLOAT. Divide 100 into the profit margin to get there. If your profit margin is 18%, we calculate 100/18 = 5.56.

Now we come to the justification. Let’s say the one-time expense is $200. We multiply the BLOAT number of 5.56 by $200 to equal $1,112. The question we ask ourselves is this:

To justify this $X (recurring/one-time) expense, I have to sell $Y of goods and services. Is it worth it?

With this example, to justify this $200 expense, I have to sell $1,112 of goods and services. Is it worth it?

If it is a monthly recurring of $69, we multiply the expense by BLOAT and by 12. In other words:

$69/month x 12 months x 5.56 BLOAT = $4,603

To justify this $69 monthly expense, I have to sell $4,603 of goods and services. Is it worth it?

I’m not here to judge what you need to run your business. I’m here to help you truly analyze, by the numbers, how you justify each and every expense and understand how much in sales each expense really costs.

The added benefit of scrutinizing and justifying each expense is that when you can cut an expense permanently, the profit margin of the business increases and the BLOAT decreases. Playing defense is how sports team wins championships and how you create a championship business.

How to Manage Tax Season as a Business Owner

One of the best things about Profit First is that the money you need…for payroll, for expenses, for taxes…will always be there because you have a system and you’re using it consistently.

And while payroll and expenses are things that come up consistently, month over month, taxes can sometimes be overlooked. Or they’re something you’ll start to save for when revenue picks up or after this bill or that bill gets taken care of.

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Is Your Personal Account Growing for Retirement?

This is a guest blog post from Howard Polansky of Cash Flow Coach.

I love to analyze numbers. Making projections about how much money this will grow at X% over Z years is just easy for me. But I have to be honest and know I am driving myself crazy over that stuff. If someone asked me what numbers they should track if they could only follow one statistic in their own personal financial life, I would tell them to track their savings rate.

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