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.
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!
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.
As you digest your year-end financials, what’s the big thing that sticks out to you the most? For so many business owners it’s the lack of profit at the end of the year.
Being profitable doesn’t mean that you, the business owner, are taking home a big paycheck each month. It doesn’t mean that you’re able to invest in the latest and greatest equipment. Of course, it could, but being profitable means a whole lot more than that.
There are a lot of reasons why you may not be seeing a year-end profit, but our goal is to make sure you are. So as you’re wondering what happened last year, we want you to consider some of the circumstances you have in your business today.
You have a large amount of debt
Debt can weigh heavily on anyone’s finances, but especially a growing business. If you’re still in a physical location, lease payments aren’t necessarily a bad thing if your in-person revenue stream is steady. But business credit card debt can cripple your business, particularly if the interest rate is high (and we suspect it is). Credit cards are not a good tool to keep afloat because the debt will eventually drown you.
What to do: Find ways to help you get ahead of your debt and stop incurring new debt. This means you’ll need to find ways to reduce expenses in other areas so you can increase your monthly debt payments. You may not see large profits right away but you’ll reduce what you’re spending on interest charges every month, and that will feel really good!
You’re spending it on year-end assets
The goal always seems to be reduce tax liability as much as possible, but that shouldn’t mean at the expense of your profits. Just because you have money in the bank at the end of the year doesn’t mean you need to spend it on a big purchase. Assets like gym equipment, new flooring, a new computer and the like should be planned for well in advance, not become a line item in your effort to reduce your taxes.
What to do: If your tax accountant suggests you make a year-end purchase to reduce your overall tax liability, ask yourself some questions first. Is this something you truly need right now? If not, there’s no reason to buy. Do you have money saved already for taxes? It’s better to have a plan for both purchases and taxes. With both of these in place, there’s no need to make a big year-end purchase.
You’re paying too much on recurring expenses
Every business has recurring expenses, like insurance, phone bills, cleaning fees and software systems. Often rates go up and you fail to notice because we missed the email notification or forgot to check to make sure you’re still using all the parts of that service. Just because your bill is currently one price, doesn’t mean it has to stay that way.
What to do: Every quarter, make a date with yourself to review your expenses. What services are you no longer using? Is there a way to reduce your rates due to good payment history, longevity of service and/or lowering a service plan? It never hurts to do your research and negotiate new rates to save some cash.
You’re not flexible and open to change
You know how hard 2020 hit local service businesses. Some gyms didn’t make it out of last year intact; those that did were flexible and open to change. The health and fitness businesses that survived are the ones that embraced doing things outside the box and found new ways to bring their services to their clients. Often they were able to shift because they had an emergency savings that gave them a little bit of peace of mind and a little bit of time to think through their next steps.
What to do: The obvious answer here is to build up an emergency savings account so you’re prepared in the future. Knowing this may not be possible for you right now, find ways to be innovative and flexible with your offerings. Relying on only one stream of revenue may not be possible moving forward so identify ways you can diversify.
Most importantly: you’re not taking your profit first
We teach clients how to take their Profit First, which is hands-down the best way to ensure you have a profitable business. It’s about allocating a percentage of your revenue to profit, before you deduct operating expenses, taxes and owner’s pay. Because if you’re not taking that profit first, chances are you won’t have anything left at the end of the month.
But the easiest way to learn how to increase profits and see that year-end profit you so badly want is to book a call with us. We’ll assess your profitability and put you on the right path to a successful 2021.
Do you know how profitable your business is? To be clear, your profitability isn’t the revenue you’re bringing in or even your net income, after expenses.
One of the biggest mistakes we see business owners make is over-simplifying the profit in their business. It doesn’t have to be a complicated process, but it does take a little bit of thought.
And to actually see real profit month over month and year over year? That takes a plan.
For us, Profit First is the plan.
It allows us to take a profit every month, regardless of our revenue, because we take our profit first. The revenue matters, the net income matters, but the fact that we’re profitable means more.
We’re not going to talk about how to be more profitable here; that’s a blog post for another time.
But we are going to address why your bottom line revenue isn’t what matters when trying to grow a profitable business.
It’s easy to get excited about having a big revenue month. As bookkeepers, we know better, but we get excited too! To see a five-figure month is exciting. To hit $20k, $50k or more for the first time in a month is cause for celebration.
But once the confetti settles and the champagne goes flat, what does your bank account look like? Have you paid out all that revenue to expenses? Did you pay yourself a livable wage this month? Do you have anything left over?
Usually the answer is yes, all the money is gone. No, you didn’t pay yourself this month (again) and no, there’s really nothing left over.
So while the revenue looked and felt pretty good while it lasted, there was nothing left for profits and nothing left for you, the business owner. And our guess is that you spent much of that big month feeling pretty stressed out as you made sure the work was getting done.
Being profitable means a few things:
You’re able to reserve a percentage of your revenue as profit each month, usually because you set it aside first.
You’re able to plan out and/or control your expenses so you’re not spending every dollar every month.
You have enough cash to pay yourself and your employees a living wage. Consistently.
You enjoy a quality of life where you’re able to spend time with loved ones and enjoy some of your own hobbies. In other words, you’re not working all day, every day.
You don’t stress out so much about revenue because you have a really good handle on your expenses–and you know where your break even point is because you hit it regularly.
Profit is so much more than your revenue and having a profitable business will help you feel more relaxed and comfortable about where your business is and where it’s going. If this feels out of reach for you, we can assure you that it’s not. It just takes a plan and some accountability.
Let us help you find the way. Book a call with us today so we can show you how.
There’s a lot of marketing noise and advice out there in every industry, but in the gym and fitness industry, there seems to be even more. After all, we’ve had to close up shop this year, bring on more health and cleaning expenses and even pivot to the online space–changing up our offers and searching out new prospective clients.
It’s not been an easy year. But yet, some small gyms have thrived. And others? They continue to struggle.
For many business coaches who serve the gym and fitness industry, the answer seems to be marketing. If you can just get in front of more people…if you can just sell more services…if you can just…if you can just…
Sure, more customers and more revenue is great, but it’s not the answer. Not by a long shot.
Before we get to the solution…
We know you love what you do. Your happy place is working with your training clients, developing training programs, and teaching classes. You want your clients to meet their health and fitness goals, and you know how to get them there.
You opened your business–your gym, practice, studio–because you wanted a space where your clients could gather and you could help more people. Working for someone else wasn’t working for you because you couldn’t create and launch the programs you wanted to. Working out of your garage could only get you so far–and the weather got in the way a lot of the time.
But you knew what would help clients so you opened your own place. And while it’s been a lot of hard work, you’re proud of what you’ve built.
Now, with COVID causing all kinds of chaos, you hear from business coaches, friends and family, heck, even your competition, that more (or better) marketing is the answer to making ends meet this year.
Throwing out more marketing isn’t going to get you over this hump. In fact, chances are that more marketing and more sales (aka more revenue) isn’t what you actually need.
What you need is to keep the revenue you already have.
It feels really good to look at your revenue and see that you have a $250k business. Or a $500k business. Especially if you started off training clients in your garage or at the park down the street.
But those great revenue numbers are just that–numbers. They don’t tell the whole story of your business or your lifestyle.
We’ve had the honor to look behind the scenes at some amazing fitness businesses and we see a lot of the same challenges again and again. When revenue increases, expenses also increase. That’s nothing out of the ordinary. But we see expenses increase at a rate that’s not aligned with the revenue.
If you’re building a scalable, sustainable business, you need to have systems and processes in place that help to make your life easier. Having 20 personal training clients should feel very similar to having 10 personal training clients because you have automations that take care of scheduling, billing, follow-ups, and more. Going from 10 clients to 20 clients should double your revenue, but it shouldn’t double your work (or your expenses).
We believe that before you throw marketing at your business to try to make up for the COVID gap, you should take a close look at your numbers and determine where you can make cuts and where you can tighten the belt–as well as where you’re wasting time and money because the operations side of your business isn’t efficient.
Yes, this is one of the less sexy sides of business ownership. But it’s a lot sexier to have money in the bank and some free time on your hands than it is to feel the stress and frustration you’re feeling right now.
As a gym owner or someone working in the health and wellness industry, you know that revenue fluctuates throughout the year.
During the fall and the holidays, clients aren’t as responsive or working out as much–either because they’re busy with work and family or because they don’t want to feel bad about not following their health plan. At the beginning of the year, things pick up as people set resolutions and goals…but then taper off after a few weeks or months. Then, of course, there’s beach season where clients are ready to dive back in. And around and around it goes.
All this fluctuation in client commitment results in a fluctuation in revenue. And it’s enough to give you a headache.
After all, your operating expenses don’t fluctuate that much, and you’d like to collect a regular paycheck that you can count on.
That’s why reverse engineering your cash flow goals can help you stay on budget month to month and ensure you’re spending (and saving) the right amount to meet your operating expense needs.
This is why it’s so incredibly important to have a bookkeeper on your team to help explain your financial data to you and what your financial reports mean. A bookkeeper can also ensure that you’re staying within your budget each month, even on those slow months.
Here’s how reverse engineering works:
First, you’ll need a profit assessment to determine exactly what you’re making in your business right now.
You also need to take a good look at your P&L statements–over the course of a year. Determine what your average operating expenses are each month (total OPEX for the year ÷ 12 = average OPEX each month).
Are you making your average OPEX each month?
Typically, the answer is no. But the idea is to allow your busier months to make up for your slower months.
And if you’re spending more than 45% of your revenue on OPEX, chances are you’re not paying yourself enough. It’s time to find ways to lower your operating expenses.
But I can’t lower my expenses any more than I already have.
That’s what you’re thinking, right? I get it. Ask yourself this: Are you legitimately getting 100% value out of everything you’re spending on right now?
Do you need two team members covering the front desk when the gym is slower?
Is it necessary to buy that equipment this month?
Can you negotiate a better rate on your insurance?
Is it possible to let go of some of your equipment leases?
Can you reduce the frequency of equipment maintenance because usage is lower?
With your Profit First advisor, go through your expenses line by line and look at ways to reduce spending so you can get your OPEX more in line with where it should be. You’ll be surprised at where you can find money!
We’re happy to help you with this process. Schedule a call with us today and let’s reverse engineer your cash flow so you can start hitting your goals.
Here’s the thing about quarterly profit distributions: They’re meant to be used. And by “used,” I don’t mean reinvested in the business–as much as you might want to do that.
Every time you do your Profit First allocations, you should be taking 5% and depositing it into a Profit account. This the target distribution based on the Profit First system, and what we recommend to most clients.
Being a business owner is challenging. Being a business owner in 2020 has been exhausting. You’re working long hours, adding extra responsibilities to your plate, stressing over quarantines and lockdowns, and possibly even having really difficult conversations with staff and clients.
Through all of that, we hope you’ve still been setting aside your profit allocations. Because at the end of the day, you deserve it. You’ve done something that not everyone is born to do: you own a business.
The profit distribution is meant for you, the owner. It’s designed to reward you for your work; it’s not designed to reinvest into the business (that’s for a different account).
At the end of each quarter, take half of the balance in your profit account as a distribution and use it for something in your personal life. Something fun, something meaningful, something necessary. You get to pick!
You might be wondering… “But how do I spend it?” Here are some ideas, depending on how large that profit account is:
If your distribution is less than $250
Treat yourself! It’s okay if your profit distribution is just enough for a celebratory dinner with your partner or a friend. Go somewhere you wouldn’t normally go and order something fancy.
Visit the spa (or car spa). You deserve a nice massage or a facial, away from the office for the day. If that’s not your thing, treat your car to a detailing job that makes it feel brand new.
Invest in learning. Here at Fit For Profit, we’re all about learning new things–personally and professionally. What’s something you’ve been dying to learn that you haven’t taken the time to do yet? Sign up for that gardening class or take that Rosetta Stone class so you’re prepared when we can travel again.
If your distribution is less than $2,000
Beautify your home. There’s a lot you can do around your home for $2,000 and less, including some small remodeling projects or buying some new furniture or appliances. We’re spending a lot of time at home these days and we should enjoy it!
Take a road trip. If you’re able, take a weekend away at a nearby destination. Sometimes getting out of our normal four walls for a few days is enough to rejuvenate us for months to come.
Pay down debt. Personal debt can change how we think about money in our business too. We love the thought of using profit distributions to pay down (or off!) some personal debt so you can feel better all the way around.
If your distribution is more than $2,000
Divide and conquer. Consider gifting part (or all) of your distribution to a favorite cause.
Invest and save. If you’re not ready to spend the money, open a separate account and save it for a planned vacation or so you can pay cash for that new car. You may also want to invest it in a college fund for your kids.
I personally don’t always have a solid plan for my profit distribution. In fact, I really like to save it for a larger purchase. I’ve saved up for a car before, and I’m currently remodeling my kitchen with several quarters’ worth of distributions.
Whether you choose to spend it or save it, if you’re following Profit First you do need to remove it from your business accounts and put it elsewhere.
Not sure where to get started? Book a call with us and we can help!
In this week’s post, we are going to be catching up with Erin Haag, whom I have known for a couple of years now. We met when Erin owned a fitness studio and she needed to implement Profit First to make her business better than ever.
Erin’s Success Story
Erin owned a pilates and yoga studio in South Florida for nine years, but prior to that she worked for a whole bunch of different companies in corporate sales. You name it, she did it! We’re talking the weight loss industry, wellness centers, nutrition, medical spas, cosmetic surgery centers, and laser hair removal. She helped make millions of dollars for other people and then she was laid off during the financial crisis of 2008.
At that time, she decided she was done making money for other people and that is when she used all of her strategies to open her pilates and yoga studio. Erin had a pretty successful business. She paid herself from day one and her business was profitable. However, about five years in, she had two kids under the age of two. She was working 50 plus hours a week and hadn’t taken a vacation, let alone a day off in forever.
The final straw for Erin was when she was hospitalized twice within four months. The first time was for a kidney stone that brought on an infection and the second was for viral meningitis. She was released from the hospital on her oldest daughter’s second birthday and she realized something had to give.
She began to make shifts within her business. She did that mostly with her pricing and by automating her systems, but she basically changed everything. When Erin and I began to work together, she went from a 4% profit margin to a 47% profit margin. She also started to pay herself a six figure income and began to work only five days a week.
Erin began to work with me about eight or nine months before she sold her studio. In that time, she saw her biggest growth. In the six months from the time she listed her business until the time she sold it, her business became completely debt free. Erin also sold her business for forty times her original investment.
That was all cash in her pocket!
Since that time, Erin has been helping other boutique fitness studio owners, gym owners, and people within the wellness industry do the same within their business.
I love hearing success stories like Erin’s! But you know that she had to have a few points in her story that were not all that glorious! And that is what allows everyone else to relate to her story!
Making Changes to Your Business Model
One thing that Erin loves telling people right now is that if you are planning to start a business, now is the time to do it. She started her business during a financial crisis and everyone thought she was insane. But her business thrived and the businesses that are lucky enough to make it through and get to the other side are going to be so profitable and successful.
And if you currently have a business, now is the time to make the necessary changes in your business. You now have the perfect excuse. One of the biggest changes you can make right now is pricing. You really have to analyze your pricing and take a look at it over the last eight months.
Then ask yourself, “Have you really continued to maintain a profit margin? Have you continued to have a steady flow of cash?”. If the answer is no, then Erin and I can both tell you it’s due to your pricing. If you are still charging a per session class pack, then you must change it to a recurring revenue model. Switching your pricing model is the only way you can guarantee sustainability.
You may not believe that your business problems are tied to your pricing, but ask yourself if you did the proper analysis when you created your pricing. Did you analyze your pricing or did you simply charge whatever your competition was charging or less than what your competition was charging? We have seen the latter so many times and those owners are simply not making a profit.
How to Find Your Pricing
There is actually a formula for creating profitable pricing for your business. The first step you have to take is determining what your minimum monthly sales goal must be. You will find this number by adding in all of your operating expenses, your payroll, your liability, your debt, and your owner’s pay.
This will give you your monthly sales goal. Once you have that number, you will need to do an analysis on your capacity. Then your capacity will tell you what your monthly client value needs to be. This is basically how much each client needs to be worth to your business based on your capacity.
Let’s use $150 for an example. The $150 will be the pricing point for your mid-range package. You would then create pricing that has a weighted price for single services, which will be intentionally high. This will discourage people from purchasing a single class.
The larger commitment packages will be your bottom line number.
Conquering the Sale
Erin uses what she calls the client flow when conquering the sale. The client flow basically goes from when the client first contacts you all the way through to the collection of money. It’s going to be unique for every business and it must be individualized for every client. By the time you are collecting the money from your client, they will know exactly what you have to offer for their life, how you fit into their budget, and how you fit into their schedule.
Remember, that your goal is to solve a person’s problem, not simply collect their money! If a client begins to object, answer their question, reconnect with their pain point, and position your service as the solution that will solve their problem. You’re only asking them to commit to solve their problem.
Both Erin and I recommend using a checklist type script, so you make sure you remember to share everything with your clients. You don’t have to go down this checklist in order, but you do need to make sure you cover all of the points. This will ensure a potential client has all of their questions answered when it is time for them to make a final decision.
A client will contact you because they are interested. Therefore, if a client ends up saying no to you, something happened within your client flow. A step was missed and you allowed the client to slip out. This is why you need to be confident that you have everything your clients need.
Your Ideal Client and Pricing
You have the choice to be the best, the cheapest, or the most efficient. You can’t be all three though. When you are setting up your pricing, you’re targeting your ideal client. Your ideal client is going to be able to afford you, especially if you are doing the right type of marketing.
Once you have your pricing in place, it is a good idea to do a profit analysis. Determine what your current profit margin is, so you know which direction you are headed in. This will allow you to make adjustments to your pricing and expenses, so you can be where you should be with your profits.
As soon as you have everything where you want them to be, you can work on the systems you have in place. This will ensure that everything is ready for when clients are walking through your door. Those systems will also allow you to re-engage with existing clients and transition those clients into more profitable packages. Those steps alone can help you increase your profit margin by 95%.
The reasoning behind that is those clients are your cheapest clients. They are already in the door and you don’t need to convince them of anything. They love you and want to continue to work with you.
You may be worried about increasing your prices right now in our current situation, but Erin says now is the best time! People are actually expecting price increases right now. Since you may only be operating at 25% or 50% capacity, your clients understand that you need to charge more.
Besides, you should have been increasing your prices every year since you opened and most likely, you haven’t been. A 3% to 5% price increase is normal. After all, your rent likely increases 3% every year and your taxes and expenses increase, so why shouldn’t your prices? So, now is the time to get your prices into current market value.
Learn from Erin’s experiences and price your services properly. You will have a healthier profit margin, can pay yourself more, and hopefully have systems in place that will allow you to work fewer hours than ever before!
This week, we are going to be focusing on the year end. It is coming up faster than you think, since it is already the middle of October! I have four tips for you to be thinking about as you plan your year end. Well, I actually have five, but the last one is a bonus and it definitely won’t apply to everyone.
I think it is best to dive right in and talk about the things you can be doing right now. Basically, how you can prepare your finances for year end.
4 Tips for Preparing for Your Year End Plus a Bonus Tip
Get Your Bookkeeping Up to Date
I know a lot of you have been putting this off. You’ve had a lot of other seemingly more important things to do this year. And I agree, I probably told you before that I don’t always do my bookkeeping every month or all of my financial tasks every month. They sometimes fall behind! But NOW is the time to get those caught up!
The way I would recommend you getting caught up right now is to actually start doing September’s bookkeeping. Just start there and then you can stay current. Then in November, you do October and December, you do November. In the beginning of January, you do December.
I’ve also done a little calculation for you. There are 11 weeks left in the year now. Let’s say you haven’t done any bookkeeping yet in 2020. So, you basically have January through August to do. If you do one month per week, you can take almost all of December off, because you will be all caught up by then. Or since there are holidays in there like Thanksgiving, Christmas, and New Year’s, you might want to plan to get your bookkeeping completed in the weeks around those holiday weeks.
So, figure out the weeks you are going to do bookkeeping. It is super important that you get it done before the end of the year. If you don’t do it before the end of the year, you are going to pay your tax preparer more to get your taxes done.
You can reach out to us to learn more about us doing this for you. We are currently doing a lot more historical transaction work right now. People want to be caught up before they get to their tax preparers and tax return.
Talk to Your Tax Preparer at the End of the Third Quarter or the Beginning of the Fourth Quarter
This is something you need to be doing right now if you haven’t done it already! We always recommend our clients and every business owner, myself included, talk to their tax preparer at the end of the third quarter or the beginning of the fourth quarter. Do this when your bookkeeping is up to date, so they can look at your financial statements and give you a projection of what your tax bill is going to be. They can also tell you if you will be getting a tax refund. That would be really good news to have right now. The earlier you know this information the better. After all, if you’re going to owe money, you have the rest of the year to save that money up.
If you haven’t already been saving, or you haven’t been saving enough, we can make adjustments and get you on track.
When your tax preparer gives you an estimate in April or when they do your taxes, that’s based off of what they think is going to happen. Well, we all know that 2020 has not given any of us what we thought was going to happen!
So, take your financial records to your tax preparer and have a conversation with them about what they really think your tax bill is going to be based off of the actual results you have had in 2020.
This is also a good time to talk to your tax preparer if your revenue has significantly increased this year. That has happened with some of our clients. If that happened to you, now is the time to consider becoming an S Corp. It can be beneficial to change from an LLC or sole proprietor, depending on the numbers.
The bonus tip applies here, but only if you are already an S Corp. This designation requires you to pay yourself via payroll. (You cannot pay yourself via payroll if you are in a partnership, an LLC, or a sole proprietor.) If you haven’t been doing this yet in 2020, now’s the time to start and talk with us or your tax preparer. You might need to do some catchup payments as well.
The IRS is starting to crack down on that and they need to see reasonable compensation to you as the owner.
Set Your 2021 Revenue Goals
We all definitely need to be setting 2021 revenue goals right now. I think we all had revenue goals for 2020 and we’ve had to readjust those. This is the time to look at what 2020 was actually like and make whatever predictions are reasonable for 2021. Set those revenue goals and then start to reverse engineer all of the things you need to do to hit those revenue goals.
I always start with the revenue as my goal and then say, “Okay, that means I can pay myself this.” Or maybe you start with your pay as your goal and reverse engineer it into your revenue.
Either one of those options is okay since they are interchangeable. It depends where your pay is currently, but then how many new clients does that mean you need and how many new leads does that mean you need? How much marketing should you then be doing to generate those leads?
Hopefully you have data to back it up. Say you want to get 48 new clients in 2021. That’s 4 new clients a month. So, how many leads do you need to sign up 4 new clients? It may be 8 or it may be more. Hopefully, the data you shows you exactly how many leads you have needed in the past to obtain the number of clients you want. Use that data to back up your goals for 2021.
Take the time in the fourth quarter of 2020 to be the CEO of your business and set those goals. Then reverse engineer to get all of those quarterly and monthly goals for 2021.
Find an Accountability Partner
Finding an accountability partner is probably the most important thing on this list. Once you have your goals for 2021, you can report them to your accountability partner or group. If you don’t have an accountability partner or group yet, find one. They are the only thing that’s going to make sure you hit those goals. I have a blog post that shares how to find accountability partners, so give it a read if you need a little help finding your accountability partner.
These are the four things you must be doing in the rest of 2020 to end the year on a positive note and to make sure 2021 is as close to what you plan for as possible. Obviously, we have to readjust when things happen, as 2020 has taught us. But we can only adjust if we have a plan in the first place. If you don’t have a plan, you are only flying by the seat of your pants all of the time and that won’t be very helpful.
If you are struggling with ways to end your year in a good way and start 2021 strong, contact us today. We can catch up on your bookkeeping for you, so you never have these struggles again in the future.