Why You Need to Change Your Profit First Allocations and How to Do It
The surest way to ensure you have the cash you need for the expenses in your business is by implementing Profit First. It creates the guardrails you need to stop spending what’s in your bank account and start holding some aside for things like owner’s pay, taxes, operating expenses, payroll, and future large expenses.
When you first start using the Profit First system, you set up your bank accounts and complete an Instant Assessment of your business to determine what percentages of your revenue you will allocate to the various accounts. (Find out more about how to complete the Instant Assessment here.)
Adjusting Your Money Mindset
As a business owner, money is likely on your mind a lot. Is there enough of it? How should I spend it? Is it safe to spend? Will there be enough to buy the equipment I need? Will there be enough to hire someone? What happens if I run out?
So many of these questions revolve around a scarcity of money. We’ve trained ourselves to think this way. It’s unfortunate that we live in this kind of “lack” mentality, and it’s possible to adjust your money mindset with some work.
I’m not a therapist but I am a money coach for business owners. I’ve heard a lot of money mindset challenges over the years and I’ve worked through some of these challenges myself.
My Own Money Mindset Story
I grew up in a home without a lot of money. My mom was a teacher, historically a low-paying profession, and my dad changed jobs a lot. Some of my earliest memories are of the adults in my life arguing about money. There often wasn’t enough, and there were a lot of arguments about this fact.
You might see how this might be uncomfortable for a child. It led to many beliefs I’ve had to uncover and heal in my adult life. The money script I find most prevalent, now that I have some disposable income, is this need to spend it to show that I have it since I didn’t have it when I was younger.
Now I know that doesn’t really make sense and it sounds strange for me to put that down in writing. But it’s true. I’m aware of this belief and routinely have to stop myself when I buy something to think about if I need something or if I’m buying something because of my belief that I need to show people that I can. Silly, right?
You’ve probably heard financial advice to ask yourself if you’re spending money on something that’s a “want” or a “need.”
I agree with this, but I think it’s important to take it a step further. You need to understand why you have the want in the first place. I know that my own “want” stems from wanting to prove to others that I now have money. But when I think about “want” vs. “need,” I can make a decision that I also want to have money in the future. That can help me decide to not buy the thing right now.
Changing Your Mindset
Many business owners have a scarcity mindset around money. They’re afraid to spend money because they’re afraid that revenue will drop or they’ll need money for something else down the road. And yes, that could happen. It probably will at some point. But having a scarcity mindset, which is also close-minded, causes us to miss out on so much.
I’m not suggesting that you go out and spend recklessly. But I am suggesting that you look at the possibilities out there, take control of where your finances are by implementing systems, and spend when you need to.
By allowing limiting beliefs to rule the way you’re managing your finances, you fail to look at creative ways to create more abundance in your life and business. For example, if you haven’t seen a revenue increase recently or you’re not growing as you’d like to, have you looked at your business model to see if you can make some tweaks?
A lot of gyms and fitness centers struggled during the pandemic because they had one way of generating revenue: in-person. I watched too many people close their minds to possibilities outside of that face-to-face model.
So many industries moved to virtual, including education…which may be one of the more difficult models to implement a virtual option successfully. Of course, it wasn’t perfect. But schools had no choice but to teach virtually. So they made it work. And over time, they made changes and improvements to better support kids.
We have to put in the effort and work to change our mindset and our circumstances. Sometimes that means letting go of limiting beliefs, understanding our past experiences, and changing something we’re resistant to changing.
It’s not your fault that your money mindset is where it is, but you can adjust your money mindset to break the cycle.
If you’re feeling stuck and don’t know where to go next, you might need some support to get you over the hurdle. We can help! Often another set of eyes or someone to bounce ideas off of is just the thing to move you forward.
Creating an Annual Financial Action Plan
If you’re like most of our clients, you’re taking some time in Q4 to look at your financials and set goals for the coming year. Financial fitness doesn’t happen overnight and you can’t think your way into a healthy place. It takes action. And small business financial management is essential to your long-term survival.
So what needs to happen to create a financial plan for your small business? It’s about knowing what you need to do, when you need to do it, and having the accountability to make sure it happens.
Because, as a busy business owner, you know that making it happen is a big part of the battle.
How to Keep More Money in Your Business
Do you ever wonder where all your revenue goes each month? You’re not alone. If you run out of money, your business will go under and be among the 85% of businesses that fail in the first five years.
It’s not a lack of revenue that’s the issue, which is helpful because more revenue always seems to be a challenge.
Nope, the key to business success is putting up guardrails and sticking to them.
When to Start Your Profit First Journey
You’ve heard the saying that there’s no better time to plant a tree than 20 years ago. And the next best time is right now. That holds true for so many parts of life and business. The best time to quit smoking, eat better, start exercising, save for retirement… You get the picture.
And so, when I hear people talk about starting to work the Profit First system and they decide to wait until January 1 or next quarter or whenever, I want to shout at them that NOW is actually the best time to start. Today.
Who is on Your Business Money Team?
There can be a lot of confusion around who should be on your business money team and their roles (including your role as the business owner). But without a solid team, you may feel confused about your finances–which is never a good feeling.
No matter how long you’ve been in business, it’s time to pull together your team now or revisit the individuals who are supporting you.
Time for a Mid-Year Goal Review & Revamp
If you’re working to grow your business, you probably have goals that you check in on from time to time. (I hope you have goals you’re checking in on!)
One of two things might happen when you check in on your goals: You discover that you’re on track or ahead of schedule…so you sit back and rest on your laurels. Or you’re so far off from meeting your goals that you want to give up.
Of course, there is also the business owner who’s on track and wants to push a little harder. Or who is far from hitting their goals and wants to double down.
All of these examples have something in common: The business owner needs to re-evaluate their goals to figure out what’s next.
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.
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.
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!