Set Up for Profit First
Updated: Nov 12, 2021
Starting a Business - Part 8
What are your financial goals?
Don’t be afraid to set your sights high! You might not know exactly how you're going to do it, just start with making a decision about what you want. The bigger it is, the more excitement and emotional energy it will stir up in you. Keep your sights on your passion for what you're doing and how it will change your life as well as others.
The first step is to set the right intentions for your business. Having financial goals will give you a direction to focus your efforts, helping you achieve your desired results. It's ok to set your sights high. The more successful your business is, the more people you can serve.
Practical Money Advice From Julie Stoian
There are several expert tips out there for handling the financials. Here is a simplified plan by Julie Stoian from Funnel Gorgeous.
First, decide if you will hire a bookkeeper or how you will keep your books. You need to be able to see your profit and loss each month.
Decide how much you will pay yourself. You’re probably thinking, "How much should I pay myself?". Only you can answer that question. Pick a number you can start with, and make adjustments as needed.
After your salary and your expenses, there might not be anything left. That's okay but set your intention to have additional profit at the end of each month. Whatever you have left, Julie recommends you do the following:
Set aside 30% of your remaining profit and put it in a tax savings account. I know it's painful, but so is a horrible tax bill.
With the remaining 70%, divide it again by 70/30. Put that 70% into your personal bank account to use for whatever you wish. The remaining 30% should go into a BUSINESS SAVINGS account. This money can be earmarked for a mastermind, event, new project, etc.
Another example is from Profit First, a book by Mike Michalowicz: Learn how to “transform any business from a cash-eating monster to a money-making machine.” It is a cash flow management system to get you profitable right away.
Profit is traditionally what’s left after you cover your operating expenses.
Sales - Operating Expenses = Profit
Profit First, flips the equation.
Sales - Profit = Operating Expenses
It’s a system that doesn’t approach profit as an afterthought and helps you build your business to be more sustainable.
Want a simple quick start? Profit first suggests putting 1% of your revenue off the top before any other expense into a profit checking account to get started right away and build momentum. Otherwise, we tend to use all the resources up. You can always work to increase the percentage.
People who become wealthy don’t just focus on 1 factor, they focus on 4:
Keep Expenses Down
80% of your profits come from 20% of your actions. During your quarterly reviews, identify where you are getting the best ROI.
Tapping into Business Opportunities
How can you make your business profitable? You must be spending time focused on these activities so you can bring in the cash that is needed. It seems oversimplified, but these are the three fundamental basics at the core of any business that generates cash:
Buy or create a product or service
Sell for a profit
Systemize and administrate *the buying and selling process*. (Other tasks are likely taking away from this critical process)
Keep in mind that most businesses fail because of a cash flow problem. Just because you are selling a product doesn’t necessarily mean that you always have cash in pocket to pay for upcoming expenses. You need to know when the bills are coming due and evaluate how things will flow when the cash comes in. If you are finding that cash flow is a bottleneck for your business activities, then consider customer financing – where you presell to customers before you buy or deliver these products or services.
These examples include a little outside the box thinking to build your business to sustain and produce profits. Hopefully, this gives you a starting point to think about how you are handling your dollars. Seeking professional advice or hiring a bookkeeper is another option. Handling your finances isn’t quite one-size-fits-all, and it’s best to find the best shoe that fits.
Check out Starting a Business - A Guide for the Online Entrepreneur for a summary of this blog series and what you can expect to learn each week.
Go back to the previous post - Part 7 - Attracting and Retaining the Right Customers
Continue to the next post - Part 9 - Systemize To Prevent Limiting Your Earning Potential
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