Is Your Business A Cash Eating Monster? Here is a SOLUTION

If you're struggling with cash flow and you don't know how you can invest in your business and take your profit. In this video, I'm going to walk you through a simple framework outlined by a book called Profit first and how we've seen it transform local service businesses from cash eating machines to profitable businesses that make the business owners lots of money. The reason that I came up with this video topic was because one of our clients that makes multiple seven figures was not able to pay for marketing services because, because they were not collecting their money and they had poor cash flow management. And so I'm going to break out, break down an outline of how you can implement a cash flow management system in your business in under three, four, five hours per month. It's very, very simple and I'm going to show you how it's done. The book is called Profit First. It's by an author called Mike McCallowicz. He helps small businesses transform your business from a cash eating monster to a money making machine. We implement it in our business. A lot of the clients that we work with implement it after we've talked to them about the profit first concept because it's very simple to understand, but it's also very, very transformational to your business. So really, what Mike McCalowitz talks about in a lot of his books, one of them is called Clockwork. And this is the four core areas that you look at in your business. There's attracting customers, there's converting them into jobs, there's delivering the goods and then there's collecting the money. After collecting the money part, a lot of times people have all their money just go into one checking account and it just piles up and then they have to pay their payroll and it goes down. Pay and go, the payroll goes down, then they have this expense goes down. But they never really know, well, how much should I, how much can I spend over here? Or what percentage am I spending over here? It's just a big jumble mess of up and down and up and down and you feel like, oh, I could do this, I could do that. Well, with Profit first, all that is done. It's all addressed for you. And so in the book, he breaks down how to set up profit first. But essentially it comes down to these, these areas which are called the taps, the target allocation percentages. So what he recommends, and it depends on the size of your business, but he basically says that there should be five bank accounts. And it's not just the Mike Michalowitz thing. Other people, Donna Miller, Tommy Mello. They all recommend this type of a framework in your business because it works. So essentially, you have a checking account where all your money goes into a checking account. All your accounts, receivables, everything that you collect is going in. Then you have a profit account, then you have an owner's pay account, then you have a tax account and an operating expense. Now, this might expand for most businesses. Like, we have a payroll account, we also have a contractor's account. There's a bunch of different accounts that you can use and fluctuate in. But the beauty of it is that all your money comes into your checking account and then it gets broken out by percentage into all these different buckets. And so you can see, like, if you're 0 to 250, that doesn't mean that you make 100% of the revenue. And that doesn't mean that your owner's pay is 100% of the revenue. Right? It's broken out into this. You obviously have to pay taxes. You might have some operating expenses. So really you're making 50% owner's pay and 5% profit. And so what they recommend is that on the 10th and the 25th of every month, you are taking whatever amount of money is in that checking account and, and you're splitting it up into these percentages and then putting them into different checking accounts. The reason that this is so impactful is, I'll give you a perfect example. Let's say you're at $500,000, and that means that each month you're bringing in about, like, let's say $40,000. So your revenue is $40,000 each month. So that means that your profit for that month is going to be $4,000. Your owner's pay for that month is going to be like, I don't know, $15,000, something like that. Your tax is going to be 15%. Then your operating percent is going to be a percentage. The reason that this is important is because let's say that you want to hire a new employee. Well, if you have room inside of this 40% to take on another salary or another hourly employee, then you know that you can hire that person. And so it gives you the ability to know right where you're at in this percentage, this target allocation percentage. Do I have the bandwidth to bring on a new person inside of here based on my revenue number? Because a lot of times people just say, oh, I need to hire another person, when really their operating expense is like 70% and they're not making any money and they're just struggling now. A lot of people say, well, I'm just starting out the business, so I'm not really profitable. If you're not profitable, that's a problem. And it could be because you're taking your profits and you're reinvesting it back into your business, which is fine, but you should still allocate for profit. And that is why the book is called Profit first, is because every job that you do, everything that you do, it should be generating a profit for your business. Right? We don't go into business to just make owners pay and just have another job. We go into business to create a system that generates profits. That's an asset that creates profit without us as a machine. Right. And so you can see in here, as you continue to grow your business, your profit percentages go up and your owner's pay goes down because essentially you want to be getting out of the business and running the day to day operation and you want it to truly turn into an asset that's generating revenue that is producing a profit for you. And so this starts to scale down while your operating expenses increase. And the reason that he PUTS tax at 15% is because you get taxed off of the amount of money that you bring in, not off the top line revenue. And so he's saying that it's about 15% of your top line revenue is your actual tax. And so if you're having an issue with cash flow management and you don't know how you can scale or what you should do next, this, this is a beautiful system that you can easily implement in your business that will transform your business. We have companies that have gone from $5 million businesses that was making $400,000 a year, $500,000 a year, to then doubling the amount of profit just because they had much better visibility into these, into these numbers. So if you're just starting out, obviously I recommend reading the book. If you don't like reading, you know, listen to audiobook. But even if you just are trying to get an idea of like, well, what are my percentages even? You can go to your QuickBooks, look at what your revenue is for last month, for example. And then in your QuickBooks, all of these expenses and accounts should be labeled for like payroll taxes, whatever your operating expense are. And then all you do is you just take the number and then you divide it by your revenue. So let's say that your payroll is 50,000 and your revenue was 100,000. Well then your payroll is 50%. And so now you can start to build these percentages to get a better understanding of your cash flow. So if you like content like this, be sure to hit like and subscribe. Post a comment below if you have some questions. And if you're interested in growing your local service business, and if you need help with this attracting and converting customers on the front end, and you want a consultative approach that understands business when it comes to actually profit, not just revenue, then be sure to set up a meeting with us. We do free 30 minute strategy calls. We love talking about business and if it's right fit to work together, it is. If not, it's it's all good. Hopefully you'll get some best practices and you can take them and grow your business. Cool. We'll see you in the next video.