Simplifying Numbers: Insights from Gavin Smith on Profit, Strategy, and Management

What should we be aiming for in a profit? Is it 10%? Is it 100%? Is it 15%? It

does depend where people are at, but if we've got a business at scale, so I'm saying $500K plus turnover and they're making single digits of profit margins, there is definitely opportunity within their business to dial it in.

Welcome back to the Marketing Muscle Up Podcast Show. I'm your host, Richard Turtungi, and in today's episode, we're going to talk about numbers, profits, financials, all that stuff that you may not like, but it is the most important thing in your business. Now, I've got a guest, uh, today. His name is Gavin Smith. Gavin is the founder of The Profit Analyst, a financial coaching business on a mission to empower business owners through their numbers. I'll say that again, to empower business owners through their numbers. If you're an entrepreneur that just like is, is able to do everything but you freeze when it comes to numbers, um, I wanted to bring Gavin on, on this, uh, on, on this show to sort of get you an understanding from a different perspective of how you can make your numbers work for you, not against you. Now the thing I love about Gavin is I met Gavin a few years ago. Gavin actually owns, uh, a multiple of, um, Pilates studios here in the Sunshine Coast where I'm based and Gavin is based. And Gavin's been through our Com Marketing Ninja and Scale programs himself and his team. He's one of those people that just love learning, and that's what also is a, is a catalyst for his success as well. He doesn't just have Pilates studios, he's got other businesses, more of a need business, like, you know, food. He's in the food business and he has a huge amount of cafes as well, which he may take us through as well. So he's not just like teaching it, he's actually doing it as well. Now on top of that, you know, he had this financial experience and expertise through working with major firms like KPMG in London, Dubai, and Singapore, qualified accountant. And his true passion lies in helping us fellow business owners to success in their business. Welcome to the show, Gavin.

Thank you, Richard. That's quite the intro. Thank you very much.

I try my best, but it's all truth, Gavin, because I've, you know, we caught up the other day at one of your beach bars in the beautiful Sunshine Coast here, went through the new menus and, you know, people just love to eat out, don't they? They love to eat out. And it's such an interesting when we're working in the health and fitness industry a lot and then you come across someone who's got another totally end of the business and we're talking about how much bacon costs and how much eggs cost and how do you get that not going off. There's so many different things. But the thing I love about the fitness business and wellness business, it's kind of, if I could say and not be sort of insulting people here, it's a pretty basic business when you compare it to the other world. Don't make sure the meat gets off in the freezer and all that Gordon Ramsay kind of world. Take us through your background, Gavin, because it's quite diverse in where you've come from and why you're able to teach, you know, the profit drivers in your business.

Yeah. So first of all, just to touch on the differences between those 2 businesses.

Yeah,

absolutely. Hospitality is way more complicated than fitness is. You know, you're not only dealing with the food, but there's the rent, there's the people, there's the, are you trending or not trending? There's just so many different variables to get right in hospitality and have it all right for one month and then it'll be totally different the next month as well. So But yeah, so my background and what makes me kind of quite unique in this space in terms of coaching finance is I've had 3 distinct parts in my finance career. So the first part was all the technical stuff. So university, chartered accountant qualified, worked at KPMG as an auditor, all the technical kind of things that you would expect a regular accountant to go down. Did that path for the first third or so. Then the middle part of my career, 10 years living abroad and that was all based or mostly based in London, a couple of years in Dubai, a couple of years in Singapore. I worked for a globally listed marketing agency. So very commercial hands-on things, lots of buying and selling of businesses, running a global budget. We had thousands of employees across 60+ countries. So very commercial set of experience. And then the third part of my career has been on my own entrepreneurial journey as a business owner. So that was the buying and selling a cafe, getting involved in some beach bars, building that up into a group, starting the Pilates studios, building that up. And so I'm a very finance background type person, but I'm also quite unique compared to other accountants in that I've actually broken out of the accounting world and I'm more involved in the business world. And, but I'm seeing it from all these different angles, you know, I'm understanding how to make the numbers work for you as a small business owner.

Yeah. So, so interesting. You took me through my personal numbers the other day and you know, when you're just highlighting what it could be, it sort of actually remotivates you to do a better job, to make more sales, to improve, you know, to tighten up the bottom lines and so forth. So listen, I want to get straight into it, Gavin, because you're a wealth of information and I want to sort of just give a huge part of value here on the show. Take us through your concept of simplifying the numbers. How does that work in what you do?

Yeah, so my big picture approach is 3 stages. So the first part is simplifying. second part is knowing your numbers and third part is using your numbers. And so the simplifying part came about because, you know, once I became a business owner, hanging around with lots of other business owners, like I said, I love to learn. So lots of business groups and coaching courses and things like that, hanging out with other business owners, I could see how much of a weakness numbers were for other business owners. And so to make the numbers really accessible for everybody, I started coming through my own or coming up with my own methodologies and ways to how to simplify numbers to make them really easy for people to understand, really accessible for other business owners. And so that's why it's the first part of my 3-stage process because I can see, you know, 90% of business owners out there are just turned off when it comes to numbers. They think it's complicated, it's full of jargon, they kind of leave it for the accountants. And because of that, that's why I always start with this first part of simplifying. And so some examples of that are instead of accepting the financial reports that come straight out of your Xero, out of your finance system, or when you get them from your accountant or bookkeeper, they're a giant long list of numbers, you know, really small font on the page, many, many columns on there, and it's just so many numbers on the page you can't, you can't read it, you can't deal with it as in your brain comprehends it.

Yeah.

So step number 1 is just summarize all those numbers down into 5 key accounts. So take all the expenses, summarize them into 5 numbers, and all of a sudden your brain can deal with that. You know, it's not— you're not overwhelmed by numbers, you you can look at the page and see 5 different things on there and your brain can really comprehend exactly what they are and what they mean.

So 5 categories, is that what you're saying, Gavin?

Exactly, yeah, just 5 categories. I'm talking about the expenses on your P&L, you know, because on most people's P&L, the revenue side of it or sales just has one line at the top and then we have like a giant page.

Oh yeah, like where does that end? Do you know what I mean?

There's numbers

everywhere and it's like

2 pages and it's often comes from bookkeepers who have had free rein and they, they like to think, you know, every different transaction needs its own category so that we could sit there at the end of the month and enjoy all these categories that they've come up with.

But so, so what are these 5 categories? I'm really interested. What would these 5 categories be?

Yeah, so the 5 categories are— I'll just tell you what they are. The first one is cost of goods sold. This relates to the things that you're buying to on-sell, so the direct cost of the products you're selling or services that you're doing. Second one is team costs. And just a quick example of that, when you're looking at a standard P&L, it will have like salaries and wages, we'll have workers' compensation insurance, superannuation, all of these kind of things. And that's what I'm referring to, just summarize all of them up and put them into team costs. So first one, COGS, second one, team cost. Number 3 is what I refer to as business growth. So this is essentially marketing, advertising, sales training, anything you're investing in to grow your business.

Yep.

Number 4 is property costs, which is basically just rent and overheads and any other costs related to your location.

Yep.

And then the 5th category, I call that overheads, and it's basically the bucket for everything that doesn't fit into the first 4.

Oh, that's simplifying things, isn't it?

And so the thing about that overheads category is it often takes up more than 50% of the real estate on a regular P&L. You know, there's so many categories on there, but when we collapse them all down and just call it overheads, it can actually be, you know, 5 or 10% of the business or 20% of the business.

These are awesome, Gavin. And just number 1, cost of goods sold, right? When you're dealing— and then you've got number 2 is team. So if you're a health and fitness business, What would example be of cost of goods sold? Or, you know, would that be the team or is that your protein shake if you were selling that kind of concept? Do we have a lot of cost of goods sold in our industries?

Yeah. So, so there are, you know, some actual technical rules around it and some accountants get, get a little bit caught up in what goes into which one of those categories. I just wanna stress upfront that for me it's more about what's practical and what's easier so that you can understand it. So I don't really have the hard and fast way which you should put it. But for example, let's do a non-fitness one first.

Sure.

So it's really obvious. So if you're like a retail store, it's the products you're buying to sell. If you're a cafe, it's the food and drink you're buying to sell. So these are what direct cost of sales are. So in the fitness world, yes, definitely, it's things like protein shakes or merchandise that you might have at the front, that sort of stuff. Definitely. When it comes to the team, this can be a bit of a gray area. Sometimes it can be too hard to split the team between what's direct cost of sales or client facing and what's not.

Right.

In my Pilates studios, we do actually split the team. And so the team that I put in cost of goods sold are just those costs specifically related to teaching the classes.

Okay.

So whereas the rest of the team, the admin team, the marketing team, that sort of stuff are all just sitting in, in that team category. Now, the reason you do wanna separate them or look at cost of goods sold, it's It's about, you know, those costs. If I were to put double the amount of classes on next week, I would expect to see double the amount of team costs related to teaching the classes. That makes sense. Whereas the rest of the team, the overhead team, they don't change. And that's why we're trying to put things in the cost of goods sold which directly relate to the sales costs, which are going to go up and down in relation to sales going up and down.

That makes total sense. So basically, it's sort of most like when the business owner says, Oh, they do everything and, but they don't pay themselves a wage. And that, and like you're sort of saying, hey, if you can break up the actual session that you are teaching, um, then possibly one day you can hire someone to do that or split the rest of the admin. So that makes total sense.

But I will say for most business owners out there, to be honest, I don't normally separate them out and don't separate the team. I prefer just to put it all into team.

Yep.

Because I'm much more about what's simple and easy and what's practical rather than getting caught up in the accounting of things. So I'd rather just be able to just group it all in one number and calling it team works as well.

Love it.

For what I want to do with numbers further down the track.

Fantastic. Now, Gavin, I might just throw some random things too, because I'm super interested in this conversation. What should be earning is a lot of— and I'm talking to health and fitness business owners because we're so passionate, you know what I mean? And I think we try to just continue that passion on. And over my career, I've been in this space for 20 years and specifically the last 10 years in marketing and sales. Teaching people that sometimes when I say, hey, what's the financial goal? It's like you can hear crickets. It's like they just want to teach. But then what happens as they progress in life and they get older and they have a family and they go, oh shit, I need some, I need to get some savings and some money and sort of that sort of stuff out. Like, what should we be aiming for in a profit? You know, is it 10%? Is it 100%? Is it 15%? Is there some sort of guide that we should have? Um, you know, just like a workout guide, or is it just like we hope we're going to get there? Because I think that's a big part— a lot of people who are very passionate about— sometimes they think profit is a bad thing. Um, too much profit, we're not helping enough people out. Can we talk about that, uh, mindset a little bit?

I mean, the concept of profit as a bad thing— if you're not making profit, you're not going to be around. So we need to make profit in a business for it to be able to survive to start with. So that whole idea of it's a bad concept, if you've got that mindset and you're in business, you probably want to get out of business because it's going to work without profit. The business doesn't survive. In terms of what level of profits people should be making, it really does depend specifically on industry to industry to start with. But then if we just focus on the health and fitness, it can really vary from business to business as well, depending on what level of the scale journey it's at. Is somebody a solopreneur and they're just starting out, or is this someone way a lot further down the track and they have multiple businesses and they're you know, rolled up a big group of them. What I do like though is when you simplify your numbers down into these 5 categories.

Yep.

Now we're looking at what I refer to as a simplified P&L. So we will have the income at the top of the page, we'll just have those 5 numbers and then we'll see the profit at the bottom. This is where all of a sudden talking about margins and how much you're spending on different categories becomes so much easier for you as a business owner and you can not only compare your costs to industry standards, but you can also compare your costs to other business owners. You know, in, in your group, for example, you've got multiple, multiple business owners in there who are all in the same industry. And if they all just knew their 5 key numbers and be able to compare them from one person to another, all of a sudden this is where you can find, okay, who's really winning on the team costs, or who's really winning on the marketing costs, or, uh, property costs, etc., in relation to their business. And it's so much easier to compare one business to another, and then you can also share what strategies or business models people have in place to see what, you know, what's working and what's not for people.

Yeah, great idea. And then people can, you know, decide where that, where that opportunity is possibly in their area.

Yeah, absolutely. But, and also to try to come back to your first question, you know, what should we be aiming for? Like I said, it does depend where people are at, but if we've got a business at scale, so I'm saying $500K plus turnover.

Yep.

And they're making single digits of profit margins, There is definitely opportunity within their business to dial it in.

Awesome.

And by dial it in, I mean to get the profit margin higher.

Great. I love that. And I think, you know, what you just sort of said there, if I touch on that for a second, you know, if you're not, if you're not going to make any profit or you refuse to make profit or you're not focused on that, your business won't survive. Can you take me through one or two examples of that, Gavin, in this sort of landscape of, you know, business today?

Yeah, well, business today, it's obviously been a very interesting last couple of years if we basically start from the COVID period.

Yep.

Which obviously did take many businesses out, unfortunately. Many good businesses too. It wasn't necessarily bad businesses there. But even beyond that point in time, it's been a pretty changing economic landscape in this country. You know, we've gone through a big rally of pay rises. We've gone through real inflation, inflationary cost rises across all different sorts of services and utilities and things. Which has been making business very challenging for people. And quite oftentimes the only option business owners have is to actually keep rising their prices at the same time

to

be able to keep ahead of costs. But we've also come up against raising interest rates in this country and discretionary spend being pulled back. So that's adding pressure on the price rising side of things as well. In terms of if you're not making a profit, you don't survive. It's really simple, right? You've got basically this, there's 3 different types of numbers. We can touch on them in a minute. But the 2 main sets, one of them is your profitability. Are you making a profit or not? The other one is what I refer to as your net worth, which is basically, basically, you know, how much money do you have in the business essentially. So your net worth is all the things that you own minus all the things that you owe, what's left over. Now, if you're making profits, those profits are going into your net worth and making your net worth Higher and higher and building you up.

Yep.

If you're making losses, your net worth is going down and down and down because you're draining on your net worth to be able to keep the business alive. So losses means you've got less income than you have expenses. You're spending more money to generate that income than you're actually generating.

So you're taking money from a house or your overdraft or savings to put it into the business.

Yeah, exactly. So you're draining on your net worth. So if you carry on making losses, obviously you're going to drain that net worth to zero or worse, lower and lower and lower before finally it goes bust and we haven't got anything left over. So we have to be making profits to be able to stay in business essentially. You can go through periods of time where you do make losses, i.e., COVID period, your studio shut for 6 months, you need to be able to survive and you'll drain heavily on your net worth to get through that period of time. But so long as you have a plan to come back to profit and you can make it through and start trading profitably again, then you can start building it back up again. And this is pretty standard practice. You know, there's no business out there that's made consecutive profits forever. We've all had losses at some point in time in our journey, but you can't keep on making losses if you want to stay in business.

Yeah, it's a really great way to put it. Um, Gavin, what do you think about— and this is probably going back a few years— when people get, um, it's like the tech space, uh, years ago, people would get investors and investors and investors in, they weren't making any money, But they'd be like, oh, my business is worth $10 million or billion dollars, and but there's no money coming in the door. It's like the early days of Facebook and that when people didn't even know what advertising was. And I think that's slowed down from the circles that I'm hanging out, but I could be wrong. And then you get the small business owner that's like, you know, they owe the ATO $10 grand or $100 grand or $50 grand, and it's just like they're only making— they're not making the money. But then you see The big brands over here just losing billions of dollars in profit and that. Is that— should we just like, you know, a small business owner, is that a distraction? You know, I mean, obviously 2 different worlds and sometimes I think we look up to those big brands or those tech companies like, oh, they're doing it, we can ride this no profit for a while. What are your thoughts on that?

Yeah, absolutely 2 different worlds. You know, if you're a small business and you're making losses, The only way you wanna keep riding with that is when you've got a, you know, a clear plan on that you're going to be able to get out of the business. So there's kind of 2 different principles there that we need to sort out. One is, do we actually have a good idea, a good principle, a good model that we're aiming for? Yeah. And are we actually confident in our ability to execute against it? You know, will we actually be successful even if we have a great idea? If we're not executing against it, it's not going to work either. But if you've got those 2 points in place, you know, you're really confident in your model and you can see the pathway out of it and you're executing against it, sure, carry on, you know, driving through the losses because you've got an out ramp coming out the other side of it. But yeah, if you're a small business and you're looking to the likes of these big companies like Airbnb or Uber or something which made losses for a very long period of time before making profit,

Yeah.

I don't think there's much confidence to gain from trying to copy that model when you You haven't got the financial backing of what those guys had as well.

Yeah, I love it. That's great. Uh, really interesting, Gavin. Really interesting. Now I just want to probably delve into your personal business a little bit if I can. I'm really interested, how do you manage— and this is for somebody out there that's doing multiple businesses, or they might have 2 studios— how do you manage, you know, running 4 or 5 Pilates studios, running a whole bunch of bars over here, running, um, you know, this education business, The Profit Analyst, How do you manage having multiple businesses and keep growing them all?

Yeah. So the really simple answer is business partners and a good team and great team as well. There's an analogy from Kohen Ray where he talks about having one watering can and 3 flower pots. And sometimes when you have multiple businesses, it definitely feels like that. There's just not enough of you to go around in terms of energy and effort and water to the flower pot that you can actually give it. And it's absolutely, it's been challenging. Like my business journey is 5 or 6 years deep now and there's definitely been some periods in there where it's, you know, I've had the thoughts, this is too much. I need to get out of this business or that business because I'm just getting pulled too many ways. Being on the other side of it now, and if I reflect back on what's made that journey, well, there's been great business partners in all those businesses that have been able to you know, run the businesses as well where they're bringing their skills and expertise and I can bring my skills and expertise and combined, that's what's helped make the businesses a success. So in the case of the beach bars, there's actually 3 of us involved in that partnership and one of the guys has got a lot of business experience. He's been very helpful. I clearly bring in numbers and that sort of strategy direction view to the partnership. And then the other guys, a real passionate and excellent hospitality person, him and his wife. They're a good couple in terms of they take care of the hospitality. You know, I'm not writing the menu or helping guide the staffing on a hospitality day today. That's definitely outside of my wheelhouse.

Yep. Great. So having good teams you can trust.

Yeah, absolutely. Yeah. And then in the case of the Profit Analyst, the difference there is it's a coaching business and it's my real passion or my baby and what I love doing. And so when you've got that element involved as well, there's a certain extra layer of energy that you have for a business as well.

Yeah, I love it. Well, this is really interesting. Now I know you've got a couple of the tools up your sleeve I'm going to kind of squeeze out of you before we, before we finish up. Talk about, um, you've got something called the profit calculator as well and the profit formula. I think we've gone through that. Um, what are some other strategies that we can use as small business owners to, to up the, the profit? You know, how, you know, if we've realized that we're not making profit, what's the next steps to So to do

the profit formula is the number one thing that I would like all business owners to learn. It's a really simple formula, but when you as a business owner have this framework or formula in your mind, it can always show you exactly what the next right step is for you as a business owner, what your next right move should be based on your numbers. And so the profit formula really is the profit formula and then the tool, the profit calculator is essentially the profit formula just put into a spreadsheet, into a tool so that anybody can actually use it. But if you understand the profit formula, this is what I walk around with as a frame of mind in my mind whenever I'm coming into any business to coach them or help them out. This always shows me the right next step and it's what we look at our own business with every month as well and identify what our next right move is. It's been able to, it's the formula that's been able to help us scale our businesses along the journey that we've gone through. So what is the profit formula? So there's the really basic formula that everybody knows is income minus expenses equals your profit. So the income is how much money you're generating, the expenses is the money you're spending to generate that income. And if you have more income than expenses, you've made a surplus, that's where you've made a profit. So that's the basic profit formula that everybody knows, one minus the other, what's left over. The profit formula I'm referring to is just one layer deeper than that. And that's where you actually get what we refer to as profit levers. So Going one layer deeper, income breaks into 2 different numbers. They are volume and price. So in the case of a fitness business, we're talking about number of members and the membership price. And so the reason I wanna go this next layer down is you can see now we've actually got options. You know, when we're back at the high level, if we want more profit, we either need to have more income or less expenses.

Yep.

How do we get more income? Well, you actually have 2 choices. You can either have more members Or you can have charged them a higher price. So you can see this next slide down, we've got options now. Likewise, when we get to the expense side of things, we break those down into 2 categories of expenses. Now typically you'll see them as boring accounting words. It's a variable or fixed expenses.

Yep.

But variable basically means expenses which move up and down in proportion to income, and fixed expenses are ones that don't. So for a fitness studio gym, a real basic fixed expense is the rent. It doesn't matter whether you're full or half full or no one's coming at all. The rent is the rent, the same every single month. Whereas the variable costs, ones which fluctuate, would be instructors teaching classes. You know, if you double the volume or double the number of classes that you put on, your income shoots up, but also you have to pay more and more team costs.

Yeah.

So we wanna look at our expenses in these 2 categories as well, whether they're ones which fluctuate or not. So once we've broken our business down, back when I referred to simplifying your P&L into those 5 categories.

Yes.

We want to identify with those 5 categories, do they fall into fixed or variable costs for your business? Because once you've got your— so we've ultimately got 7 different numbers here on the formula, members times price minus, and then we have our 5 different types of costs, but we want to know if they're fixed or variable costs.

Yeah.

Once we've got that written, we've got a written formula for any business. And then if we wanna make profit, more profit, we basically can just look at any of those numbers. Which one is the easiest one for me to change right now? More higher price, more members, lower my rent, lower my team costs, lower my marketing spend. And then there's actually, we look for which one is the easiest to move,

right?

But in most businesses, the strategies that we want to employ are actually a little bit counterintuitive. It's actually increase some of the expenses because in doing that, it will significantly increase the income side of it. For example, investing into marketing and advertising, those types of costs, you know, you might have to spend an extra $1,000 or $5,000 per month, but that might actually generate an extra $50,000 worth of income.

Well, yeah, when you went through, you did a roundtable a few months ago at our Com Marketing Summit, you went through this process to a Curves franchise. And, um, you know, they're in our marketing program too. But when they realized that I spend the extra $1,000 on Facebook ads and that's going to increase my members up, um, there was— it was like, it was an aha moment. And, um, ever from there, they're still generating more clients, um, because they realize that that's going to give them a greater return. And what you just said is so, and I don't mean to be insulting here, so simple, Gavin, but it actually is not being done. It really is, right? But to get to this point of simplification that you are talking about, I think breaking into the 5 buckets, first of all, knowing that they're those buckets and not getting, you know, crazy with all the lines there, as you say. Then you can really talk about, um, the, the thing that's going to move the needle. And, you know, you mentioned, yeah, okay, spend more money in marketing and membership, or, um, you know, increase your price up. And then person will come back and say, I can't increase my price up, do you know what I mean? And then you get more members in. So it's— you've really just got to get straight to the point of how you can grow in your, in your niche, in your market.

You also, when you have that formula, a lot of the times we can actually eliminate a lot of those numbers as not being relevant for you. You know, for example, you can't change the rent. locked in for the next 3 years at that price. So there's no point in focusing on that rent. The only thing about the rent I would always ask is how much opportunity do we have in that location? Are we at capacity or are we only halfway full? Because that's where you can see, wow, that cost will stay the same even if I double the rest of the numbers on the page.

Yeah, I agree.

But often you can put a line through a lot of these categories and think not relevant to me or I can't change it. And I get this a lot when I've worked with franchise groups where they'll be They'll say, I can't put my income up because I can't change my price because the franchise group dictates the price. I'm locked in at this point.

Yeah,

but that's fine. That means there's 2 variables to income. You can't change with price, but you can play with volume. So we now know that your only option is volume here.

And, uh, with volume, you've got to go market and find and improve your sales, all those kind of things, right?

Yeah, absolutely.

Fantastic. This is great. Um, I've written those numbers down and definitely I'm going to go back and hit those 5 pillars because I mean, it just simplifies everything down.

Yeah. And that's the, my process of simplify, know, and use your numbers. Once you've simplified them, you can see how it's so easy now to move on to the second step, which is know your numbers. Because when you're looking at numbers and it's only 5 numbers to deal with or 7, because you wanna think about price and volume as well.

Yep.

That's really accessible for any business owner. They, 7 numbers, that's not a complicating overwhelming set of numbers. There's no jargon in there. You can wrap your head around what they are and what they mean for your business. And that's, that's where it comes into know your numbers is know your specific numbers, you know, which numbers actually make a difference in your business.

Yeah, love it. This has been super helpful. I think for a lot of people that'll be listening to this, they're going, yeah, I'm gonna do this. I'm more interested and more motivated. Couple quick questions for you, Gavin. How often should I look at my numbers? Is it a daily thing? Is it a weekly? Is it a monthly? When should I look at those numbers or just go to my bank account and just see how much money I have in there? Is that how it works?

Okay. So it does depend which numbers you're talking about. There are, like I said, there's 3 different types of numbers and we talked about profitability and we talked about net worth. The 3rd set of financial numbers are cash flow numbers as well. So for cash flow, I look at cash flow weekly, for all of my businesses and all of our clients, we give them all a weekly cash flow forecasting tool and we wanna look at cash flow weekly. Now, business owners, I wanna address the point you just said about, I wanna go look at my bank account and see what's going on. That's a red flag. That's a red flag for me just because the bank, the cash in the bank doesn't give any real indication of what's going on in your business because of different timing differences that hit your bank account. You know, think about it. Some things you pay weekly, like maybe your marketing spend, stuff like that. Some things you pay fortnightly, like wages. Some things you pay monthly, like rent, and some things you're paying quarterly, like your BAS and GST.

Yeah.

So if you think you've got these like different patterns of cycles of money coming outta your bank account, there's going to be points in time where they all line up in one week and it looks terrible because you've had a quarterly, a monthly, a fortnightly, and a weekly all land on the one week. Go back one week before that though, nothing's hit. And so your bank balance is an absolute rollercoaster ride. It's up and down and it's got nothing to do with how your business is actually performing. It's just the time cycles of things coming out of it. And where people fall into the trap here is it becomes an emotional rollercoaster ride as a business. You look at that account number and you think, I am absolutely killing it this week, looks so good. The next week it's all gone and you're thinking, what is happening to my business? It's a disaster. And it's got nothing to do with how you're actually performing. up at that profitability level.

I think everybody can relate to that. Um, you know, look at that bank. Yeah, let's, let's have a good night tonight. Yeah, next week, oh, I'm gonna have money.

100%. Yeah, 100%.

I think that's typical small business owner action, but it is again some great strategies here. So I think, um,

yeah. How we, how we deal with that one is a cash flow forecast. So a cash flow forecast is we, we map out what cash is coming in and out of your bank account, identify what amounts and what cycles, and once we see that, it's really easy just to keep projecting them all the way forward. And in doing that, you can see the highs and lows of your bank balance. So every one of my businesses has a 12-month projection on a weekly basis. So I can see how much I can see what the bank balance is going to be weekly, 1 year in advance, which gives you so much comfort as a business owner. You know, it's that no more mental arithmetic walking around thinking, oh, can I pay the VAT? But I've got the wages coming in, but I'll get this money in, but that's gotta go out. We just take all that stuff outta your head and map it all out. So how often do I look at my numbers? Cash flow weekly is that one.

Yep.

P&L profitability, that's my P&L statement and my balance sheet, which is the one which tells us my net worth or my financial position. We look at those on a monthly basis. So we always wanna look at our P&L and our balance sheet every month. I wanna look at my cash flow every week. There's other numbers which aren't these financial ones. So these are the ones which are the actual drivers of my business. So they're things like my leads, my pipeline, you know, how many sales have I made, what's coming in or out, that sort of stuff. You kind of want to be looking at those almost weekly or daily depending on where you're at with your business.

Yeah, some great insights there and some lessons there. That's good. I just got a more practical question. Um, let's say you've got everything on zero, you're talking about putting them into 5 buckets. Is that something to, to readjust In Xero, Gavin, how does that work? Just the practicality.

Yeah, that's the best part about Xero. And if anybody's not on Xero, they're on the other softwares, I'd highly recommend you to switch over. We find it quite frustrating when we have clients who are on MYOB or QuickBooks and those sort of things. Yes, they do the same thing ultimately, but they're just a little bit more clunky and frustrating to get there.

Okay.

With Xero, the beauty of that is you can just make customized P&Ls. So you can go into your profit and loss in Xero, make a customized one, and you just enter these 5 lines that you want to have in there and you put all the other categories underneath them. So the beauty of that is once you've saved that as a custom, just called a custom P&L, once you save that, every time you run a P&L, it doesn't matter what period you're looking at, a month, quarter, the last 5 financial years, they're always going to be in these summary 5 categories. And so I'll look at all of my numbers at just these 5 categories. And it's only when one of the, when numbers stick out as being higher or lower or something doesn't look right, that's when you go back to the P&L and actually look at what's going on in there to find out what's driving this number being higher or lower than I expect it to be.

Makes total sense. All right, Gavin, I've got a serious question for you now. You ready?

Yes, sure.

Let's say everything falls to crap and nothing works out and you watched your bank account when it had, you just paid your BAS and tax and there was nothing in there and you had, you were down to your last $100, Gavin. in business and you had to make it work, otherwise you'd shut the doors at the end of the day. How would you spend the last $100 if you had it and that was it?

That's a, that's a, that is a tough question. Am I answering for myself or for other people? Because if it were myself—

Let's answer for yourself, Kevin.

Yeah. So if it was myself with my skillset, I would probably spend it on taking someone like yourself for a fantastic lunch. We'll spend all $100 and actually talk about the skills or opportunities that I could help bring to some other idea or something else we could do together and, you know, start pitching for a bit of work somewhere.

What a great answer. Love it. I'll definitely take you up on lunch, but hopefully we don't get to that, Gavin. I'm sure we won't with knowing your numbers the way you do. Gavin, this has been a really interesting conversation. I look forward to getting you back because I mean, there's really important lessons here. Now, Gavin, you mentioned that you've got The Profit Analyst, right? Um, quickly talk about that. And if somebody does want to get involved— and I know you also do a lot of free downloads and resources, and they can follow Instagram, you've always got great information— maybe just give a plug to Instagram, Facebook, and how they can— yeah, how they get in contact with them.

Yeah, you can find me on Instagram, Facebook. It's just @theprofitanalyst on both of those. Uh, both on our Instagram and on my website, which is just www.theprofitanalyst.com, is where you can find the profit calculator as a free download. So the profit calculator is my tool where I'm taking that profit formula which we've talked about. So you can just plug in your 5 numbers and your volume and price and actually see the numbers for your business and then you can play around with them, you know, if I put one or two of those up or down, what would my profit look like? So that's the free tool you can grab on there. In terms of what I actually do, we run a coaching program called Profit Game Plan and it's to help business owners become really confident in their numbers, We take them through that journey of how to simplify numbers, how to know your specific numbers, and then most importantly, how to actually use your numbers. So everybody leaves a proper game plan with a really clear plan of how they can make their numbers work for them as business owners. And so that's a coaching program where we actually, you know, take people through the journey, me and my team, so that, you know, we appreciate that many, many business owners, and I'm talking 90% plus, have started a business without any kind of accounting training, any kind of finance background. And, you know, now that they're running a business, they're expected to know what all this stuff means. So that's why I've created this business. It's to help other business owners out to upskill their financial literacy. But it's not just about the basics. It's actually, we go through the basics, but then even more importantly, I give you my tools and I show you how to use numbers like I do. So, and as you've seen today, it's actually really quite simple when someone explains it to you. So any business owner can come into that program and come out the other side of it. In a far better position in terms of how to use their numbers in their business. How to get started with me, you can just find me on social media or jump onto my website and you can book a time in. I offer free profit game plan call, which is where I'll show people how I can actually use their numbers for them so that they can get a good flavor to see if it's, if it's the right thing for them in their business. And that's the only way really that people can get started with me is I like to have a look at people's numbers, have a play around with them and make sure that we can offer real value to them. before we go anywhere else.

Outstanding. Uh, some great opportunities there. You get the free download, you get booked the call in with Gavin, and, uh, otherwise you can go down to, um, the bar. What's the bars called, Gavin, if they want to come down for a drink?

So from the Sunshine Coast, Cotton Tree Beach Bar and King's Beach Bar. Awesome.

Go down there Friday night, have a drink, have a, have a, have a meal, and maybe you'll catch Gavin there working the numbers out. Um, this has been great, and guys, hope you got a lot of value out of that. Um, if you have enjoyed that, definitely go and check Gavin out and what he does. He does some great things for fitness and wellness and all type of businesses there. It's been great having you aboard, Gavin. We'll most likely get you back and share some of these stories that people are having. It's awesome. So thank you so much, Gavin, for your time.

No worries. Thank you very much, Richard.

Thanks, guys. If you've enjoyed this show, make sure you do dig out your zero password and get your numbers sorted. It's time. It's time. It's time. If you have loved this and this inspired you, just share this link Like text somebody, copy and paste it any way you're listening to that and give it to a friend or person that's going to inspire them to take action and grow their business. Until next time, guys, you can catch us on commarketing.com.au or get ready for our next podcast episode coming up now. Thanks, guys.