How do I make 2022 more Profitable?
Ryan Vaughn walks through building a profitable year on paper: set monthly revenue targets by service and pricing, check if your team can handle it, cut wasteful expenses using Profit First's nine questions, then project monthly net income. If the numbers work in a spreadsheet, they're more likely to work in reality.
Chapters
Today I wanted to answer the question, how do I make this year more profitable? And first thing I wanted to say is what I'm going to share with you is something that I really like to do in December so that I have the full year to plan. But if you didn't do this in December, um, the next best time to do this is right now, whatever that actually is. Planning is super important, and the first thing we need to do is plan. So, uh, I'm going to go through kind of an order of things that we do when we're planning, because the best way to ensure that I'm profitable this year is to see if I'm going to be profitable on paper first. So here's some things. The first thing we need to figure out is our business revenue goals. Um, here are some questions to ask yourselves. Are you offering any new services? Uh, when will those new services be ready to sell? Are you changing up any existing services? Are you canceling any services? How many memberships do you need to sell, or how many people do you need in each service? And then what is the price of each of those individual services, whether it's membership or whatever? Those are questions I ask when it comes to setting up my business revenue goals. Then I want to break that out per month. Because I want to see how that's going. As an example, if I'm going to be creating a new service from right now, how long will it take me to get that service up and running where I can actually get revenue from it? If that's 3 months out, I can't project that revenue until 3 months down the road. So, uh, those are some questions to think about. What month am I going to start selling the new things? What month do I change things? Um, do I have seasons of fluctuation in my revenue, like tax season, January through April, a bit of an influx, June, July is dead, that type of stuff? Do you have cyclical— a cyclical nature in your revenue stream? Um, how quickly will you be able to ramp up sales? So if I am going to be starting a new service, and let's say it's 3 months out, How quickly is that going to grow? Am I going to add a few members a month, or do I have something in place where I'm going to get a bunch of members up front? That type of thing. You got to think through all that. And you're— what we're doing in this stage is we're breaking up the overall revenue goal into each separate month, specifically which month that revenue is going to come in at. Once that's done, we look at it and we say, is all this feasible? Do I even have the capacity to sell that many memberships or that many units? Do we have enough team in place? Is our, is our current structure set up in a way where what I'm forecasting revenue-wise can actually happen? So like in our firm, if I had some, like, I'm going to add $20 million of revenue to the company, We do not have the capacity to take on that much new revenue. I would need to hire a lot of people, and that means I would need to revamp my hiring process even more than what we already have, and I'd be needing to add a crazy amount of new team members every single month. So those are the ways to think through how you're going to break up the revenue per month. Once that's done, now we start analyzing expenses. And we've already kind of set the stage with the questions I've asked. This is just furthering that step. Do I need to add more team members? And when do I need to add those? Do I need to add them before I actually start selling the service? Based on the service I'm offering, is there research I need to do? Is that research going to cost me money? Do I need new equipment? Are there assets I need to purchase? What are the expenses that— the new expenses that I'm going to take on based on the way I'm forecasting my revenue. We want to look at that first, and we want to look at all direct and indirect costs when it comes to, um, when it comes to adding these services. So like, if I'm— if I have a membership software like Watify and I'm being billed based on how many members I have, that's kind of an indirect cost to growing some of these different revenue streams if I'm adding new revenue streams. Once that's done, I now look at my historic expenses. As part of that, I'm also making sure between the figuring out new expenses and historic expenses, I'm analyzing my expenses based on what we recommend in Profit First for Microgyms on the 9 questions to ask. I'm eliminating anything that isn't productive. I'm eliminating any expenses that are no longer needed, especially if I've stopped doing certain services because I've analyzed it and I'm not getting a return. On that. Um, you don't ever want to offer a service if you're not profitable on it. Now I know that there's some people out there who have talked about the loss leader concept, where I'm going to give something away or do something in a way so that, yeah, I might lose some money up front, but in the long run I end up making some money. Uh, that can work with some businesses. I don't think it works with very many businesses, and I also think it's even smarter, and there's no reason that most businesses who use this methodology couldn't figure out a way to at least break even on the loss leader as opposed to losing a ton of money. Because then now you're in this game where you have to balance how many loss leaders prospects am I going to fund up front and, and hope that I get that new revenue back. Anyway, so analyze the expenses, then we add in the historic expenses. And again, we're breaking this out by month because you started by breaking out the revenue per month. We're breaking out the expenses by month. Once that's done, we now can look at the net income of each month that we have forecasted. Is it feasible? Is it going to work? Based on what I'm looking at, hiring the new people, Are there any single months that I am going to be negative? Um, and if that's the case, I just need to make sure that I'm planning for it and I have the mechanisms in place so that it's an investment of a loss in a month versus I'm just losing money now because I tried something and it's not really working on paper. If it doesn't work on paper, it's not going to work in real life, period. Okay, so after we look at the profitability, um, a step further that we take with our clients is we want to identify a couple KPIs that we should track. What are the behaviors that are going to push this forecast that we've just created? Then I like to run a profit-first analysis on all the stuff that we forecasted, because now, assuming you've done these steps— and of course I'm going rapid fire out here, this is grand overview picture Um, and each step definitely takes time and work and analysis. But if every month is profitable, or I am happy with the profitability results of my analysis— meaning, yeah, I might be investing in team in one month and that takes me negative, but overall it's going to be a much better year for me, revenue's up and profitability is up— We never want to grow revenue at the sake of our net income percentage decreasing. It just, it doesn't make sense to have a really big business and make the same amount of money you would if you had a business half the size. Um, so assuming I'm happy with my analysis, I then run a Profit First analysis because this now will help me see how much money can I plan to take home using the essential 7 accounts. from Profit First, which you can find out what those are probably in a lot of blogs that we have, or buy the book. It's a great $20 investment. You can figure out what's my owner's pay percentage, and then you can see, oh, based on this profitability, I'm happy with that take-home pay. Or you look at it and say, I'm not happy with this take-home pay, which means you need to go back to the plan that's on paper and figure it out. Where can you make tweaks so that you are happy with the amount of money that you are paying yourself? Have it work on paper first, then it becomes a lot easier to guarantee your success in the future. If you're penciling things out or using Excel or whatever method you use and it's not working out on paper, I promise there's no amount of miracles that are going to happen that's gonna change the reality of what you're trying to do. It's gotta work on paper first before it works in real life. There's just things, I've never seen it happen. It's like, oh yeah, I did this plan, this profitable plan, and yeah, you know, massive losses, but gosh, I followed the plan in real life and killed it, had so much money left over. I've never seen that happen. So to answer the question, how do I make this year more profitable? Figure it out on paper first. And if you didn't do this in December, uh, now's the best time. Now is the next best time to figure this out for yourself. Run through the analysis, break it out per month, then do a Profit First analysis, manage your cash flow with the Profit First system, and you have definitely increased your chances of having a more profitable year. Remember, profit is a choice. Have the courage and wisdom to choose it.
