No Financial Stress Because of Profit First Accounts

Howdy, howdy, howdy, people. Um, today, this is the last time you'll see this background. We are getting ready to move in a couple days to a temporary space while a new permanent space is, uh, still getting built out. Um, and I want to kind of talk you through, um, some principles of Profit First and how it's relating to my current situation. So I am actually stressed out to the max right now. I, uh, I don't know if you guys know this, but Heather, who's been my assistant and, um, she's been our kind of office manager for 8 years, um, after being told wasn't able— well, she wasn't able to have babies, was blessed with, um, getting pregnant and they've had their first child. And so she's been on maternity leave for a few months. And then, um, she decided that the best move for her family was to stay home and be a full-time mom. We are super supportive of her and happy for her. I think it's amazing. She's going to love being a mother. And anyway, so that's put us a bit in a pickle because now I don't have an executive assistant. And, you know, when I get about 50 to 75 emails an hour, it can become daunting. So right now I'm, I'm a full-time tax accountant serving my clients. I'm a full-time owner of a multimillion-dollar firm, uh, trying to improve our processes. And now I'm a full-time executive assistant, um, all while we are in this weird transition period. So I have maximum stress going on, but the purpose of this message for you today is, uh, an area I don't have stress is in the financial situation. And that is because I use the Essential 7 accounts. as, uh, described by the Profit First system. And I'll actually get into a little bit more details, but let me go over what the essential 7 accounts are first. You have an income account. The sole purpose of this account is to receive deposits from customers. That's it. Customer deposits go into the income account, um, and also to keep it clean, because sometimes when you have a bookkeeper and you maybe get a loan and that loan is getting transferred to you, don't put that in the income account because the income account in my mind is for customer deposits. So now I know that if then— if there's a deposit into, say, the operating expense account, that's very likely a loan where a bookkeeper could make the mistake of seeing a loan come in. Obviously, there's communication that you can have with them to make sure that we're not counting income or loan deposits as income because that is not taxable. Uh, okay, so you have the income account and then you have a team member account. We created this team member account from, uh, compared to the original Profit First book because after we dealt with so many gyms, we realized every gym kind of pays their coaches a little bit differently. And there's maybe 4 or 5 underlying principles that we've seen In those concepts, you might have the four-ninths model, or you pay them a flat rate, or you put them put them on salary, something to that extent. But it became too complicated in a system that we wish to keep as simple as possible to say, "Oh, here's how you handle paying your team, and here's all the different factors that you can look at." Instead, we say, "Look, we know that financially fit gyms." pay 25% of their income towards team member expense. So that becomes the shooting— the North Star that we're trying to shoot for. Now, 4/9 is still healthy, which is 44%. And you don't have to use the 4/9 model. I know some people out there— of course, if you're not familiar with it, look it up. I first heard about it from Chris Cooper. He got the idea from I'm looking at professional teams, they have like a salary cap type of thing. Um, I know some people don't like it and that's fine, there's other methods out there. But just so you guys know, those people who don't like it, when they're telling you how to pay, uh, your coaches, it kind of works out to be between 25% and 44% anyways. So whatever you want to call it, that's fine. If you want to bag on someone for creating something and you don't like it, that's also fine. To each their own. Not my cup of tea, but just know that from a number standpoint, 25 to 44% of your revenue is a very good range to be in. That's a team member bucket. Next, we have owner's pay. We think that it's super important that you as a gym owner pay yourself a wage for working in the business. I think as an industry. Gym owners do more good for the world than any other industry. If you consider the benefits that your services provide to your members, the list is forever long. And I mean, we're— it's crazy. The energy goes up, their happiness in life goes up. They don't need to take— if they're on medication for health reasons, those typically go away. So now we're not funding Big Pharma, um, and that's a whole— I'm not ever going to get in a podcast about that. Um, so anyways, you got to pay yourself, and that's why we put it after team member expense. We have team member above. Like, if I go in order: income, team member, then owner's pay, it's because you did commit to pay your team members, um, and you should honor that commitment. Now, that being said, Uh, if you are coaching your own classes and providing coaching services as part of your gym, your pay for doing those classes comes out of the team member bucket. The reason we do this is so that you can clearly see when you can afford to hire the coach to replace you in those classes. Too often we hear the gym owner is struggling and they're not paying themselves for coaching the classes, but now they're getting burnt out. And so then they bring in someone to coach classes and they didn't realize they didn't have the money to pay for it. Or on the other side of the coin, they have the money to pay for it, but they just don't see it yet. So it really gives us a clear distinction. of the ability to pay another coach and replace yourself out of that. Okay, so income account, team member, owner's pay. Next one is profit. Give yourself a quarterly profit distribution. Now there's a difference between owner's pay and profit. Both are for the benefit of the owner or owners. But owner's pay is for the owners who work in the day-to-day of the business. So When I owned a gym, we never took owner's pay because me and my business partner never worked in the day-to-day of the business. The profit account is for the risk owners take in ownership that no one else in the organization is taking, and they, they should get a compensation for that risk that they're taking. Hence the profit account. You put money in there and you give yourself a quarterly profit distribution. I go into more details in my book as far as what that profit distribution looks like, and I probably have already videos, um, talking about it, and I'll probably have more videos in the future talking about it. So, okay, income, team member, owner's pay, profit, tax. Uh, most countries have a tax rate, and you're gonna have to pay that. It's just part of owning a business and part of Having government support, regardless if that support helps you or not. So you got to save money for it. It's better to save it and set it aside now instead of waiting until April or whenever your taxes are due and then freak out because you're like, how do I even make that much money? I didn't know I made that much money. And where's the money? How am I going to even pay for this? By setting aside a small amount throughout the year, into these accounts, you will have the money left over. And I can tell you, ever since I've been running Profit First, that's probably one of the best things that I love about it, because then if I oversave in that tax account, after I pay my tax bill, I give myself the difference. And that feels super cool. It's like Christmas in the middle of the year. All right, after the tax account, we have operating expenses. This, uh, is obviously your account for operating expenses. Most businesses, if they don't have this bank account set up yet, we consider the current account that gym owners have as their operating expense because it's the one currently paying all the bills. And so in order to not complicate or add headache into rearranging and contacting vendors and saying, hey, I need you to charge this account now, we said let's just use the current account you have for operating expenses. And then the other account is Equipment. You have wear and tear on the equipment. It's not something that's super visible on a day-to-day basis, but obviously over time it happens. So you are going to need to replace equipment or spend money to maintain it. And what I love about the idea of this account is that as you put money into it, you're also funding possible expansion. It's like, wow, we have more members than we had in the past. Maybe we need a few more rowers or bikes or yoga mats or whatever. Oh look, I have money set aside in my equipment account because I've been consistently putting a small amount away. Boom, you use that to fund it as opposed to needing to go to a bank and getting a loan and going through that hoopla of stuff. Okay, so income account, team member, owner's pay, profit, Tax, operating expenses, and then your equipment. Those are your essential 7 accounts. We recommend, um, no more than once a week or, uh, at least twice a month. So about— it's 50/50 with our clients. Half of them do it once a week, and then the other half are doing this like, uh, on the 10th and the 25th or the whatever, 15th and 30th. the 1st and the 15th. You just want 15 days in between. Those are the two— between those two rhythms, either every week or twice a month. I mean, 99% of our clients are in that scenario. You're going to sit down and you're going to take the money that's in the income account and you're going to zero it out by transferring all the money in the income account into these separate accounts. The percentages that you use are going to be based on a cash flow assessment. If you aren't sure what that is, Pick up the book. It's in very much detail in my book, Profit First for Microgyms, or go to insighttax.com/5days. And we have a free— like, we've broken out how to analyze what your percentages are in a 5-day challenge. We've taken it up into digestible chunks. So it shouldn't take more than 15 minutes per day to do the steps necessary. And by the end of the 5th day, you kind of see where your percentages are at. And then it does give you suggestions on what they should be. We also have the table in the book. I have— we have those resources on our website, Profit First for Microgyms. Feel free to check that out there. So anyways, those are the Essential 7. And the reason I wanted to talk about is because I've been running that system in my business, all this stress that I have going on right now, yes, it's super stressful. I can't imagine what this would feel like if I also was stressed out about cash. There is something that happens to us as humans, and I don't understand the psychology of it. And I actually sometimes laugh when I read books from normal human beings who are now popular authors who are referencing all this stuff about the brain as if there's neurosurgeons or brain experts. I'm not a brain expert. You'll probably never hear me go into too much detail about it. I'm always going to try to reference somebody else. But again, I don't understand why this works. But when we have money problems, I think our decision-making takes a deep dive. It becomes crap. On a scale of 1 to 10, the number is crap. That's how bad our decision-making becomes when we're freaking out about money. So I'm grateful that right now I'm not freaking out about money so that I can at least keep my head above water as I'm dealing with trying to manage this transition into this weird 3 to 4 month period for our firm, trying to find an executive assistant without being desperate of hiring the wrong person. Because I mean, we just interviewed someone A couple days ago, and within 4 questions I knew like, man, this would never work out. Uh, and thankfully I wasn't desperate and make up— making a bad hire, uh, because you can do that too, right? We've all had those coaches. It's like, wait, dude, who are you? I— we had this whole conversation before, you seemed really cool, and now Dr. Jekyll, Mr. Hyde in the gym. Like, no, can't do that, man. I don't care how nice you are. When you have— if you have a lot of bad moments and you're dropping F-bombs at our members, not cool. Sorry, side tangent there. So really grateful that the Essential 7 helps reduce that type of stress. It keeps me at least at a baseline so that I can handle these other type of things that come up. And I think you're going to find the same benefit for you as you get your cash flow in order and you start having comfort and you see that these balances in some of these accounts are growing. you're going to make better decisions, you're going to make less desperate decisions, and you see things more clearer instead of just thinking like, I don't even know how to do that. I don't know if you've heard of decision fatigue. I think if we have money problems, that sucks the energy out of our decision-making battery a lot faster as well. So these are all things that I'm realizing as I'm sitting in this moment of extreme stress for me, but still manageable because I'm using the Profit First system and I have a ton of, um, I mean, I have a decent amount of cash that keeps me comfortable. Now, that being said, one last thing about the Essential 7. We call them the Essential 7 because we feel like they're essential. Now I know that there's people out there like, I don't want to set up 7 accounts, or I'm tracking this on an Excel file. Look, if it's working for you, great. But if you're not doing it just because you're like, it seems like it's extra work and you're unwilling to admit that the way you're trying to run it, which is different than what we suggest in the book, isn't working, but you're too stubborn to admit it, uh, I'm just gonna ask you to not be stubborn about it. Um, I haven't had a single client who's run Profit First where, uh, they've come to me and said like, you know what, I didn't have to set up the accounts. I've been running it on this Excel file. It's been super successful for me. I've heard people admit and say that yes, they're using an Excel file and it's working for them. But I'm willing to bet based on my experience, which is more than theirs, it would be even better if they actually used the system the way it was designed. Now, that being said, you don't have to stop at 7. I actually have more than 7 accounts. A couple accounts that I have that are unique, the most obvious one to me is a line of credit account. There's nothing I dislike more than going through a lending process and feeling like Dude, I have this money in the bank account. You can see my income. I don't understand why we're still jumping through all these hoops and it takes months and months and months to get financing. Not to mention, there's always costs in closing the loan and then you have interest on top of that, which if you have the cash available, you don't have to spend that money. So I set aside a percentage of my revenue into this account. And if there's a time I want to expand or there's an opportunity that comes up, Or even in scenarios, let's say you get to a scenario where it's like, oh my gosh, revenue took a dip. Um, and I'm gonna struggle making operating expenses. I'm gonna borrow money from my line of credit account, and I treat it like a loan. My intention is to pay that loan back. I'm not gonna charge myself interest, but I'm gonna pay the loan back. And at some point, I have a dollar amount in my head of how much money I want in that line of credit account. And once I get to that point, I'm going to stop putting a percentage of revenue into it. I'm just going to maintain that balance. That has been a game changer for me. I love it. The other thing that I do is I do a sharing profit account. I take, again, a percentage of the income and I set it aside so that I can reward team members in a way that's above and beyond their compensation. That could be something as simple as, you know what, let's go do some fast cart type of activity, or let's go do an escape room. or have a, a party, or let me buy— I'm gonna buy Christmas gifts and I want them to be nice and I have this money to play with. Or it could be bonuses. You know what, let's give people bonuses, um, let's reward them extra. We can have a competition depending on what you have going on. Maybe you have like a, a reward for the coach that brings in the most new members in a month period or something like that. Anyways, so the money set aside so I don't have to worry about like, oh my gosh, can I afford to reward my team members? I can look at the number in that account and say, this is my budget that I'm playing with. Now with that number, what can I do with that money to reward my team members? So just a few things to think about when it comes to upleveling what the Essential 7 accounts are. The system works for me. I appreciate you guys listening. I hope that you guys are able to handle your stress as well, and that cash flow is not one of those stresses. And if you have the time and you haven't done it yet, I would super duper appreciate if you could leave me a review on Amazon for my book Profit First for Microgyms. And of course, that's only if you've bought the book and read it. If you haven't bought it yet, hey, come on, help me out, buy a book. I think it's pretty cool and good. Again, remember, hey, thanks guys, and profit is a choice. Have the courage and wisdom to choose it.