What do you do on Allocation Day?

What do you do on an allocation day? So like, these are the actual steps that I think about when we sit down and allocate money in the Profit First system. As a reminder, the book suggests, or the original book suggests, the rhythm days being on the 10th and the 25th. Uh, we just want to make sure if you don't like the 10th and 25th that they're at least 15 days apart. Uh, that way you're at least doing this twice a month. Now we have had clients in the past that had some cash flow issues or just felt like they were more comfortable doing it every week. That's the most I would recommend. If you're doing it once a week, pick the same day of every week. So maybe if that's every Friday, maybe it's every Monday, whatever works for you. We have some who like to pair payroll days with allocation days. I personally have payroll day on the 5th. And then my allocation days on the 10th. So whatever works for you, this is a framework. The major principles are at least 15 days apart, no more than once a week, same day of the week, be consistent. Now, the first thing that we recommend you do, because if you're following the Profit First system, you're committed to this, get a spreadsheet. What I have here is an example of a cop— of a spreadsheet that we use with our clients. If you would like access to this instead of creating your own, just email us. Email Walter, Walter@InsightTax.com, and he can get you the instructions on how to get a copy of this Google Doc. So using this, it's very—it makes it very easy because now I'm not manually calculating things every stinking time I sit down. So I'm using a spreadsheet, and now I'm going to look at my bank account. I'm going to log into my bank account, and I'm going to check how much money is in my income account. So let's say I log in, and it looks like I have. $15,000. Let's see if this will do it. $15,813 in the income account on my allocation day. Cool. I put that in. And please note, you want to use the date ranges here. So the assumption of this video is that I am sitting down, and the January 10th through the January 25th have already happened. So it's probably the 26th, um, or it's the 25th, 25th or 26th. And I pop in the amount, the actual dollar amount that is now in my income account. It— if you do it this way, it makes it pretty simple. Now, I am— the purpose of this video, I'm not going to go into details of certain exceptions that some people may or may not have. If you have exceptions and you want guidance, obviously we're a firm here that supports people in Profit First, so reach out and we are happy to help. Okay, so with this, now I have my percentages up here because they're built into the spreadsheet. And assuming these are accurate, I haven't changed anything. I am now going to transfer the money that's in my income account into these different accounts. So by the end, my income account is going to be zero. So I'm going to put $2,300 into my owner's pay account, $790 in my profit account, $790 in my tax account. $7,100 goes in my OpEx, $3,900 into my team member equipment, into, uh, $790 into my equipment account. Now again, your percentages are likely going to be different, and that's fine. We just want to make sure they equal 100%. Less than 100%, more than 100%, not bueno. Okay, so I've emptied my income account. All of these dollar amounts have now been Transferred. Um, the next step I do is I'm going to pay bills. Now let me pause there and just show you 2 more quick things on the spreadsheet. One, let's pretend another 15 days has passed and I log in, and the next time I log in there's $12,111. I see it automatically calculates. We've created the spreadsheet this way So that you basically have a quarter per section, because we recommend as you get to the second quarter, you look at your percentages. Maybe you then say, you know what, 25% is really tight. I'm actually more at 40%. Um, and based on the amount of money that I've saved in my equipment account already, uh, 5% is too high. I, I only need to put in 2% to feel comfortable. Okay, I'm still up above right where I need to be. Typically, if my team member expense is too high, I got to figure out a way to lower my operating expense account. So, um, maybe I pop that down to 35%, and then I'm looking at the amount of money that's being saved, and I realize, you know, that's too high. Those are just examples. It could be a variety of reasons, but once a quarter, the The reason we block it out the way we do is so that you can look and make some adjustments to your allocation percentages. Okay, so let me stop sharing there and let me just talk to you now about what is next. Again, we've zeroed out the income account, so let me summarize what we've done so far. You're using a spreadsheet because it makes your life easier. You've logged into your account. You've now transferred the amount of money that's in your income account into your other Profit First accounts. Now we're going to pay bills on allocation day. We're only looking at bills that are due now or that will be due until the next time we sit down. So on the example of the spreadsheet I used, February 10th is the next allocate— the end of the next allocation period. So anything due between now and February 10th. I want to look at those bills. If I have any bills that have been sent to me, mailed to me, emailed to me that are due after the 10th, I am not looking at them right now. Okay, so now I'm looking at just the bills that are due now in the current time period. And I look at my balance in the operating expense account because I just transferred every— all this money. Can I pay all my bills? If the answer is yes, great, pay all the bills. You're done with the allocation date. If the answer is no, you can't pay all the, uh, pay all the bills, then we have to sort the ones that are due. And we're going to first look at, uh, what are— we want to think what's a productive expense and what's a not productive expense. And I really like this exercise because really this is one of the benefits of the system, is the way we manage the cash flow, it's now telling us Hey buddy, the business is telling us, uh, yeah, we have too many expenses, we can't afford all these. So now I'm actually going to look at the real bills that are due right now and determine, well, which ones are productive and not productive. And if they're not productive, there's a high chance I could get rid of that expense altogether, therefore shaving off what we call fat in the financial world and keeping our business lean. If you can then at that point pay your bills, the productive bills, do that. Again, consider, strongly consider cutting the nonproductive expenses. Please strongly consider cutting the nonproductive expenses. Let's say though you've done that analysis, you're like, I still don't have enough in the operating expense account. Again, it's painful, but that's good because now we're getting communication from our numbers telling us We have got to cut back expenses. We are paying more things than we can afford. And part of that could be maybe we stepped out of coaching classes too soon and that's making our team member expense too high, whatever it may be. The second filter we use is, well, what's the most critical? I need to keep the doors open and the lights on so that I can keep earning revenue. What are the most critical expenses? Pay those. If you can't pay those, you probably should reach out to us so that we can walk you through maybe some ideas on what to do, because if you can't cover your most critical expenses, there's potentially other things going on. Now, that being said, then we look at, okay, these are the most critical, then what's left over is productive, and then you still have your non-productive expenses. Cutting non-productive expenses, I think, is a no-brainer. Cutting productive expenses can be a difficult decision process because we are all optimistic as the business owner. We know we're going to grow, right? And this is just a short-term blip. But sometimes, depending on how short-term it is, we might need to cut some productive expenses just to make sure that we have enough cash for the critical. And then as we end up having more profitability down the road, we add back in some of those productive expenses. So that's what you do on an allocation day— transfer money, put into your accounts, pay the bills. And once you get into the habit of it, sitting down and doing this probably takes 15 minutes or less. And if you're doing it once a week, potentially even less time than that. So. There you go. Um, remember, profit is a choice. Have the courage and wisdom to choose it.