Like many Aussie businesses, somewhere after starting a business, we fell into the trap of thinking that it was ok to not be making money. We got stuck on the lie that all our work was building towards something that would one day make it, and until then we’d be the last in line for any income coming in.
The issue with this mentality is the six months without taking anything from the business can easily slip into years. The only people getting paid are your team and suppliers. You’re wrung out, tired and stuck.
I often ask my clients “Is your business making you money? Or is it the most expensive (and time hungry) hobby you’ve ever had?” So often it generates an awkward admission that the business owner is doing it hard.
We focus on resolving this first because even though I’m there to help with marketing, more customers won’t necessarily fix the issue. In fact they may break a business already on shaky ground.
We care about our clients making more profit! What’s the point of working with us if we don’t make you more money for your pockets? Who wants to just be busier and not be making money from all that effort? (Not me!)
Some business owners don’t like talking about profit. Often they started the business for some other reason than making money, and it feels like a sell out to capitalism. But, a profitable business is a robust one. It can support you and your family, and then provide stability to other people and their families. A profitable business finds it easier to run to the values you set yourself up with as you make better choices for the long term.
Profit is also different from the money you should be paying yourself for doing work in the business. Both my husband and I work in our business full time. We are employees of the business we own. If one of us left, we’d need to be replaced to keep the business operational. That’s not profit. That’s cost of business (and if you are not paying yourself for the work you do either, you’ve got some problems. I see you there. We were you!)
If this topic has left you feeling a little uncomfortable I’d like to recommend a book to you: Profit First by Mike Michalowicz . It’s a book I introduce to every client I work with, because if I’m going to help market a business, I want that business to become more profitable!
For us personally it helped transform our business from one where we were taking money from our personal stores every month, to one that’s both supporting us, able to provide us with business profit, and growing.
Our clients have been able to pay off tax debt, fast track mortgage payments, or take long extended breaks and know the business can afford it.
Here’s the crux of how it works:
- All your income comes into one account
- You then divide this money into four other accounts: Operating Expenses, Owner Funds (that’s where you get paid from ), Profit, and Government’s Money (aka Tax – it’s amazing how renaming the account helps stop the sneaky slide back into the other accounts!)
- Every three months, you get to take the amount in your profit account out to spend as you wish.
The goal is to have at least ten percent of all income going into the profit account. When we started, we struggled to stick to two percent, and often had to rob it to pay operating costs.
We don’t follow it to the letter. We choose to take our profit out monthly instead of quarterly.. We have all our accounts with the same bank. (some need to have the tax money and profit in an account they can’t access by the internet!)
On a personal level it’s changed my attitude to money. I’m a reformed spendthrift, who has grown to love a budget and living within it.
What Profit first does best is open your eyes to the true shape of your business, while giving you goalposts to work towards. For us it meant we changed our whole business model, changed the size of our team (and the type of work we get them to do), and most importantly, it reminded us that we didn’t set out to grow a hungry cash eating monster. We set out to grow a business.