WEBVTT
00:00:00.239 --> 00:00:01.679
Hey, glad you're here.
00:00:01.840 --> 00:00:09.599
This is Profit Points, and I'm Megan Schwann, your accounting sidekick and certified profit first professional and fix the snips advisor.
00:00:09.839 --> 00:00:20.399
If you're a small business owner who wants to actually understand what is happening in your business financially, not just survive it, but genuinely get it, you're in the right place.
00:00:20.559 --> 00:00:26.719
Every episode covers one concept, uses real numbers, and ends with something you can actually do.
00:00:26.960 --> 00:00:27.760
That's the deal.
00:00:27.920 --> 00:00:30.160
Let's talk about today's topic.
00:00:31.280 --> 00:00:40.719
I want to take a moment to talk about the single most impactful framework I have found for building a consistently profitable small business.
00:00:41.039 --> 00:00:50.719
It changed how I think about business finance, it changed how I advise my clients, and it is at the core of virtually everything we do at Sidekick Accounting.
00:00:50.960 --> 00:00:53.359
And I am talking about profit first.
00:00:53.759 --> 00:00:58.000
If you've heard about it, great, stay with me because we're gonna go deep today.
00:00:58.079 --> 00:01:00.799
And if you haven't, you're about to have a moment.
00:01:01.119 --> 00:01:03.679
But first, welcome to the Profit Points Podcast.
00:01:03.759 --> 00:01:08.640
I'm Megan Schwan, your accounting sidekick and CEO of Sidekick Accounting.
00:01:08.879 --> 00:01:11.439
Traditional accounting gives us this formula.
00:01:11.680 --> 00:01:16.400
We have revenue, we minus expenses, and then what's left over equals profit.
00:01:16.640 --> 00:01:25.359
And mathematically, that's correct, but behaviorally in the real world of running a small business, it's really a disaster.
00:01:25.599 --> 00:01:34.560
Because when you subtract expenses from revenue and call the remainder profit, you're designing a system where profit is what's left over.
00:01:35.120 --> 00:01:43.120
And as Parkinson's law tells us, expenses or anything expands to fill what is available.
00:01:43.680 --> 00:01:45.519
In this case, that's revenue.
00:01:45.760 --> 00:01:49.519
In other words, if the money is there, it gets spent.
00:01:50.000 --> 00:01:52.000
You may have noticed this before.
00:01:52.319 --> 00:02:02.159
By the time you've paid contractors, subscriptions, payroll, marketing, and every other operational cost, whatever's left over is often not much.
00:02:02.480 --> 00:02:06.079
And then you start the whole cycle over again next month.
00:02:06.400 --> 00:02:11.280
Mike Mikellowitz identified this problem and wrote an entire book about the solution.
00:02:11.360 --> 00:02:12.719
It's called Profit First.
00:02:12.879 --> 00:02:15.759
And the emphasis is elegantly simple.
00:02:16.080 --> 00:02:20.560
Instead of revenue minus expenses equals profit, you flip it.
00:02:20.879 --> 00:02:25.520
We take revenue, we minus profit, and that equals your expenses.
00:02:25.759 --> 00:02:37.199
You take your profit first before operating expenses because true profit covers owners' pay, tax savings, and strategically reinvesting into your business.
00:02:37.520 --> 00:02:42.560
You allocate profit to a separate account at the moment that revenue comes in.
00:02:42.719 --> 00:02:48.240
And then this is key, you let your business run on what's left.
00:02:48.560 --> 00:02:52.800
Here's how it works in practice: you open multiple bank accounts.
00:02:52.960 --> 00:03:05.599
The core five are an income account where all revenue is deposited, a profit account where your profit allocation goes, an owner's pay account, a tax account, and an operating expense account.
00:03:05.840 --> 00:03:19.039
Each time money comes in, whether it's daily, weekly, or on a schedule that works for your business, we usually recommend weekly, you allocate it across these different accounts based on your target allocation percentages.
00:03:19.439 --> 00:03:26.080
Those percentages are based on your real revenue, the past, and your current capacity.
00:03:26.319 --> 00:03:34.479
Profit FERTs provides target allocation percentages or taps that serve as a guidepost depending on your revenue range.
00:03:34.800 --> 00:03:39.439
Mike did extensive research on top performing companies to come up with these.
00:03:39.599 --> 00:03:43.360
It gives owners a target and direction to aim for.
00:03:43.599 --> 00:03:47.360
Most businesses don't actually start at the tops that are in the book.
00:03:47.520 --> 00:03:52.159
They typically start with what we call caps, current allocation percentages.
00:03:52.400 --> 00:03:57.599
And then those percentages shift as your business stabilizes and grows.
00:03:57.840 --> 00:04:08.080
A business at 500,000 might have a profit target of 10% or higher as overhead becomes more efficient at scale.
00:04:08.719 --> 00:04:15.840
The beauty of this system is that it uses human psychology and habits in your favor instead of against you.
00:04:16.000 --> 00:04:29.040
When the money is in a separate account labeled profit and you have a rule that you don't touch it except for quarterly distributions, it stops feeling like available cash to spend and it becomes yours.
00:04:29.199 --> 00:04:30.959
It's non-negotiable.
00:04:31.120 --> 00:04:36.879
And your business learns to operate within the boundaries of what is in the operating expense account.
00:04:37.199 --> 00:04:41.839
You make decisions differently when you know that account is the limit.
00:04:42.480 --> 00:04:44.959
Let me give you a concrete example of this.
00:04:45.120 --> 00:04:48.399
Say your business brings in$15,000 in a given month.
00:04:48.639 --> 00:05:00.160
Using profit first allocation percentages, let's say we do 10% to profit, 50% to owner's pay, 15% to taxes, and then 25% to operating expenses.
00:05:00.480 --> 00:05:07.680
When$15,000 comes into your income account, it gets dispersed into those accounts.
00:05:07.839 --> 00:05:17.519
You transfer$1,500 to profit,$7,500 to owners' pay,$2,250 to taxes, and then you have$3,750 in operating expenses.
00:05:17.759 --> 00:05:21.360
Your business runs on that$3,750 this month.
00:05:21.600 --> 00:05:27.439
This is what you have to pay softwares, contractors, marketing, and everything else operationally.
00:05:27.680 --> 00:05:32.000
Now your first instinct might be$3,750 is not enough.
00:05:32.160 --> 00:05:41.920
And that instinct is worth examining because if your current operating expenses are higher than$37.50, Profit First will surface that immediately.
00:05:48.959 --> 00:05:50.800
And it's not a comfortable question.
00:05:50.879 --> 00:05:55.279
I'm not going to sugarcoat it, but it is the right question.
00:05:55.439 --> 00:06:11.360
The goal over time is to bring your actual expenses in line with your target allocations, which might mean cutting things, renegotiators, or growing revenue faster than your expenses to close that gap.
00:06:11.680 --> 00:06:23.759
And at the end of the quarter, you take 50% of what's accumulated in your profit account as a distribution to yourself, a reward for running a profitable profitable business.
00:06:23.920 --> 00:06:26.399
The other 50% stays as a reserve.
00:06:26.639 --> 00:06:34.079
That distribution is powerful, not just financially, but also psychologically, which is what we're leaning into.
00:06:34.240 --> 00:06:39.680
It reinforces the behavior of creating this system and sticking with this system.
00:06:39.839 --> 00:06:41.759
And it makes profit real.
00:06:42.079 --> 00:06:43.600
That profit is yours.
00:06:43.839 --> 00:06:47.600
Profit is the whole point of doing this small business thing.
00:06:47.839 --> 00:06:50.399
I know what some of you are thinking.
00:06:51.040 --> 00:06:54.240
My margins are too thin to allocate any profit right now.
00:06:54.399 --> 00:06:55.600
I'm a hot mess.
00:06:55.759 --> 00:06:57.199
And honestly, I hear you.
00:06:57.439 --> 00:06:59.680
Profit first actually addresses this.
00:06:59.920 --> 00:07:03.040
You don't have to start a 10% profit right out of the gate.
00:07:03.279 --> 00:07:08.720
In fact, a lot of times I advise clients to start where they are with those caps.
00:07:08.959 --> 00:07:11.920
And that might just mean that profit is 1%.
00:07:12.639 --> 00:07:14.319
And it's a great starting point.
00:07:14.959 --> 00:07:22.720
The point is to start building the habit, to start allocating something to profit from every dollar that comes in.
00:07:22.959 --> 00:07:38.560
And when you incrementally increase that percentage by maybe one or two points every quarter until you reach your target, it creates that small consistent progress over time that adds up to transformational results, which is what we're looking for.
00:07:38.959 --> 00:07:47.920
So the action plan today or your action step is to read or listen to the book Profit First by Mike McAllowitz.
00:07:48.240 --> 00:07:49.839
It's available pretty much anywhere.
00:07:50.000 --> 00:08:02.319
Or better yet, book a strategy call with me at Psychech Accounting, and I'll give you a free copy and we can walk you through how we implement Profit First for clients that are exactly like you at your exact stage.
00:08:02.560 --> 00:08:04.639
You don't have to figure this out alone.
00:08:04.879 --> 00:08:07.519
The system exists, the support exists.
00:08:07.759 --> 00:08:10.000
You just have to take the first step.
00:08:10.240 --> 00:08:18.160
I've said this before when I started doing these videos that business owners don't struggle because they're bad at business.
00:08:18.319 --> 00:08:22.959
They struggle because no one ever taught them how to read and use their numbers.
00:08:23.120 --> 00:08:34.240
And I believe that more than ever today, we're so overloaded with all of this information that sometimes it creates paralysis, analysis, paralysis, right?
00:08:34.799 --> 00:08:37.759
Today I want you to, I want to add something.
00:08:37.919 --> 00:08:47.279
Those tools exist, the tools that you need to be successful, the tools that you need to be able to run and grow and scale a successful and sustainable business.
00:08:47.519 --> 00:08:49.519
The framework exists, the knowledge exists.
00:08:49.679 --> 00:08:57.679
And if you've been listening, you've started to build your foundation, working on things like CEO mindset, tax strategy, profit design.
00:08:57.840 --> 00:08:59.440
Those things are not nothing.
00:08:59.600 --> 00:09:04.000
If you've been doing the action steps that I have in these videos, you've been taking steps.
00:09:04.159 --> 00:09:04.879
It's everything.
00:09:05.039 --> 00:09:07.120
Take what you learn and do something with it.
00:09:07.279 --> 00:09:11.039
Your business and your future self will thank you.
00:09:11.440 --> 00:09:22.159
If any of this has resonated with you, if you're interested in learning more, if you're ready to stop guessing and start building a business that's profitable by design, I would love to be part of that journey.
00:09:22.320 --> 00:09:25.200
Sidekick Accounting specializes in exactly this work.
00:09:25.360 --> 00:09:28.000
So book your call, go to chatwithmeg.com.
00:09:28.159 --> 00:09:33.600
And thank you so much for listening to me on Profit Points or wherever you're watching this.
00:09:33.840 --> 00:09:35.919
And I will see you next time.
00:09:36.240 --> 00:09:36.559
All right.
00:09:36.720 --> 00:09:38.159
That's your episode this time.
00:09:38.240 --> 00:09:40.000
Don't forget your action step.
00:09:40.159 --> 00:09:43.519
I want you to actually do it, not just add it to the list.
00:09:43.759 --> 00:09:47.840
If this episode was helpful, share it with a fellow business owner who needs to hear it.
00:09:48.000 --> 00:09:53.200
And if you're ready to go deeper on your specific numbers, book a strategy call with Sidekick Accounting.
00:09:53.360 --> 00:09:57.840
Go to chatwithmeg.com, and I'll see you next time on Profit Points.
00:00:00.239 --> 00:00:01.679
Hey, glad you're here.
00:00:01.840 --> 00:00:09.599
This is Profit Points, and I'm Megan Schwann, your accounting sidekick and certified profit first professional and fix the snips advisor.
00:00:09.839 --> 00:00:20.399
If you're a small business owner who wants to actually understand what is happening in your business financially, not just survive it, but genuinely get it, you're in the right place.
00:00:20.559 --> 00:00:26.719
Every episode covers one concept, uses real numbers, and ends with something you can actually do.
00:00:26.960 --> 00:00:27.760
That's the deal.
00:00:27.920 --> 00:00:30.160
Let's talk about today's topic.
00:00:31.280 --> 00:00:40.719
I want to take a moment to talk about the single most impactful framework I have found for building a consistently profitable small business.
00:00:41.039 --> 00:00:50.719
It changed how I think about business finance, it changed how I advise my clients, and it is at the core of virtually everything we do at Sidekick Accounting.
00:00:50.960 --> 00:00:53.359
And I am talking about profit first.
00:00:53.759 --> 00:00:58.000
If you've heard about it, great, stay with me because we're gonna go deep today.
00:00:58.079 --> 00:01:00.799
And if you haven't, you're about to have a moment.
00:01:01.119 --> 00:01:03.679
But first, welcome to the Profit Points Podcast.
00:01:03.759 --> 00:01:08.640
I'm Megan Schwan, your accounting sidekick and CEO of Sidekick Accounting.
00:01:08.879 --> 00:01:11.439
Traditional accounting gives us this formula.
00:01:11.680 --> 00:01:16.400
We have revenue, we minus expenses, and then what's left over equals profit.
00:01:16.640 --> 00:01:25.359
And mathematically, that's correct, but behaviorally in the real world of running a small business, it's really a disaster.
00:01:25.599 --> 00:01:34.560
Because when you subtract expenses from revenue and call the remainder profit, you're designing a system where profit is what's left over.
00:01:35.120 --> 00:01:43.120
And as Parkinson's law tells us, expenses or anything expands to fill what is available.
00:01:43.680 --> 00:01:45.519
In this case, that's revenue.
00:01:45.760 --> 00:01:49.519
In other words, if the money is there, it gets spent.
00:01:50.000 --> 00:01:52.000
You may have noticed this before.
00:01:52.319 --> 00:02:02.159
By the time you've paid contractors, subscriptions, payroll, marketing, and every other operational cost, whatever's left over is often not much.
00:02:02.480 --> 00:02:06.079
And then you start the whole cycle over again next month.
00:02:06.400 --> 00:02:11.280
Mike Mikellowitz identified this problem and wrote an entire book about the solution.
00:02:11.360 --> 00:02:12.719
It's called Profit First.
00:02:12.879 --> 00:02:15.759
And the emphasis is elegantly simple.
00:02:16.080 --> 00:02:20.560
Instead of revenue minus expenses equals profit, you flip it.
00:02:20.879 --> 00:02:25.520
We take revenue, we minus profit, and that equals your expenses.
00:02:25.759 --> 00:02:37.199
You take your profit first before operating expenses because true profit covers owners' pay, tax savings, and strategically reinvesting into your business.
00:02:37.520 --> 00:02:42.560
You allocate profit to a separate account at the moment that revenue comes in.
00:02:42.719 --> 00:02:48.240
And then this is key, you let your business run on what's left.
00:02:48.560 --> 00:02:52.800
Here's how it works in practice: you open multiple bank accounts.
00:02:52.960 --> 00:03:05.599
The core five are an income account where all revenue is deposited, a profit account where your profit allocation goes, an owner's pay account, a tax account, and an operating expense account.
00:03:05.840 --> 00:03:19.039
Each time money comes in, whether it's daily, weekly, or on a schedule that works for your business, we usually recommend weekly, you allocate it across these different accounts based on your target allocation percentages.
00:03:19.439 --> 00:03:26.080
Those percentages are based on your real revenue, the past, and your current capacity.
00:03:26.319 --> 00:03:34.479
Profit FERTs provides target allocation percentages or taps that serve as a guidepost depending on your revenue range.
00:03:34.800 --> 00:03:39.439
Mike did extensive research on top performing companies to come up with these.
00:03:39.599 --> 00:03:43.360
It gives owners a target and direction to aim for.
00:03:43.599 --> 00:03:47.360
Most businesses don't actually start at the tops that are in the book.
00:03:47.520 --> 00:03:52.159
They typically start with what we call caps, current allocation percentages.
00:03:52.400 --> 00:03:57.599
And then those percentages shift as your business stabilizes and grows.
00:03:57.840 --> 00:04:08.080
A business at 500,000 might have a profit target of 10% or higher as overhead becomes more efficient at scale.
00:04:08.719 --> 00:04:15.840
The beauty of this system is that it uses human psychology and habits in your favor instead of against you.
00:04:16.000 --> 00:04:29.040
When the money is in a separate account labeled profit and you have a rule that you don't touch it except for quarterly distributions, it stops feeling like available cash to spend and it becomes yours.
00:04:29.199 --> 00:04:30.959
It's non-negotiable.
00:04:31.120 --> 00:04:36.879
And your business learns to operate within the boundaries of what is in the operating expense account.
00:04:37.199 --> 00:04:41.839
You make decisions differently when you know that account is the limit.
00:04:42.480 --> 00:04:44.959
Let me give you a concrete example of this.
00:04:45.120 --> 00:04:48.399
Say your business brings in$15,000 in a given month.
00:04:48.639 --> 00:05:00.160
Using profit first allocation percentages, let's say we do 10% to profit, 50% to owner's pay, 15% to taxes, and then 25% to operating expenses.
00:05:00.480 --> 00:05:07.680
When$15,000 comes into your income account, it gets dispersed into those accounts.
00:05:07.839 --> 00:05:17.519
You transfer$1,500 to profit,$7,500 to owners' pay,$2,250 to taxes, and then you have$3,750 in operating expenses.
00:05:17.759 --> 00:05:21.360
Your business runs on that$3,750 this month.
00:05:21.600 --> 00:05:27.439
This is what you have to pay softwares, contractors, marketing, and everything else operationally.
00:05:27.680 --> 00:05:32.000
Now your first instinct might be$3,750 is not enough.
00:05:32.160 --> 00:05:41.920
And that instinct is worth examining because if your current operating expenses are higher than$37.50, Profit First will surface that immediately.
00:05:48.959 --> 00:05:50.800
And it's not a comfortable question.
00:05:50.879 --> 00:05:55.279
I'm not going to sugarcoat it, but it is the right question.
00:05:55.439 --> 00:06:11.360
The goal over time is to bring your actual expenses in line with your target allocations, which might mean cutting things, renegotiators, or growing revenue faster than your expenses to close that gap.
00:06:11.680 --> 00:06:23.759
And at the end of the quarter, you take 50% of what's accumulated in your profit account as a distribution to yourself, a reward for running a profitable profitable business.
00:06:23.920 --> 00:06:26.399
The other 50% stays as a reserve.
00:06:26.639 --> 00:06:34.079
That distribution is powerful, not just financially, but also psychologically, which is what we're leaning into.
00:06:34.240 --> 00:06:39.680
It reinforces the behavior of creating this system and sticking with this system.
00:06:39.839 --> 00:06:41.759
And it makes profit real.
00:06:42.079 --> 00:06:43.600
That profit is yours.
00:06:43.839 --> 00:06:47.600
Profit is the whole point of doing this small business thing.
00:06:47.839 --> 00:06:50.399
I know what some of you are thinking.
00:06:51.040 --> 00:06:54.240
My margins are too thin to allocate any profit right now.
00:06:54.399 --> 00:06:55.600
I'm a hot mess.
00:06:55.759 --> 00:06:57.199
And honestly, I hear you.
00:06:57.439 --> 00:06:59.680
Profit first actually addresses this.
00:06:59.920 --> 00:07:03.040
You don't have to start a 10% profit right out of the gate.
00:07:03.279 --> 00:07:08.720
In fact, a lot of times I advise clients to start where they are with those caps.
00:07:08.959 --> 00:07:11.920
And that might just mean that profit is 1%.
00:07:12.639 --> 00:07:14.319
And it's a great starting point.
00:07:14.959 --> 00:07:22.720
The point is to start building the habit, to start allocating something to profit from every dollar that comes in.
00:07:22.959 --> 00:07:38.560
And when you incrementally increase that percentage by maybe one or two points every quarter until you reach your target, it creates that small consistent progress over time that adds up to transformational results, which is what we're looking for.
00:07:38.959 --> 00:07:47.920
So the action plan today or your action step is to read or listen to the book Profit First by Mike McAllowitz.
00:07:48.240 --> 00:07:49.839
It's available pretty much anywhere.
00:07:50.000 --> 00:08:02.319
Or better yet, book a strategy call with me at Psychech Accounting, and I'll give you a free copy and we can walk you through how we implement Profit First for clients that are exactly like you at your exact stage.
00:08:02.560 --> 00:08:04.639
You don't have to figure this out alone.
00:08:04.879 --> 00:08:07.519
The system exists, the support exists.
00:08:07.759 --> 00:08:10.000
You just have to take the first step.
00:08:10.240 --> 00:08:18.160
I've said this before when I started doing these videos that business owners don't struggle because they're bad at business.
00:08:18.319 --> 00:08:22.959
They struggle because no one ever taught them how to read and use their numbers.
00:08:23.120 --> 00:08:34.240
And I believe that more than ever today, we're so overloaded with all of this information that sometimes it creates paralysis, analysis, paralysis, right?
00:08:34.799 --> 00:08:37.759
Today I want you to, I want to add something.
00:08:37.919 --> 00:08:47.279
Those tools exist, the tools that you need to be successful, the tools that you need to be able to run and grow and scale a successful and sustainable business.
00:08:47.519 --> 00:08:49.519
The framework exists, the knowledge exists.
00:08:49.679 --> 00:08:57.679
And if you've been listening, you've started to build your foundation, working on things like CEO mindset, tax strategy, profit design.
00:08:57.840 --> 00:08:59.440
Those things are not nothing.
00:08:59.600 --> 00:09:04.000
If you've been doing the action steps that I have in these videos, you've been taking steps.
00:09:04.159 --> 00:09:04.879
It's everything.
00:09:05.039 --> 00:09:07.120
Take what you learn and do something with it.
00:09:07.279 --> 00:09:11.039
Your business and your future self will thank you.
00:09:11.440 --> 00:09:22.159
If any of this has resonated with you, if you're interested in learning more, if you're ready to stop guessing and start building a business that's profitable by design, I would love to be part of that journey.
00:09:22.320 --> 00:09:25.200
Sidekick Accounting specializes in exactly this work.
00:09:25.360 --> 00:09:28.000
So book your call, go to chatwithmeg.com.
00:09:28.159 --> 00:09:33.600
And thank you so much for listening to me on Profit Points or wherever you're watching this.
00:09:33.840 --> 00:09:35.919
And I will see you next time.
00:09:36.240 --> 00:09:36.559
All right.
00:09:36.720 --> 00:09:38.159
That's your episode this time.
00:09:38.240 --> 00:09:40.000
Don't forget your action step.
00:09:40.159 --> 00:09:43.519
I want you to actually do it, not just add it to the list.
00:09:43.759 --> 00:09:47.840
If this episode was helpful, share it with a fellow business owner who needs to hear it.
00:09:48.000 --> 00:09:53.200
And if you're ready to go deeper on your specific numbers, book a strategy call with Sidekick Accounting.
00:09:53.360 --> 00:09:57.840
Go to chatwithmeg.com, and I'll see you next time on Profit Points.
