Profit First is a method to manage your cash flow and budget for your business. There are many ways to innovate how to use it in your business to drive the goals and outcomes of your business strategy. Mid-year is the time to assess where you have been and where you are going, but there are three tips that will drive the goals every day. Half the year may be gone, but there is no better time than now to implement Profit First in your business than now to close the year with a bang. Not only will these Profit First tips help you close this year successfully, but will prepare you for achieving your business goals with a greater probability in 2019 and years to come.
#1 Start small and build Big!
Profit First is the backbone of paying for what your business can afford and not creating new debt. The secret sauce is allocating incoming deposits from your Sales, so the money is available to pay for the business bills and expenses as they occur. In the home service business, we benchmark to our financial and operation KPIs to understand if we are driving down the road to success or if we are just making U-turns and bringing us back to the same spot. Profit First sets up your Cash KPIs.
How do you start making progress and stop making U-turns? First, you start small and grow to your Profit First Cash KPIs. The old saying, “something is better than nothing” applies here. Set up two accounts to begin with. We recommend a “Profit Account” and a “Tax Account”. The Profit Account is where you will start to make deposits for the cash profits of your business and the Tax Account will be for the taxes you will need to pay from your profit. Each week, add up your deposits from sales and simply allocate 1% to Profit and 1% to Taxes. You will deposit in these accounts those amounts. Example:
- Deposits from the week = $10,000.00
- Deposit in Profit Account = $100.00
- Deposit in Tax Account = $100.00
If you are not paying yourself a paycheck, open a third account and call it Owner’s Pay and put 1% into the account too. At the end of 52 weeks, if you have three accounts and average $100.00 per week, you have accrued $15,600.00.
#2 Slow Business Fund – You have hit your busy season and things look great, but things will slow down soon. Use Profit First to prepare for the valley in your business.
It is so busy, you are turning away jobs, your cash flow is in the black, and you are hoping one of the jobs on the board will reschedule. Not to mention your technicians are griping because they are tired. Does any of this sound familiar this time of the year?
Turn the clock forward a few months. You are scrounging to make payroll and you are hoping the phone will ring so you aren’t paying technicians to clean the shop. This time, your technicians are griping because they aren’t getting the overtime. Does this ring a bell?
Set up a savings account at your bank called “Rainy Day Fund”. Make an allocation each week during peak season to help cover expenses during the slow times of the year and to focus marketing efforts to increase sales during the valley months.
You are not alone in the peaks and valleys, but you can be ahead with the proper financial planning with Profit First Cash Flow.
#3 Tax Fund: Gotta Pay Uncle Sam! Save for Income Taxes on Your Profits
So, you just paid your estimated payments to Uncle Sam. Did you pay it or did your company pay it?
The theory is that the company should be covering the taxes for the income it generates. It should also be reimbursing the owner for the tax liability on their pay and/or distributions.
Set up a savings account at your bank called “Tax Hold”. Allocate to that account every week to plan for the tax liability the profit of your company will produce. Use this account to pay your estimated payments and the year-end responsibility for federal and state income taxes.
Paying taxes is a necessary evil. However, with proper financial planning through Profit First Cash Flow, you won’t feel the pain at tax time and can celebrate your profits.
You can find the book, Profit First by Mike Michalowicz, on Amazon.com. I recommend all business owners take the time to read this book and set your business goals to be debt free and cash profit secure! It will be one of the best books you will ever read to improve your business health. Happy profits!
Service Roundtable is dedicated to growing your bottom line and helping your business maximize its full potential. These group of contractors work together to assist you with marketing, sales, business, and so much more. Twice a month, seminars around the United States and Canada are held to network and further assist your business. Visit Service Roundtable.com to see if there are Success Days in your area!