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Most of us have a precarious relationship with money. We learn bookkeeping, income statements, balance sheets – the works. But do we ever learn how to manage money effectively? The current schooling systems, whether in Germany, America, or any other country, often fail to provide substantive financial education and sometimes we have old experiences like resisting to keep an account of our finances.
But also, the idea that men are better with money is a perception that hampered women’s confidence in dealing with finances for years. It’s time to take a stand and debunk this myth. Women are just as capable, if not more, at managing finances once they receive proper guidance and shed imposed societal beliefs.
These mindsets eventually lead to unclear financial habits and now, it’s time to revamp your financial management system!
Focus on generating profit, rather than just increasing sales. While generating revenue is important, if it’s not leading you to profitability, it’s losing its purpose. This shift in focus from sales to profit can radically change your outlook towards business finance and help you learn to manage your expenses better.
Committing to change paves the way for better financial control so you can revolutionize your business. But how? I present to you, the Profit First Method!
What’s the Profit First Method?
The brainchild of Mike Michalowicz, this transformative approach flips the classic paradigm of ‘Sales – Expenses = Profit’ to ‘Sales – Profit = Expenses.’ Instead of treating profit as what remains after paying all the bills, the Profit First Method encourages you to prioritize profit. It creates a culture of disciplined financial management, where profit leads the business narrative.
Prioritizing Profit Over Revenue: A Key Mindset Shift
Of course, transformation only begins with a shift in mindset. Businesses often harbor the fallacy that increased revenue implies higher profit. But revenues can often camouflage inefficiencies and uncontrolled expenses. The Profit First Method brings an economic mind-shift, focusing on profit first, even before revenue. Profit then becomes an objective, not a residue, orchestrating a new era of financial management and growth.
Transforming your Business With The Profit First Approach
Now that you’ve had a shift in mindset plus the profit first method in hand, this approach will send a ripple effect through your business at every level, fostering a healthier, more prosperous business environment. It changes how you generate and spend every dollar, channeling your business energies towards efficiently managing and ultimately reducing expenses. In essence, the Profit First approach prompts entrepreneurs to think twice, thrice before every expense, fostering a culture of profit primacy.
But how do you actually start implementing the Profit First Approach?
The essential tools for financial discipline are simpler than you think. At the heart of the Profit First Method is an organized, yet straightforward, accounting system. You can begin with a set of separate bank accounts for profits, owner’s pay, taxes, and operating expenses. By segregating revenues, it becomes easier to manage funds and stay true to the philosophy of Profit First.
Budgeting – The journey to profit primacy begins with a well-defined budget. It is important to begin budgeting towards your income goal. This budget acts as your roadmap, guiding your financial decisions in alignment with your profit priorities. Defining which categories and entries you need in order to start and keep your business running.
Fund Allocation – Once your budget blueprint is set, fund allocation becomes the key. It’s imperative to exercise financial discipline and stringently stick to the allocated funds within each budget category. The Profit First Method advises distributing your revenue into separate bank accounts, nurturing a disciplined financial habit that grows your profit margin.
Want some juicy tips for a better business management outlook? HERE YA GO!
- Never assume you know the best way to do things
- Make it a habit to expose yourself to something new at least weekly
- Engage, don’t just listen to what other people are saying
- Change up the people you talk to. Same people, same conversation, new people, new conversation.
- Take action and make it happen
Many entrepreneurs have been struggling with managing their finances and it’s totally normal! But don’t forget being profitable still requires you to be productive. The path to financial wellness is never easy but with continuous effort and discipline of the new mindset and a fresh perspective, you too can grow your business one step at a time. So better prioritize transforming your finances and I know you’ll have better control over your money guilt-free!
Episode 165 – Transcript + Timestamps
THIS Process will CHANGE your Business Finances
Introduction To Profit First Method
[00:00:00] Yvonne Heimann: What if I told you you’ve been managing your business finances all wrong? And in this video, I’ll show you the better way how to run your finances. So you will stop stressing and finally stop feeling bad about getting your favorite Starbucks. Neither Germany, nor America, or I think any country for that matter, seriously teaches you finances and how to manage your money.
[00:00:24] You get the standard start of your bookkeeping and all the things, but do we actually learn how to manage money? Now, before I dive into the whole how to and how to set it up and how to run it, I wanted to share my money story first. As a kid, I refused to bookkeep over my allowance. I figured, it doesn’t matter, it’s my money.
[00:00:47] Why should I tell my parents how I spent my money? Yes, they wanted to teach me bookkeeping and how to manage money. However, rebellious Yvi was like, I’m not doing that. So I [00:01:00] never really had a consistent allowance, which then meant when I got money for my birthday, it went right out the door for all the things that I wanted to have, the whole time I didn’t have money.
[00:01:12] So changing that habit has taken a while and I’m going to show you today how I have changed this. On top of those, there is that female money story where men are better with money than we are. No, they simply learned better how to handle money than we did. And then we have that general money belief that I often see with my coaching clients is that outsourcing money belief of no one will ever pay that.
[00:01:42] How could I charge this for my services? Oh, that’s way too expensive. I haven’t earned that. I’m not allowed to buy that $7 Starbucks yet. All of that thinking is completely based in lack. And today I’m going to practically, as well as mentally show you [00:02:00] how we can stop thinking in lack. We simply tend to get comfortable in those old stories, in the way we do things, because we know it, that’s how we’ve always done it.
[00:02:12] So it’s a comfortable way, even if it might not be the right way to do the things. Growing, scaling, and evolving means learning new ways of doing things and changing old ways. And I try to learn something new every day. And one thing I learned is that you have the power to support me and this channel and getting this video onto more people’s screens. So please hit that like button and show YouTube that others need to see these videos too.
Prioritizing Profit Over Revenue: A Key Mindset Shift
[00:02:43] What’s the normal practice around finances? We make a sale, then we spend the money to outsource, add tools, upgrade our business to be able to grow our business. And then we take what’s left, and that’s our profit.
[00:02:54] And oftentimes, especially in the beginning, we don’t even pay ourself. So not only do we not [00:03:00] pay ourself in the beginning, we also often never have any profit left over. We are better than just taking leftovers. So the problem here is, initially, the old ways of money is we are focusing on expenses. We are focusing on the money that gets out to grow our business, to scale our business, to hire, to pay all the bills, not the profit.
[00:03:23] Which means again, we are focusing on lack, not actually the gain. And what’s going out is not always what’s coming in. Let me explain. So what I often see with coaching clients is, okay, you make a hundred bucks. Just for the sake of easy math, you take those a hundred bucks and you’re like, Ooh, I really wanted to outsource this and I really wanted to upgrade this.
[00:03:43] And I really wanted to do this. And there goes the money back out the door. Now that thinking and that process is exactly why you should always ask those coaches that promise you a $20,000, $30,000, $50,000 launches, what their actual [00:04:00] profit is. People are too much focused on the revenue generated but not actually on what it took to get there.
[00:04:10] Too many businesses barely make any bottom line because they spent too much money looking great and getting it out there than getting money in. And generating revenue and putting profit aside. And at the end of the day, you are stuck in that rat race of, I need to make more money to make more profit, to make more money to make more profit.
[00:04:30] And you feel like you are in this never ending hamster wheel without ever actually having any cash left. Everything goes straight to your business and you feel bad even just buying your favorite Starbucks. That’s not why we started our business. We started our business to make profit, to do the things we wanted to do.
[00:04:47] So I want to hear from you. How does profit impact your motivation? Let me know in the comments if you feel like having extra funds or not affects your drive to work hard and make things happen. I [00:05:00] find that having a clear profit margin to put aside to do whatever I want to do with seriously impacts my own motivation. So share your experience below.
Transform Your Business With The Profit First Approach
[00:05:09] So if making more money is not the solution to making more profit, what is? It’s been quite a few years now since I came across a concept that I want to share with you. The Profit First Method, which is a book from Mike Michalowicz and it really has changed how I think about my money.
[00:05:28] Now, the author of Atomic Habits, James Clear wrote a quick and easy summary about Profit First that really runs down through the main idea and the framework that Profit First delivers. To give you a quick idea, think back to your grandma. Chances are when grandma got her paycheck, she went to the bank, cashed it in, cashed it in, cashed it out, cashed it out.
[00:05:52] That’s what it is. Cashed it out, came home with the cash, took a couple of envelopes and then put money into the rent envelope [00:06:00] and put money into the grocery envelope and put money into the allowance envelope and whatever kind of envelopes you have. And the second piece is the mindset piece. You are focusing and you are grabbing a percentage of profit right in the beginning.
[00:06:16] It’s not money comes in, money goes out. Now money comes in and twice a month, 10 and 25 on the 10th and the 25, you are separating your monies in those different envelopes. For example, operation expenses, owner pay, yes, you should always pull an owner pay, especially when you’re starting out, your taxes, and there’s a couple of other ones.
[00:06:36] We’ll talk about this when I show you exactly how I run this technically and which tools I’m using for this. Now with this, you now suddenly completely change how you are focusing things. You’re not focusing on expenses and just what needs to be paid. No, you are focusing on how your money needs to be separated out.
[00:06:55] And then you can see if you actually have the money you should have [00:07:00] to pay your expenses. I really recommend diving deeper into this. At least go read James Clear’s um, roundup of this. If not the whole book, really recommend reading the whole thing. And that change is really why it is so important to expose ourselves to new things and new ways of thinking.
[00:07:18] If I wouldn’t have read the book, I would have never considered thinking of my profit first. Talking about that. Hit that subscribe button down below because every week I’ll expose you to new ways of thinking right here on my YouTube channel to run your business more efficiently and build the life of your dreams.
Essential Tools For Implementing Profit First Method
[00:07:36] Now that we got the theoretical of how profit first works down, let me show you how you can put this into practice. I’m going to give you my two personal favorite tools to make it all happen. ClickUp, you guessed right, as well as Google Sheets. Let’s start in the beginning. To even just be able to set up your profit first, you [00:08:00] need to figure out what those percentages are. I’ll give you mine here in a second.
Step 1: Budgeting For Your Income Goal
[00:08:03] For that, you should always be budgeting. You should know your budget. If you don’t know your budget yet, start with that. Get your numbers done. What are you paying monthly? What are you paying biannually? What are you paying annually? Really collect all of this. And I use a spreadsheet in Google Sheets simply because the formulas and the calculations and the cross references between different sheets is easier where I know exactly what I need to pay monthly, annually, biannually, it’s all in here.
[00:08:34] And I have this nice thing in here too, where I do have my multiple bank accounts to be able to know exactly, Oh, that’s in the bank account right now. This is what’s going out. So this is what’s still available, all calculated by itself. That’s, that’s why we use Google sheets.
[00:08:51] As you can tell right here, I already know upcoming dues. I know what’s pending in my bank account. I know what’s in my bank account after pending as well as monthly budget [00:09:00] planning. That is the first thing, figuring out your numbers and really keeping track of it. It also allows you to keep track of your income. Income, not revenue, your income goal, every single month, there is more calculation on the bottom that does all kinds of things for you. That’s the first step. You need to know your budget.
Step 2: Fund Allocation
[00:09:21] Then we already talked about the allocation. These are your envelopes. My envelopes after doing the budgeting and knowing the numbers is profit 5%.
[00:09:31] That is the first thing that comes out of the money, 5% profit, 5% where I don’t feel bad wherever I want to spend them. If I want to spend them for some coaching or a template or something for my business, I will not feel bad about it. But I also won’t feel bad about to take that profit and go travel, go get my toes done, whatever it is.
[00:09:51] Buying that Starbucks, that’s where the profit comes in. Then owner pay. My owner pay is always 50 percent of the revenue that’s coming in. Taxes [00:10:00] always 15%. I’m in California. That’s what it is. That’s why those are marked red. The 50 percent and the 15 percent never change. Then we have our UpEx account.
[00:10:08] That is our operation expenses. That’s where money for bills for my business goes to. My team runs at 10 percent of the revenue. Need to adjust that a little bit. We have grown our team and then credit card payments to pay off the credit card. So when I get $5,000 in, it automatically calculates the whole thing for me.
[00:10:29] And I do that on 10 and 25, twice a month to really get into this rhythm of not every day being in my finances and every day paying bills, but rather paying ahead and planning my finances. Now, last but not least, as you already can see, all of this is embedded within ClickUp. I don’t have to go anywhere else.
[00:10:49] So yes, all of my finances are on through Google sheets because doing the math and then all the fancy stuff is way easier than it would be in ClickUp. However, I work [00:11:00] in ClickUp every single day. So we have an expense list in ClickUp that has all of those expenses with the due date, with the amount that is due, with the easy login, telling me credit card limits, if that’s applicable, what kind of payment they are, what category they are, are they monthly, are they credit card payments, are they annually, whatever is happening, is it personal or business, because I run my personal as well as my business through the Profit First method, and then which account it is being pulled from or paid from.
[00:11:34] Now, here’s another thing for you. Standard big banks don’t always like this, because you need five bank accounts or six or seven, or however you want to sort your money out. Relay bank has teamed up with Profit First to make this happen at no cost to you. That’s the bank I am running with which also automates the whole money movement between your little envelopes.
[00:11:58] And this is [00:12:00] how I went from dead ass broke to finally having profit and knowing in no time, simply by looking at my OpEx account if I can afford something or not.
[00:12:11] Now here are five quick tips so you don’t make the same mistake I did and you can get where I am now faster. Number one, never assume you know the best way to do things.
5 Actionable Tips For Better Financial Management
[00:12:21] We talked about that. Number two, make it a habit to expose yourself to something new at least weekly. Read a new book, watch a YouTube video, listen to a podcast. Step out of the standard stories you hear in your circle. Engage, don’t just listen to what people are saying. Comment, start a conversation.
[00:12:40] Challenge an opinion. There’s usually so much more to a 10 minute video than I can teach you. Challenge me. Pop in the comment section and be like, Girl, this stuff doesn’t work. Bring it on. I love a challenge. Or tell me how one of my videos helped you. Engage, don’t just listen. Number four, [00:13:00] change up the people you talk to.
[00:13:02] Same people, same conversation, new people, new conversation. And as I already mentioned, take action. You can watch all the videos. If you don’t take action and do, nothing is gonna happen. And don’t forget being profitable still requires you to be productive. Here’s a video for you. That will give you my most favorite productivity hacks.
[00:13:28] So you are going to be at least 1% more productive than you were yesterday. So go check it out and don’t forget to subscribe. I’ll see you in the next video.
00:00 | Introduction To Profit First Method
02:43 | Prioritizing Profit Over Revenue: A Key Mindset Shift
05:09 | Transform Your Business With The Profit First Approach
07:36 | Essential Tools For Implementing Profit First Method
08:03 | Budgeting For Your Income Goal
09:21 | Fund Allocation
12:11 |5 Actionable Tips For Better Financial Management
- Google Sheets
- Relay Financial