Chương 1: Doanh nghiệp của bạn là một con quái vật ngốn tiền không thể kiểm soát
Chapter 1: Your business is an out-of-control, cash-eating monsert
Do you know the saying “Revenue is vanity, profit is sanity, and cash is king”? It is a succinct reminder that your job is to maximize profit, regardless of the current size of your business. As you focus on profit, you’ll discover new ways to both streamline and grow your business. It doesn’t work the other way around. The lemming mentality of growing first with the hope of finding profit in the process, is so bass ackward it drives me nuts.
Chương 2: Những nguyên tắc cốt lõi của phương pháp dòng tiền gắn liền lợi nhuận
Chapter 2: The core principles of Profit First
Bốn Nguyên Tắt Cốt Lõi Của Phương Pháp Profit First
The Four Core Principles of Profit First
1. Định luật Parkinson – Tại sao doanh nghiệp của bạn giống như một tuýp kem đánh răng
Parkinson’s Law – Why Your Business Is Like a Tube of Toothpaste
If there is one thing that will forever change your relationship with money, it is the understanding of Parkinson’s Law. You need to intentionally make less toothpaste (money) available to brush your teeth (to operate your business). When there is less, you will automatically run your business more frugally (that’s good) and you will run your business far more innovatively (that’s great!).
If you first extract your profit and remove it from sight, you’ll be left with a nearly empty toothpaste tube to run your business. When less money is available to run your business, you will find ways to get the same or better results with less. By taking your profit first, you will be forced to think smarter and innovate more.
2. Tác động ưu tiên: Tại sao phần đầu tiên của phương pháp Profit First lại quan trọng
The Primary Effect: Wht the First Part of Profit First Matters
When we follow the conventional formula of Sales − Expenses = Profit, we are primed to focus on those first two words, Sales and Expenses, and treat Profit as an afterthought. We then behave accordingly. We sell as hard as we can, then use the money we collect to pay expenses. We stay stuck in the cycle of selling to pay bills, over and over again, wondering why we never see any profit. Who’s the sinner now?
When profit comes first, it is the focus, and it is never forgotten.
3. Loải bỏ Cám dỗ: Một khi đã thấy Lợi nhuận, hãy tránh xa nó
Remove Temptation: Once You Take Your Profit First, Put It Away
As you implement Profit First, you are going to use the powerful force of “out of sight, out of mind.” As you generate a profit (which, remember, starts today), you are going to remove the money from your immediate access. You won’t see it, so you won’t access it. And just like anything that you don’t have a reasonable degree of access to, you will find a way to work with what you do have and not worry about what you don’t. Then, when Mr. Buffett (ahem, your profit account) releases money to you, it will serve as a bonus.
4. Thực hiện theo nhịp điệu
Enforce a Rhythm
When you get into a rhythm with your cash management you’ll have your finger on the pulse of your business. You will monitor your cash position every day by just looking at your bank account. Log in. Spend two seconds looking at your balances. Log out. You will know where you stand that quickly. Think of your cash flow as waves rolling onto the beach. If the cash wave is big, you will notice and take action (this is when looking at the reports with the guidance of a pro is helpful). When the waves are small, you will surely notice that, too. Most of the time, I expect the cash waves will be normal, and no action will be required. But no matter what, you will always know. Because you will continue to do what you normally do: log into your bank account.
Công Thức Kế Toán Mới
The New Accounting Formula
Doanh thu bán hàng – Lợi nhuận = Chi Phí
Sales – Profit = Expenses
Here’s how you apply the four principles:
1. Sử dụng những chiếc đĩa nhỏ
Use Small Plates
When money comes into your main INCOME account, it simply acts as a serving tray for the other accounts. You then periodically disperse all the money from the INCOME account into different accounts in predetermined percentages. Each of these accounts has a different objective: one is for profit, one for owner compensation, another for taxes, and another for operating expenses. Collectively, these are the five foundational accounts (Income, Profit, Owner’s Comp, Tax, and Operating Expenses), and where you should get started, but advanced users will use additional accounts, outlined in Chapter 10.
2. Ăn uống theo trình tự
Serve Sequentially
Always, always allocate money based upon the percentages to the accounts first. Never, ever, ever pay bills first. The money moves from the INCOME account to your PROFIT account, OWNER’S COMP, TAX, and OPEX (OPERATING EXPENSES). Then you pay bills only with what is available in the OPEX account. No exceptions. And if there isn’t enough money left for expenses? This does not mean you need to pull from the other accounts. What it does mean is that your business is telling you that you can’t afford those expenses and need to get rid of them. Eliminating unnecessary expenses will bring more health to your business than you can ever imagine.
3. Loại bỏ sự cám dỗ
Remove Temptation
Move your PROFIT account and other “tempting” accounts out of arm’s reach. Make it really hard and painful to get to that money, thereby removing the temptation to “borrow” (i.e., steal) from yourself. Use an accountability mechanism to prevent access, except for the right reason.
4. Thực hiện theo nhịp điệu
Enforce a Rhythm
Do your allocations and payables twice a month (specifically, on the tenth and twenty-fifth). Don’t pay only when there is money piled up in the account. Get into a rhythm of allocating your income, and paying bills twice a month so that you can see how cash accumulates and where the money really goes. This is controlled recurring and frequent cash flow management, not by-the-seat-of-your-pants cash management.
Chương 3: Thiết lập Profit First cho doanh nghiệp của bạn
Chapter 3: Setting up Profit First for Your Business
Hành động: Chuẩn bị sẵn lợi nhuận cho doanh nghiệp của bạn
Take Action: Get Your Business Profit Ready
Step 1: Set up the five foundational accounts:
1. an INCOME account,
2. a PROFIT account,
3. an OWNER’S COMP account,
4. a TAX account, and
5. an OPEX account.
In most cases, you will already have one or two accounts with your bank. Keep the primary checking account you already have as your OPEX Account, and set up the remaining accounts: INCOME, PROFIT, OWNER’S COMP, and TAX. For simplicity’s sake, set them all up as checking accounts. Some banks may charge fees or have minimum balance requirements. Don’t let that deter you. Ask to speak to the bank manager and negotiate the fees and requirements. If the manager is unwilling to negotiate, find a new bank.
Step 2: Set up two more external savings accounts with a bank other than the bank you use for daily operations.
One account will be your no-temptation PROFIT HOLD account. The second will be your no-temptation TAX HOLD account. Set them up with the ability to withdraw money directly from the respective checking accounts at your primary bank.
Step 3: Don’t enable any of the “convenience” options for your two external no-temptations accounts.
You don’t need or want to view these accounts online. You don’t want checkbooks for these accounts. And you definitely do not want a debit card linked to those accounts. You just want to deposit your profit and tax reserves and forget it . . . for now.
Chương 4: Đánh giá sức khoẻ doanh nghiệp của bạn
Chapter 4: Assessing the Health of Your Business
The figure below help us to access our business instantly. Please fill this table completely.
In cell A1
In the Actual column, cell A1, enter your Top Line Revenue for the last twelve full months. This is your total revenue from sales, and should be the top line (or near it) on your P&L statement. One of the common labels for the top line is Total Income, Total Sales, Revenue, Sales, or Net Sales.
In cell A2
If you are a manufacturer, retailer, or more than 25 percent of your sales are derived from the resale or assembly of inventory, put the cost of materials (not labor) for the last full twelve months in the Material & Subs cell, A2. This is not the same as Cost of Goods Sold. This is only for materials, and only if your materials cost 25 percent or more of your sales.
If subcontractors deliver the majority of your service, put the cost of the subcontractors for these twelve months in the Material & Subs cell. (Subcontractors are people who work for you on a project basis, but have the ability to work autonomously and have the ability to work for others. You don’t pay them on payroll; you pay them their project fee, commission, or hourly rate, and they handle their taxes, benefits, etc., themselves.) In some cases, you will have both materials and subcontractor costs (think home construction). In that case, put the cumulative amount of these two costs into cell A2. Remember to put only your materials and subcontractors here, but not the labor of your own people.
If you are a service company and the majority of your services are provided by your employees (yourself included), put $0 in cell A2. If your material or subcontractor costs are less than 25 percent of your Top Line Revenue, put $0 in cell A2. (We will account for these expenses in Operating Expenses in a little bit).
If you are unsure of what to put in the Material & Subs section, put $0. Do not overthink this. And do not use it to make nominal adjustments. The goal here is only to adjust your company’s revenue to represent what it really makes as revenue if the majority of cost is for materials, supplies, or subcontractors.
In cell A3
Now subtract your Material & Subs number from your Top Line Revenue to calculate your Real Revenue. If you put an n/a in the Material & Subs sec tion, just copy the Top Line Revenue number to the Real Revenue cell A3.
The goal here is to get you to your Real Revenue number. This is the real money your company makes.
In cell A4
Now that we know your Real Revenue, let’s start with profit first. Write down your actual profit from the last twelve months in the Profit cell A4. This is the cumulative profit you have sitting in the bank, or have distributed to yourself (and/or partners) as a bonus on top of—but not to supplement—your salary. If you think you have a profit, but it is not in the bank and was never distributed to you as a bonus, this means you don’t really have a profit.
In cell A5
In the Owner’s Comp cell A5, put down how much you paid yourself (and any other owners of the business) these past twelve months in regular payroll distributions, not profit distributions.
In cell A6
In the Tax cell A6, put down how much tax your company has paid on your behalf. This is critical: This is not how much you have paid in taxes. This is how much money your company paid (or reimbursed you) in taxes. Tax is both the income tax of all the owners and any other corporate taxes. The likelihood that your company paid your taxes for you is very low (we’ll fix that, too). So chances are you will put a big fat $0 in that section, too. If your income taxes got deducted from your paycheck from the company, or at the end of the year you had to scratch together cash out of your pocket, the company definitely did not pay your taxes and a big $0 goes in cell A6.
In cell A7
In the Operating Expenses cell A7, add up the total expenses your business paid for the last twelve months—everything except your Profit, Owner’s Comp, Tax, and any materials and subcontractors that you have already accounted for. The expenses are listed on your income statement. It’s okay if the numbers don’t match up perfectly. This is not accounting, and you don’t need to reconcile to the penny. The goal is not to have perfect numbers; it is just to understand roughly where we stand now. And with that understanding we can start working on a profit plan for your business. This is simply a starting point.
In cell B4-B7
Next, enter the Profit First percentages in the TAP column based upon your Real Revenue Range (fill in cells B4 through B7). Use the percentages in Figure 4. I call these percentages TAPs (Target Allocation Percentages), the percentage of each deposit that will be allocated to different elements of our business.
For example, if your Real Revenue for the last twelve months is $722,000, you should use column C from Figure 4. If your business has $225,000 in Real Revenue, use column A. If you run a division (or have your own company) that does $40,000,000, use column F.
In cell C3-C7
In the PF$ column, copy the Real Revenue number from your actual column (cell A3) to the PF $ Real Revenue cell (C3). Then multiply that Real Revenue number by the TAP for each row and write down the number in the corresponding PF $ cell.
For example, to determine your PF $, multiply C3 (Real Revenue) by B4 (the Profit TAPs) to get C4 (the Profit First dollar target for Profit). Do this same process to calculate each cell in the PF $.* These are your target PF dollar amounts for each category.
In cell D4-D7
In the Delta column, take your Actual number and subtract the Profit number. This is very likely to result in a negative number for Profit or Owner’s Comp or Operating Expenses or all three. It is your Delta, the amount you need to make up. Negative means you are bleeding money in these sections. Sometimes it is in just one category with a problem, but in most cases businesses are bleeding out in the Profit, Owner’s Comp, and Tax accounts and have a positive number (meaning excess) in Operating Expenses. In other words, we are paying too little in Profit, Owner’s Comp, and Taxes, and paying too much in Operating Expenses.
In cell E4-E7
The final column (cells E4 through E7), Fix, will have no numbers, only the word increase or decrease next to each category. If the number in the Delta section is a negative number, put increase in the corresponding Fix cell, because we need to increase our contribution to this category to correct the Delta. Conversely, if it is a positive number in the Delta section, put decrease in the Fix cell, since this is a category where we need to spend less money in order to fix it.
Chương 5: Tỷ lệ phân bổ
Chapter 5: Allocation Percentages
Tỷ lệ phân bổ mục tiêu cho lợi nhuận của bạn (TAP Lợi nhuận)
Your Profit Target Allocation Percentage (Profit TAP)
The Instant Assessment is a starting point for all of your Target Allocation Percentages (TAPs). If you’re the analytical type, you can refine the TAPs to be even more specific to your industry. This is not necessary, by the way, because TAPs are simply targets. As you move along and adjust your CAPs, you will naturally find what works for you.
Now you need to do a little bit of research to set more specific target numbers. There are a few ways to approach this:
1. Research public companies: look at the financial reports public companies are required to make available. Look up at least five companies in your industry or a similar industry.
2. Review your tax returns for the last three to five years and determine your most profitable year—based on percentages.
Perhaps you will never quite reach the TAPs to which you aspire. But they will force you to constantly think about what you are doing and how you are doing it, so that you can get closer. Or maybe you can beat the TAPs. Maybe you can become the new industry standard for TAPs.
If your sales were to stop completely, with not a single deposit coming in, here’s a good longevity rule of thumb:
5 percent profit allocation = 3 weeks of operating cash.
12 percent profit allocation = 2 months of operating cash.
24 percent profit allocation = 5 months of operating cash.Why is it that as the profit allocation percentages basically double, business longevity almost triples? The math doesn’t seem to make sense at first glance. But it does make sense. The bigger your profit allocation percentage, the more efficiently you are running your business, which means less in operating expenses. So not only do you have more saved up with a higher PF percentage, you spend less, which affords you even more time.
Đừng trả lương thấp cho nhân viên quan trọng nhất trong doanh nghiệp của bạn
Don’t Underpay Your Most Important Employee
In the early days of a company, when annual revenues are below $250,000, you are not only the most important employee; you are likely the only employee. If your annual revenue is under $500,000 and you have an employee or two, you are still the key employee. And that means you must be doing 90 percent of the work. You’re bringing home the bacon and frying it up in the pan.
The other 10 percent of the time you spend recording everything you do so that you can systematize it for your other few employees or contractors to do the work without your input. Basically, you are a true entrepreneur (building systems) 10 percent of the time, and a hard working, hard-selling employee of your own company 90 percent of the time.
This is why you get such a big salary in the beginning. No more of this “bottom of the bowl” stuff. You can’t live on a minimum wage or less. Say it again, once more with feeling: my business serves me; I do not serve my business. Paying yourself next to nothing for hard work is servitude. Always start with CAPs—where you are now—and increase by 1 percent each quarter.
As your annual revenue grows past $500,000, you will transition to spending more time building systems. Now you’re a systems developer 20 percent of the time, a manager 10 percent of the time, and an employee 70 percent of the time. As annual revenue grows past $1 million, your salary percentage will drop even further because you will be working less and less in the business and more and more on the business.
Một phép toán đơn giản
A Little Simple Math
Now we are going to determine the percentage that stays in your OPEX account after you move money to your PROFIT account, your OWNER’S COMP account, and your TAX account. The amount left over for expenses is likely going to be somewhere between 40 percent and 60 percent. This is the money you have available to pay all your expenses.
Next, subtract that percentage from 100 percent. So if your total OPEX account is at 55 percent, you’re left with 45 percent. That 45 percent is the amount you will be taxed on. (More often than not, expenses are not taxed. This is why some accountants encourage you to buy equipment or make other large purchases toward the end of the year.) Now multiply your nonoperating percentage (in this case, 45 percent) by your taxable income percentage (in this case, 35 percent). You end up with a percentage of approximately 16 percent, which is your Tax percentage.
Chương 6: Áp dụng phương pháp Profit First
Chapter 6: Putitng Profit First Into Motion
In this chapter, I will teach you exactly how to implement Profit First, step by step, day by day, month by month, and so on. Your Profit percentage may seem steep or out of reach, but by the end of this year you will be closer to it than you thought you could be. You may even leave it in the dust.
DAY ONE
1. Tell Your People
If you have a progressive accounting professional, she will be all over Profit First. She will thirst for ways to support you better and make your job of making a profit easier. Tell her to pick up this book to get started, and definitely tell her to check out Profit First Professionals so that she can gain access to the special training and/or tools for accounting professionals.
But what if your accountant or bookkeeper stands her ground and tells you not to implement Profit First? Do this: Ask her whether she has hands-on experience implementing Profit First (or a similar pay-yourself-first system), and if she does, ask her to explain why it doesn’t work. Prepare yourself for a blank stare. Because if she has properly implemented pay-yourself-first plans, she will know it does work, every time.
Most accountants using the old GAAP method of cash management are lucky to have a handful of profitable clients. Almost all of the remaining clients are likely struggling to stay afloat. This should be their wake-up call.
Ask yours to read Profit First cover to cover and support you in the process. If they are unwilling to listen to you , find new accounting professionals who not only support Profit First but are trained in it. (If you don;t know where to start, check out ProfitFristProfessionals.com)
2. Set up Your Accounts
Before we begin, you better have already set up your foundational five accounts at your primary bank (INCOME, PROFIT, OWNER’S COMP, TAX, and OPEX) and the two accounts at your new no-temptation bank (PROFIT HOLD and TAX HOLD).
Now you are going to add to the nickname for each account by adding the CAP next to the account name and also put your TAP in parenthesis. For example, if you are nicknaming your PROFIT account, and the CAP is 8 percent and the TAP is 15 percent, nickname the account “PROFIT 8% (TAP 15%).” This allows you to quickly identify which money is going where currently, and the ultimate allocation percentage you are trying to achieve. Within seconds of logging into your bank account, you will be extremely clear on which money is available for what purpose, how much you are allocating, and the target you have set for your cash flow.
The final setup of your accounts at your bank should look something like this (of course, with the correct CAPs and TAPs you have designated for your business):
INCOME *8855
PROFIT 8% (TAP 15%) *8843
OWNER’S COMP 20% (TAP 25%) *8833
TAX 5% (TAP 15%) *8839
OPEX 67% (TAP 45%) *8812”CAPs – Start Out Easy
We have determined the Target Allocation Percentages (TAPs) for each account during the Instant Assessment phase. But TAPs are simply the vision. TAPs are where we are headed. TAPs are not where we start. We’re going to start with a manageable profit, a doable Owner’s Comp, and a reasonable Tax reserve that will allow adequate time to cut down on expenses, start finding profit opportunities within your business, and adjust to the new system. The percentages we are about to assign to each account are going to be called your CAPs (Current Allocation Percentages).
For your CAPs, we’ll start at our Day Zero* contribution levels for each account and then add 1 percent, bringing us to Day One* of your Profit First implementation. This may mean your Day Zero is zilch for a few of the accounts. If your business has never had a profit, or if you have sometimes had a profit and sometimes a loss, your profit has been zero. Therefore, our easy Day One start for the PROFIT account will be 1 percent CAP (that’s 0 percent historically plus 1 percent, starting today), and we will bump it up as we start getting into our quarterly rhythm.
If your company historically has paid taxes* of 5 percent of your total revenue, we are going to set up your tax CAP reserve at 6 percent by simply adding 1 percent to your Day Zero Tax allocation of 5 percent. If your pay represented 17 percent of your income, we add 1 percent to your 17 percent and you have 18 percent Owner Compensation CAP. And so on. Even if our targets are much higher, we start with what we’ve got, plus 1 percent for Profit, Owner’s Comp, and Tax. We then reduce the Operating Expenses by the cumulative of the percentage adjustments we made to the other three accounts.
Why start with small percentages, when we likely could do more? The primary goal here is to establish a new automatic routine for you. I want the amounts to be so small you don’t even feel them. The goal is to set up these automatic allocations immediately, and then adjust the percentages each quarter until we are aligned with our target distribution percentages. Take small easy steps and you will gain powerful momentum.
Start slow.
3. Make Your First Distribution
Let’s do the allocation right now. Say you had $5,000 in your old primary bank account. You have renamed that account OPEX and determined that you have $3,000 in checks and payments still waiting to clear. That means you have $2,000 currently available. Transfer the $2,000 to the INCOME account. Then transfer all the money from the INCOME account to the respective accounts based on percentages.
Run your percentages on that $2,000 and move that money into the accounts. Continuing my example, it would allocate the $2,000 as follows:
INCOME *8855 → This account, which had the $2,000, goes to $0 as all the money gets allocated to PROFIT, OWNER’S COMP, TAX, and OPEX, based upon the CAPs we have set.
PROFIT 1% (TAP 10%) *8843 → $20 goes here
OWNER’S COMP 5% (TAP 10%) *8833 → $100 goes here
TAX 1% (TAP 15%) *8839 → $20 goes here
OPEX 93% (TAP 65%) *8812 → $1,860 goes hereWEEK ONE: CUT EXPENSES
Now that we are moving money into our PROFIT, OWNER’S COMP, TAX, and OPEX accounts, we need to get the money from somewhere. There are only two ways to do that:
– Increasing sales: Increasing sales is very doable, and is the key for colossal profitable growth. But it takes time and it won’t happen overnight.
– Cutting expenses: Cutting expenses is generally a very quick process and is usually very easy. Cutting unnecessary expenses might bring you some psychological pain, but it’s a whole lot easier than trying to conjure new sales out of nothing.
We have just accounted for at least 3 percent (1 percent in each of the PROFIT, OWNER’S COMP, and TAX accounts) of our income, so we need to cover that by cutting three percent from our expenses. To do that, I need you to print out two things:
1. Your expenses for the last twelve months.
2. Any recurring expenses: rent, subscriptions, Internet access, training, classes, magazines, etc.
Now add up all the expenses and then multiply that number by 10 percent. You must cut costs by 10 percent. So why cut by at least 10 percent, when we “only need 3 percent?” Because cutting costs doesn’t mean the bills go away overnight. It may take a month or two to pay down balances owed on expenses we eliminate. You can easily find your first 10 percent in cuts by doing the following:
1. Cancel whatever you don’t need to help your business run efficiently and keep your customers happy.
2. Negotiate every remaining expense, except payroll.
TWICE A MONTH: THE TENTH AND THE TWENTY-FIFTH
Step One: Deposit all revenue into your INCOME account.
Step Two: Every tenth and twenty-fifth day of the month, transfer the total deposits from the prior two weeks to each of your “small plate” accounts based on your CAPs and add it to any money (if any) that is already in there. For example, let’s say you have $10,000 in total deposits for the past two weeks. Based on the following example percentages, here’s how you would allocate the $10,000:
INCOME *8855 → This account, which had the $10,000, goes to $0 as all the money gets allocated.
PROFIT 1% (TAP 10%) *8843 → $20 was here + $100 allocated = $120
OWNER’S COMP 5% (TAP 10%) *8833 → $100 was here + $500 = $600
TAX 1% (TAP 15%) *8839 → $20 was here + $100 = $120
OPEX 93% (TAP 65%) *8812 → $1,860 was here + $9,300 = $11,160Step Three: Transfer the full account balances for both your TAX and PROFIT accounts to the respective accounts at your second (no-temptation) bank.
INCOME *8855 → $0
PROFIT 1% (TAP 10%) *8843 → $120 transferred to PROFIT HOLD account
OWNER’S COMP 5% (TAP 10%) *8833 → $600
TAX 1% (TAP 15%) *8839 → $120 transferred to TAX HOLD account
OPEX 93% (TAP 65%) *8812 → $11,160Step Four: You have $600 in the OWNER’S COMP account from which to pay yourself. Take only what you have allocated as your biweekly salary, and leave the rest to accumulate. For this example, we’ll say your biweekly salary is $500. This would leave $100 in the account.”
Step Five: With the remaining $11,160 in the OPEX account, pay your bills. For this example, we’ll say you have $10,000 in expenses this pay period (which should make you a little sick to the stomach. We are going to cut that down). Leave the remaining $1,160 in the account.
At the completion of this process the accounts would look like this:
INCOME 8855 → $0 PROFIT 1% (TAP 10%)8843 → $0
OWNER’S COMP 5% (TAP 10%) *8833 → $100
TAX 1% (TAP 15%) *8839 → $0
OPEX 93% (TAP 65%) *8812 → $1,160And at your no-temptation bank, which reveived its first-ever deposits, your accounts will look like this:
PROFIT HOLD *99453 → $120
TAX HOLD *9976 → $120PROFIT HOLD and TAX HOLD accounts are to hold the money that will be accumulating at your second bank. As new deposits come in, you will deposit them in the INCOME account, and on every future tenth and twenty-fifth you will repeat these same five steps.
QUARTER ONE
Quaterly Distribution
On the first day of each new quarter (or the first business day afterward), you will take a profit distribution. Remember, the PROFIT account serves a few purposes:
1. Monetary reward for the equity owners of the business.
2. A metric to measure growth.
3. Cash reserve for emergencies.
Tally the total amount of profit in the account (don’t add any quarterly distribution percentages from deposits you received this day, yet) and take 50 percent of the money as profit. The other 50 percent remains in the account, as a reserve.
Every quarter, you will take 50 percent of what is in the account and leave the other 50 percent alone. For example, let’s say you have saved $5,000 in your PROFIT account during the first quarter of implementing Profit First. On the first day of the new quarter, you will take $2,500 as a distribution to the equity owners and leave the other 50 percent intact. If your company has multiple owners, the distributed profit is divided up based on the percentage owned by each equity owner. According to the above scenario, if you own 60 percent of the company, another partner owns 35 percent, and an angel investor owns 5 percent, the distribution would be $1,500 (for you, the 60 percent owner), $875 (for the 35 percent person) and $125 (for the investor).
The key is this: the profit distribution can never go back to the company. You can’t use fancy terms like reinvest, plowback, or profit retention. No term you use will cover up the fact that you are stealing from Peter to pay Paul. Your business needs to run off the money it generates in its operating expenses. The plowback of profit means you aren’t operating efficiently enough to run off the operating expenses. And if you give the profit back, you won’t experience the very important reward of your company serving you. You’ll just be letting the monster loose again. So always take your profit, every quarter, and use it for your own purposes.
Each quarter, you need to evaluate your current percentages and move them closer to your TAPs. You can move any percentage you want to get to your TAPs, but know this—the goal is to never take a step back. I would much rather you take a small step closer to your target profit percentage than take a big leap toward it only to step it back a month later. If you are adjusting and tweaking your percentages conservatively, I suggest that you account for three percentage points each quarter. Meaning you could move your PROFIT account from 5 percent to 8 percent. Or you could move your TAX account from 11 percent to 12 percent, your PROFIT account from 5 percent to 6 percent, and your OWNER’S COMP account from 23 percent to 24 percent.
YEAR ONE
Determine how much you owe and how far off you were in your estimates. If you owe more than you have in your TAX account, a few things likely went wrong. If you owe taxes at year-end and don’t have the money in your TAX account, this is the one time you can pull from your PROFIT account for a reason other than profit distribution.
Pull the money you have from your TAX account and your PROFIT account to pay the taxes. Then adjust percentages in your TAX account to ensure you will have enough for the next year. When you adjust your Tax percentage, reduce your profit percentage by that amount. Yes, you are taking a hit on profits, but next quarter you will work on getting those profits up again. The key now is to make sure you are fully prepared for taxes. If you have too much money left in your TAX account, congratulations—you can move that money to your PROFIT account and take a profit distribution. You may also be able to reduce your TAX TAP and increase your profit allocation percentage by that amount. Just check with your financial expert first.
Remember a little while ago, when I mentioned the ideal three-month cash reserve for your business, the place where you have enough cash saved to operate your business unscathed for three months if all sales came to a screeching halt and not another penny came into the business? Well, the PROFIT account is where this reserve accumulates, just for that circumstance. If you see that the money in it is in excess of a three-month reserve, you know this is a good opportunity to put money back into the business, to make some appropriate capital investments that will bring a lot more growth and a lot more profit, or to fund the VAULT account (that’s a little teaser for what you will be learning in a little bit).
Chương 7: Xoá bỏ nợ nần
Chapter 7: Destroy your debt
Thấy vui khi tiết kiệm nhiều hơn là thấy vui khi chi tiêu
Enjoy Saving More Than You Enjoy Spending
If you want to get out of debt, you must get more enjoyment out of saving your money than you do spending your money.
Give yourself more joy when you choose not to spend money than you do when you choose to spend it. Give yourself more joy when your bottom line grows (not just the top line). Give yourself tons of joy when your profit percentage grows.
When you opt not to spend money, acknowledge it. Give yourself a pat on the back. Do a happy dance. Celebrate every time you save—whether it’s ten bucks or ten thousand. Put on your favorite music and crank it, get really happy. Embarrass your kids at the mall. Heck, embarrass yourself. Over time you will train your mind to equate happiness and celebration with choosing to save money over spending it.
Chuẩn bị cho tháng tồi tệ nhất
Preparing For Your Worst Month
To prevent shortsighted behavior but stay optimistic, always look at your twelve-month rolling average income (and related numbers). When comparing figures, compare your current month to the same month in the prior year. Comparisons and rolling averages will give you a much clearer picture of where you truly stand.
Until your best month becomes your average month, it’s not the norm; it’s the exception. When you base decisions on your best revenue month, you will run out of cash—quickly. Debt will start to pile up. And you will go back to your old standby, “Sell more—grow, grow, grow!” Acting as if your best month is the norm is one surefire way to keep yourself locked in the Survival Trap.
Ngưng vay nợ
The Debt Freeze
The goal here is to cut cost, not to compromise the business. You can fire all your people, shut down your Web site, refuse to pay a penny to anyone, and, seriously, move into a van down by the river with your new roommate, and struggling motivational speaker, Matt Foley . . . but you’ll be out of business. You want to cut the fat out of your business, the stuff that is not generating or supporting income for your company. But you don’t want to cut out the muscle, the stuff that you absolutely must do to deliver your product or service.”
Print and Marrk Up Docs
1. Print out your curent income statement for the last twelve months, as well as your current accounts payable report, your credit card statements, loan statements, and any other statements related to debt, and your last twelve months of payments made from any of your business bank accounts. If you do not have an income statement ready, just gather the other documents.
2. Go line by line through each expense (past and present), even if you are not incurring the expense anymore, and with the pen, mark the expense with a P for any expense that directly generates (P)rofit; R for any expense that while necessary, can be (R)eplaced with a less expensive alternative; or U for any expense that is (U)necessary for delivering your offering.
3. Review every expense, including salaries, commissions and bonuses for employees, rent for the office, equipment, health care, raw goods, your office Spotify subscription. Everything. If money goes out of the business, we need to categorize it as a P, R, or U. I realize these things can get very subjective, so slant toward sharpening the pencil. Also, consider outside help to get you through this process.
4. Now circle any expense that is recurring (even if it happens to be in a different amount), meaning it will happen again at least once in the next year or more frequently, such as monthly or weekly. As an FYI, this is why we categorized all of your expenses, including ones that you haven’t incurred in a while; they are indicators of what may be coming down the pike.
Now Let’s Do Some Math
1. Add up all the expenses for the year. This includes everything you labeled and/or circled. Exclude any tax payments and owner’s distributions or salaries. Now divide that number by twelve to determine your monthly “nut”—the total amount you have decided you need to cover each month.
2. Determine the difference between your current monthly operating expenses and the number it must be according to your Instant Assessment. For example, if you currently have $52,000 in average monthly expenses and your Instant Assessment has your monthly expenses at $30,000, you need to cut your operating expenses by $22,000. There will be no justifying past spending mistakes, no saying, “But I need everything.” You don’t. Your healthy, booming competitor has figured it out. You need to put on your big-girl panties and accept that you spent too much, and today is the day we fix it.
3. Band-Aids come off more easily when you tear them off. Work a plan to cut expenses until you are operating at 10 percent below the target number on your Operating Expenses TAPs in the Instant Assessment. Start by cutting the U expenses first. Then find ways to reduce the R expenses with replacements or alternatives. And evaluate the P expenses to see if you can structure the expense more favorably.
Build a Leaner Team
Labor costs are typically the most expensive part of operating any business. Your labor costs, when totaled, may get a P expense rating. Of course you need some of those people, but probably not all. So evaluate your labor costs on an individual basis and separate the P’s from the R’s and U’s.
If your company is racking up debt, it is all too often because labor cost is too high. The problem with cutting labor costs is, our minds quickly come to defend and justify why people should stay: I own the company, I can’t do the work; I need to direct my team to do the work. Plus, they need a job (which is true); they are integral to the company (probably also true); the company will tank without them (super unlikely); and if I get rid of them, I won’t have people to do the work (hardly ever true).
Now, back to your overstaffed company. Evaluate each person and determine if her role is mandatory for operations to continue (not the person, but the role). If a person wears multiple hats (for example, is your receptionist also the in-house salesperson?), ask yourself whether each role is mandatory for operations to continue.
Next, evaluate your staff members. If they aren’t a P rating, they need either to be moved within your business to help it become more profitable, or they may need to be removed from the company. Now it is time to plan the layoffs. Before I get into this, I want you to know that I know how devastating this is. I know how much you will want to resist ever doing this, because I did. There was a day when I had to lay off ten people out of my twenty-five-employee company. It was the most difficult day of my professional life. I had to lay off nearly half my staff, not because they did anything wrong, but because I did—I mismanaged the numbers; I hired quickly and often and unnecessarily.
Once each person is laid off, call a staff meeting with all your remaining employees. Share what you have done, and why you did it. Explain how difficult it was to have to do it, and that you take responsibility for both the financial problem you got the company into and for fixing it. Assure your team that everyone remaining is there to stay, and that you have taken action to immediately stabilize the company. Absolutely do not ask people to take a pay cut. I did this with dire consequences. Asking all your people to continue to work just as hard or harder than ever for less money is worse for the emotional welfare of your company than letting just one more person go. When I did this, it disheartened the entire team. Nearly half of my remaining employees started looking for a new job with a more stable company. All of a sudden there were a lot of sick days, and one of my key remaining guys decided to take a job elsewhere.
Time for More Cuts
- Now the hardest part is over, call your bank to stop all automatic withdrawals from all of your accounts, except for any expenses you have labeled with a P. Then notify your vendors that you are stopping the withdrawals and will pay by check going forward.”
- Call each of your credit card companies and ask that you be issued a new card with a new number. Tell the credit card company that no payments that were being processed on your old card should transfer to your new one.
Chương 8: Tìm kiếm lợi nhuận trong chính doanh nghiệp của bạn
Chapter 8: Find Money Within Your Business
Bóp méo lợi nhuận
Profit squeeze
Profit is a slippery animal. When profit margins are big, usually in excess of 20 percent, people sniff out and almost immediately start to duplicate what you’re doing, and they look for ways to do it better, faster, and above all, cheaper than your company. I’m not, in any way, saying that you should stop investing in efficiency and thereby (temporarily) increase profit. I’m saying that even if you think you’re good with profit, you’re not. The competition will squeeze you eventually, and soon, so keep finding ways to do what you do better, faster, and cheaper. The nice thing is that as you keep your profit allocation percentage consistent, you will automatically be forced to find ways to make it happen. For example, when competition sets in and prices drop, your profit allocation will feel the squeeze, which means it’s time to innovate again.
Đạt được lợi nhuận gấp đôi chỉ với một nữa nổ lực
Two times the results with half the effort
I want you to set a massive goal for yourself. Look at every aspect of your business and determine how to get two times the results with half the effort. That’s a biggie, so I will say it again: How do you get two times the results with half the effort?
Effort is financial cost and time cost (your time, your people’s time, your software’s time, your machine’s time). For example, if you own a snowplowing company and currently plow one parking lot per hour, I would ask you to figure out how to plow two parking lots (two times the results) in thirty minutes (half the time).
Snowplowing a parking lot five minutes faster is not going to make much of an impact on your bottom line. Neither will skipping your coffee break or just “holding it” when you need to go to the bathroom.
But the more you focus on substantially improving efficiency, such as a snowplow that can move snow twice as fast, the closer you’ll get to achieving double the results with half the effort. And you’ll discover all the small steps that collectively get you closer to the big win. This gain in efficiency is amplified the more you sell. That is the power of percentages. Because you now plow every parking lot more efficiently, every new account is an opportunity for increased profit.
Khách hàng xấu tính
Fire bad clients
Dumping any client who makes you money (even if it is the worst client in the world) may seem counterintuitive at first. But never forget what I said earlier: All revenue is not the same. If you remove your worst unprofitable clients and the now-unnecessary costs associated with them, you will see a jump in profitability and a reduction in stress, often within a few weeks. Equally important, you will have more time to pursue and close your best clients.
I know how scary it feels to dump any client when you are scrambling to cover this week’s payroll, especially if you fought hard to get that client in the first place. But remember, profit is about the percentages, not a single number. So take it easy on yourself. Start by dumping one rotten little pumpkin in your patch, the one you occasionally fantasize about leaving on a deserted island or shipping off to Mars. The emotional distraction that client caused you and your staff will disappear immediately. The profits you earned from other clients and were spending to keep this bad client on board will now stay in your pocket. And since his special requirements no longer need to be serviced, you have time and headspace to find another, better client—an ideal client, a clone of your very best clients.
Nhân rộng những khách hàng tốt nhất
Clone your best clients
For almost any B2B business in the world, landing a hundred clones of its best client would put it at the front of the pack. It would dominate. The same is true for B2C businesses. If just a mere 10 percent of their clients behaved like their number one client, those businesses would rule, too.
Having clients with similar needs and very similar behaviors offers a few magical profit-making benefits:
1. You will become superefficient, because you now serve very few but consistent needs, rather than an excessive array of varying needs.
2. You will love working with your clones, which means you will naturally and automatically provide better service. We cater to the people we care about.
3. Marketing will become automatic. Birds of a feather flock together (for real) and that means your best clients hang out with other business leaders who have the “best client” qualities you’re looking for. Your best clients are awesome, remember? You love them and they love you, and that means they will talk you up every chance they get.
Bán hàng thông minh
Sell Smart
Selling more is the most difficult way to increase profits, because in the best-case scenarios, the percentages stay the same; and in the worst-case more common scenarios, expenses generated to support sales increase faster, resulting in smaller percentages and a smaller profit margin.
Sales without first putting efficiency measures and systems in place is a dangerous game that only leads to bigger expenses and fewer ideal clients. Applying efficiency strategies to your top line – firing bad clients, cloning the good ones, refining your offering to get the most out of your resources and then selling smart – is a surefire way to increase profitability.
Chương 9: Profit First – Phương Pháp Tiên Tiến
Chapter : Profit First – Advanced Techniques
Đơn giản hoá
Advanced simplification
You already have your five foundational Profit First accounts open—INCOME, PROFIT, TAX, OWNER’S COMP and OPEX—plus your two no-temptation accounts that don’t get touched, the PROFIT HOLD and TAX HOLD accounts in a separate bank. Here are the additional accounts, contingent on your business needs, that I recommend you consider opening:
Tiền mặt dự trữ
The Vault
Let’s start with accumulating some cash. The Vault is an ultra-low-risk, interest-bearing account that you can use for short-term emergencies. At a certain point, leaving 50 percent in your PROFIT account to act as a rainy-day fund is not prudent because the money flow is a little unpredictable. A bad quarter won’t contribute much to the PROFIT account. Then you take 50 percent out for a profit share, and now that PROFIT account reserve might be too small to sustain a big business. Every business should have a three-month reserve, meaning that, if not a single sale came in, all costs could still be covered for three months (a quarter). The question isn’t whether you will have a dark day (your supplier goes out of business, your biggest client goes bankrupt, your best employees leave to start a direct competitor, and your clients decide to go with them, etc.). The question is, when? The Vault is there for that.
Tài khoản xuất nhập kho
Stocking account
This is an account for big purchases and to fund the stocking of your inventory.
Tài khoản trung gian
Pass-through account
Some businesses receive income from customers that is not to be allocated for Profit or Owner’s Comp. Sometimes you may provide a service or a product to your customer at cost (or near cost), and other times you may be reimbursed for costs outright.
Tài khoản nguyên vật liệu
Materials account
Set up a MATERIALS account for the money that is allocated specifically for purchase of materials. Do not allocate it for anything else. (Ever!) If for some reason there is money left over at the end of the quarter (in other words, you had a larger profit margin than you expected), move that balance to your INCOME account and make the allocations accordingly. The MATERIALS account functions in the same way the PASS-THROUGH account does, but it is broken out separately so that you know its exclusive purpose is for materials.
Tài khoản nhà thầu phụ/hoa hồng
Subcontractor/Commission accounts
If your business does not purchase materials, but uses contractors or people paid on commission instead, set up a CONTRACTORS or COMMISSIONS to allocate the funds to pay these fine folks. Treat it just like the MATERIALS account, but apply it to contractors and commission-based team members. In the case where you both purchase materials and use contractors, use both a MATERIALS and s SUBCONTRACTORS account.
Tài khoản lương nhân viên
Employee payroll account
Employee pay is relatively predictable—full-timers are on salary and part-timers, for the most part, work an average number of hours per week. This means you can look at the cumulative gross pay for your employees plus the payroll taxes you’ll incur and allocate funds from your INCOME account (if you use advanced Profit First) or the OPERATING EXPENSES account (if you use basic Profit First) to the EMPLOYEE PAYROLL account every tenth and twenty-fifth. If you use a payroll service, set them up to pull the payroll from this account (not your OPERATING EXPENSES account).
Tài khoản trang thiết bị
Equipment Account
Similar to your STOCKING account, this account is for big purchases you may need to make further down the road, such as new computers or a high-end 3-D printer. Estimate how much you might have to spend on future equipment purchases, divide it by the number of months you have to save up for it, divide that number by two and allocate that amount every tenth and twenty-fifth to accumulate enough money for that big purchase.
Tài khoản nhỏ giọt
Drip account
This account is for retainers, advance payments, and prepayments on work your company will complete over a long period of time and for which you have yet to expend resources. The DRIP account will help you manage the true cash flow of earned money so that you can manage your expenses and costs.
Tài khoản tiền nhỏ
Pretty cash account
Set up a bank account and get a debit card for petty cash purchases, such as client lunches. Then allocate a regular dollar amount from your OPERATING EXPENSES account to petty cash. Me? I allocate $100 every two weeks for myself, and also for a few employees who need it. The funds cover gifts, lunches, and other small purchases.”
Tài khoản trả trước
Prepayment account
Set up an account specifically to set aside funds for prepayments so you can take advantage of those deals when they are available. If the discount is not offered to you, and you have enough money to cover several months or a year’s worth of services, offtet to pay it up front for a discount. Most businesses will be happy to comply.
Tài khoản thuế bán hàng
Sales tax account
If your business collects sales tax, every single stinkin’ penny of the sales tax you collect is immediately allocated to this account.
Viết quy trình
Write down the process
Create a single-page document that defines the function of each account. Explain what purpose each account serves, and the process you will follow. For example, document that on the tenth and twenty-fifth of the month, all the money in your INCOME account is distributed to the PROFIT, OWNER’S COMP, TAX, and OPEX accounts based on the respective percentages. Then the specific dollar amounts—$75 for PETTY CASH and $1,500 for EMPLOYEE PAYROLL—are transferred from the OPEX account into the respective accounts. Finally, the total money in Bank 1’s PROFIT and TAX accounts are transferred to Bank 2.
This process is a system, so it needs to be documented. Your bookkeeper might have to take this over for you; otherwise, you might drink too much one night and forget the rules you set up for your accounts. Heck, you could end up allocating all of your money to your Erik Estrada Fan Club fund, a fan club of which you are the only member (even Erik dropped out).
Đừng tập trung vào chi phí hằng tháng
Shift your focus from the “monthly nut”
The famed “monthly nut” is a horrible distraction. It’s up there with reruns of Jersey Shore. The monthly nut is a remnant of the GAAP mentality that simply tells us the number we need every month to keep the doors open. And that is nonsense. The monthly nut is a focus on—you guessed it—expenses, not profit. The concept of the monthly nut makes you focus on expenses and do everything you can to earn your nut with enough sales. In other words, it has us put costs first and makes the goal to cover expenses, not to improve profitability.
You get what you focus on, so stop focusing on expenses. Focus on profit, and the expenses will be taken care of by default. Screw the monthly nut. Instead, focus on your Required Income for Allocation (RIFA). This is the money you need to deposit by the tenth and again on the twenty-fifth to have a healthy business, to pay the salary you want from your business, and to take the profits you deserve. Period.
Khi doanh nghiệp cuộc sống nhiều hơn một chủ sở hữu
When you have more than one business owner
Just one more point about Owner’s Comp: If you have a partner or multiple partners who are also getting paid, you need to add up the total income requirements for the owners. So if you need $10,000 a month and your partner also needs $10,000, the total owner pay is $20,000 per month. Divide that number by two; then divide again by 0.31, and you get a RIFA of more than $32,000.
Tăng vốn
Raising capital
Raising money is a risky endeavor. I generally discourage it, unless you have an extremely high confidence that an investment of money will bring in a lot more profit. How do you know if an investment will bring in more profit? You will know only if you are already profitable. Be profitable first and when you know what exact elements of your business are making that profit, you can consider using outside money to amplify what is working. There are many more considerations than just that, but profitability is a foundational requirement.
If you do raise money, you need to do a quick advanced technique with Profit First. You guessed it: set up another account. Call it OUTSIDE CAPITAL. All the money goes there, and it is used on the schedule and as specified with the use of funds you agreed to with the investor. If the dynamics of your business change, and there is a better use of funds, you agree to a new plan with the investor. And if you don’t need the money just yet, it sits there until the right use and time presents itself.
Cách xác định khả năng thuê thêm nhân viên mới
How to determine whether you can afford a new employee
There is a really simple formula for determining whether you can afford a new hire—or if your business is currently understaffed or overstaffed. For each full-time employee, your company should generate Real Revenue of $150,000 to $250,000 (ideally more, but this is the minimum). So if you want a million-dollar company, you know that you can afford four to six employees (including yourself). This is just a ballpark number; every business is unique. But do not use your super distinctive status as an excuse to hire more people.
Chương 10: Lối sống Profit First
Chapter 10: The Profit First Life
You need to apply everything you’re doing right now (and planning to do) to fix your business with Profit First to your life:
- Face the music. This step should be easier now that you’ve faced the truth about your company’s finances. Add up all of your monthly bills, plus your annual bills and the debt you owe.
- If you have any debt at all, stop accruing more. Put a freeze on all purchases you cannot pay for with cash.
- Establish a personal Profit First habit. Set up an automatic withdrawal so that every time you get paid, which should now be twice a month on the tenth and the twenty-fifth, a percentage immediately transfers into a retirement savings account.
- Set up your “small plates”. Create five foundational accounts, multiple Dat-to-Day accounts and Big Event accounts.
A. INCOME Account. This is the account into which you make deposits. From this account, allocate money to the other accounts. Don’t use it for any other purpose.
B. The VAULT Account. Initially, this is the “oh shit” account, the amount of savings you must have on hand to get through the month if—scratch that—when something dire happens.
C. RECURRING PAYMENTS Account. This account is for payment of your recurring bills, including fixed, varying and short-term.
D. DAY-TO-DAY Account. There are many day-to-day costs in keeping a family running-groceris, clothes, school supplies,… Set up a DAY-TO-DAY account for anyone in the house who’s responsible for paying for these types of expenses, and transfer the amount that each person needs every tenth and twenty-fifth from the INCOME account, based on spending requirements.
E. DEBT DESTROYER Account. This account receives all remaining funds and goes toward eradicating debt. Following Dave Ramsey’s advice, make the minimum payment on each debt.
F. You will have big events in your life, such as buying a house, buying cars, paying for your weddings (likely your kids’ weddings . . . maybe yours), college, college and yet another kid going to college. Here’s the deal: there are good financial programs out there for this stuff, such as 529 plans. These are just ideas for accounts that you may benefit from and are not mandatory.
Phương pháp Profit First cho những đứa trẻ
Profit First Kids
Give your kids some envelopes and have them label each one:
- One for the big dream, like my daughter’s horse. Have them stash up to 25 percent of their chore money in this envelope.
- One to help support the family. This number should be a recurring number, such as five dollars a week to contribute to groceries or entertainment. The key is to have a recurring fee so they get used to having to pay out something on a regular basis. Make sure the number is age appropriate.
- One for impact. Have them put 5 to 10 percent into this envelope to give to a charity of their choice, or to use in a meaningful way . . . like starting their own business, one that both serves the community and makes money!
- One for the Vault. This is where they will sock away 10 percent of their funds for a critical emergency (hopefully your kids will never have one, but you want them prepared from day one), which will also become an investing source as the money accumulates.
- One envelopes for mad money, to buy whatever they need or want – toys, music, books, etc. Let them earn money and have fun!
It goes without saying that the kids must follow the Profit First golden rule: always allocate the money to the different accounts (envelopes) before doing anything else. This system will teach your kids so much about the value of money—how to manage it, how to earn it, how to finance their dreams. It may feel strange at first (I’m talking to you, helicopter parents), and you’ll surely get some pushback, but this is a massive gift to them. Imagine how your financial life might have turned out differently had someone taught you these important lessons and strategies. Or if you are lucky enough that your parents did teach you, just think about how well it served you and can do the same for your kids.
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