Profit First Part 1

I am so excited to welcome my good friend Kristen from Financial Fitness Coaching on to the podcast today. Kristen is an absolute giant when it comes to setting up systems that are not complicated, financial goals, and to avoid common pitfalls when it comes to financials in the office setting. She is a phenomenal resource to have and I am so excited to have her on the podcast today.

So we work in the business; first typically, inserting an implementing cash flow system, which I use Profit First and I'm a Profit First certified professional. So we are teaching how to pay yourselves how to make sure we get the optimal numbers, how to keep your expenses down, saving for taxes, profit all that good stuff, but then I want to make sure that once we take all that money home and we're rich that we did on dump it out the other end. So we work also personally with my clients In their personal lives making sure we maximize their finances there as well.

So my story is definitely really long like everybody else's but the gist of it is that in 2013. I found myself pretty deeply in debt for me. I was single dating my husband, but I just was very overwhelmed and didn't know where my groceries were coming from. You know, I was up awake at night. I was worried. I did grow up in an entrepreneur household. My parents own an insurance agency. I had a lot of of background with corporate expenses and corporate budgets. I was a restaurant general manager, but personal finance was something totally different and through my own journey. I kind of just have found my passion for helping other people organize their money in these ways so that they understand cash flow. I focused on Personal Finance for the first part of my career with Financial Fitness coaching and my business.

Many of my clients were business owners who were struggling not only personally but because they didn't know what to do with the business part. They weren't sure how much they bring home. They weren't sure what to do about the taxes. And so I find myself constantly kind of going back to the business part and it kind of just all clicked for me once I read Profit First. 

This is my complete mission to help entrepreneurs and small business owners.

Has a hundred percent all around organically call it any way you want but a holistic approach, but it's to help them with their money in both their business and their personal life so that they can really feel good about what they're doing so they can serve others in the way that they're meant to serve. And so that their business can support their life and not the other way around and having their life support their business. 

Everybody starts somewhere and sometimes that means starting in the middle or unfortunately, some people start in the end before they start getting this together.  I really liked what you said about organizing the profits. I know systems are such a hot topic, but it really does kind of come down to organizing as well. 

So before we kind of get into the profits, I kind of want to talk about the groundwork that we need to lay first, which would be the systems and that's honestly that's kind of "Ground Zero"; we have to start somewhere but we have to build our framework to have the profits. So let's start there and talk about the systems of being a Profit First practice.

Banking Relationship. 

Is your bank going to serve you and is it serving you now? So I think that it really starts back way back at that "ground zero" and making sure that you have a bank that is serving you that is not charging. A lot of banks don't have a lot of minimums and free checking has been around for personal finance for a long time. It is just starting to become a bigger thing now in more common with business checking which is great. And that's exactly what we want to see.

Credit unions are great, Local banks are great, and Community Banks are great. There's a couple of online banks too for business-specific; you do want to obviously make sure you have a business account, not a personal account so that there's a little bit different there. But you want to make sure that you have zero fees zero minimums on those accounts. But what we're doing is we're setting up not just that one big account that people are used to looking at.

So we set up a minimum of five accounts or we rearrange what you already have going on to five accounts.

What your normal account is that you're used to using in your practice is becoming then your operating expense account and we're setting up for new ones.

Income account

Profit 

Owner's Comp

Tax

Operating Expenses

So we try to not make as many changes as we don't have to which helps because you don't want to over-complicate the system at all because then that quickly becomes overwhelming right? And the first part is that most people this is like, you know the concept sounds great. So we're working with your natural behaviors, right? I'm going to spend it right and so we're working with your natural behaviors and breaking it down to I have money in my operating expense. It might be but once you know those numbers and you have that stuff in we're just working with you. We're not trying to change necessarily you and so I get a lot of fight on opening all these accounts but I promised the biggest thing that once you actually do it as a business owner a month this wave of relief starts to wash over you and how simplified your finances really do get great.

When you're working with QuickBooks, it should match and mirror your banks. Bookkeeping and banking is definitely different. So we're not going to bookkeeping program. We are absolutely a cash flow program. But one thing I do caution people is when they try to operate it solely through QuickBooks without the bank accounts. Once again, it kind of gets pretty easy to fudge those numbers. I thought that I could do it through just spreadsheets because I do all my other budgeting and teach through spreadsheets. I don't need their stupid bank accounts right? Until I became a Profit First professional and they made me do it. I was like, oh, holy crap. This is so much easier. I mean I was making exceptions for myself, you know; I don't need to take this home this month. 

It made the decisions too easy. Just move that money when they're in the bank account and you're doing your allocations on a bi-monthly basis. You have that system. You have you're looking at the percentages and it's just a no brainer. It's just something else that you go through twice a month. So there's a lot of ways to look at it. We just want to make sure that you're not paying more to do this because you're opening all these accounts. So we want to make sure that you find a bank that is going to work with you.

Inside Your Practice

The first thing we really do is work on those allocations. So money starts flowing in we start kind of just looking at the overall how it's working.

The money starts flowing into your income and we start doing our allocations and knowing what it is. One of the first things, once we have that going that we do, is we get into an expense analysis. And so we get into pulling all of your operating expense accounts or traditionally what you were using before for everything and we start to look at what serving you and what's not. We start to look at all of your subscriptions and your rents. And is it fall into the right percentage of where we need to be?

Before we actually even get into that we do have to send evaluation and conversion rollout plans for the business. But you know a business owner can do it themselves and pulling up the quick assessment. We have to know where you historically have been with your numbers or you know where you're going. So I jump this step there really quick, but we have to get the bank accounts in one part, but we have to put the percentages in the processes is that you're doing with it together. 

We are looking at it so that we make sure that we're working with you and you're not feeling punished by making more money. Anybody who's not familiar with profit first definitely understands the why behind doing it is; we're making sure that as you step up that income that you can take home. If you've not been paying yourself that were accounting for it within the business so it doesn't hurt you additionally because that's one of the biggest problems I run into with.

This isn't business owners taking care of people and serving. But all this stuff that comes back when you say, oh, well, I charge $150 for a session you think you made $150 but taxes rent all these things you really made you just maybe $75 but traditionally even less than that for most people who aren't focusing on that. 

We have a business for a reason, it's typically to serve ourselves and for the flexibility and freedom that we want in our lives. We need to make sure that it is serving us in this way. So once we have the bank account setup, and we do we work on the percentages, and to see what your allocations are for your business where you have been historically, and how you can get to those optimal numbers. So we have percentages that are based on Elite businesses and our data points with hundreds and thousands of businesses that if you are at certain revenue and real revenue level. So under $250,000 is one, you know up to a million is another. There are different percentages that we are going to make a goal to set for you if you're not already there and that ability.

It works with you 100%. You are profitable from day one with this because we are focusing on reversing, you know, the old system and it's not all because it's still bookkeeping but keeping his bookkeeping but traditionally we look at our sales we take out our expenses and we just do what we need to do and what is left is profit. We are focusing and making sure that if you're under $250,000 dollars in revenue and you have by the percent profit, that is our goal.

The Team.

It's going to take the whole team being on board to say do we have money to build to get these extra supplies that we want or do we need to wait till next month? You can't have one person doing this and the rest of them be in the dark. Like that's one thing that whoever is in your financial team needs to be very open to not just the concept but open to the discussions around this, in the same way, you can't rely on just your office staff to run this and you don't have anything to do with it. You have to know your numbers. You have to know what the reality is that they're facing. That actually mistakes that I've made before as I've worked with just the management staff and not the owners and implementation and it was poor judgment on my part because the owners wanted to go out and spend and buy things but he didn't understand the money actually wasn't there like it really wasn't there. The questions weren't being asked, discussions weren't being had. It doesn't have to be the whole team knowing exactly like this is the exact dollar for dollar amount, but they have to know their boundaries. They have to know their limits and so really the discussion could be held easily between the provider and the office manager, which we really want them to be more of an executive and understand these financials. Then the office manager then is talking to the team and saying this is what your budget is and then them keeping on board. They don't have the provider asking every day, where are you at with your numbers? They can leave that to the office manager, but between the office manager in the provider, they need to have that discussion. I would have a weekly, at least in the beginning, until these systems are down and everybody knows exactly what they need to do and then you can move it into a monthly base. But in the beginning, you really have to have that open conversation with each other.

Reverse Engineer. 

What do we need to make how many clients do we need to bring in? Are our fees appropriate?

I was working with a chiropractor for a four-month minimum. We just finished up a couple like two months ago and her prices were I mean they were so low she was not charging her value, not charging her worth, but it was showing and all of the numbers once we had all of this in place and what was actually happening. So it also just gave her, you know the confidence to realize that she was undervaluing herself in her services and she was able to raise her prices.

A lot of practices, if they're working with insurances, they have to work with their fees. But still, again, you can break down the fees and how many patients you need to see and how you know, you can schedule it and make it work for you. When you have an actual number in place something you can actually work with right?

Leaning Out Expenses.

We start making cuts using the expense analysis; this should remain a quarterly goal for your practice to kind of go through because things add up and things change all the time. So once we do an expense analysis, that's really where it kind of can vary from practice to practice. So we kind of look at okay. "What is ours now? What is our problem? Is there also a revenue problem that we need to address?" So how can we look at organic marketing and what kind of organic marketing what does that look like for you? What kind of hours are you doing networking? We look at the pricing, you know is your pricing in line is competitive with your market. Are you undervaluing overcharging sometimes within that in those expenses?  We take a look at the payroll. Are you paying too much to have your payroll run for you are using an in-house system and out of house system. Is there an opportunity for savings on that? And typically I find the answer is yes. 

All a lot of developers have come up with payroll in the last couple of years. There are a lot of great Outsourcing third-party systems that are a lot less expensive QuickBooks has some stuff that's just tied in automatically now that they have there are some great companies you're doing only that it really depends on where you are in your practice and what size you are but you know is payroll in general if we're looking at it is too high. How do we change that? And how do you make sure that that's never the question of, are you paying this or not paying this? If you have to worry about anything in your business and you're having a problem and you're very tight in your expenses, the question shouldn't be can I pay my staff this week or month? The question should be can I buy toilet paper this week or month or can I buy that office chair? We have to make sure that we're taking care of our employees first, of course. Yes, and that's after you because you are your number one employee. At some point that's the has to be a starting base where you are your most important and you develop into a team where you can hire your staff and other doctors, or development support team. It kind of continues to develop on what we look at depending on the business, depending on the practice, depending on the owners, and where they are but at some point we kind of hit pause on the business when we feel we're in a good spot. We are changing those numbers on a quarterly basis to make you bigger, better, and stronger. The more we always look cutting expenses and turn when we cut expenses we increase that profit owners pay in taxes because they have to kind of go accordingly. Let's say that the sample might be we cut our expenses by 3%, So then we might take owners pay up 1%, profit up 1%, and the taxes up 1%. It doesn't always work like that, but that's how we get to our optimal numbers by continuously evaluating and re-evaluating where we are, but at some point we pause and we jump into the personal level to make sure that we are maximizing everything there as well.

Personal Goals.

You know that are obtainable. Yeah, and I think that's what happens when I mean that's burnout that ends up happening is when you keep working and you keep thinking I have to feed the business. I have to feed the business in order to be able to bring money home. And that's where I really want to just kind of stop the cart. And so that everybody can realize, you can take money home now, and if you're not you have a deeper problem in your expenses. It needs to be addressed; something is not aligning and we can't just jump right now to someone who's been overspending or may have a lot of debt and a lot of liabilities outstanding like we can't just jump to those percentages. There's things to take care of that's also where your profit comes in we use profit a couple different ways. But one of the ways is when you don't have debt you have money in your business.

I've had a conversation with another provider and he was working five days a week. He was working 10-hour days and he was so burned out and he wasn't feeling like he was really bringing home a lot of profit for himself. The business was fine, he was taking care of his employees. He's taking care of those expenses, but for himself, it wasn't fine. He wasn't able to bring a lot of profit home and he actually ended up readjusting his schedule and only working six-hour days, but he was more profitable because he wasn't burnt out. It really is the system of balance between aligning your goals, aligning your behaviors, and then doing the technicalities of it. All of those kinds of things usually come out through discussions and through unwinding this and it's so funny when people were like, you know, all my numbers are okay. Mmm, it isn't only just about the numbers. It's about your life. It's about sustainability. It's about building a practice. It'll be sellable one day and that's where profits really are an important number to understand and to have as well. Like if someone's going to buy that practice there needs to be a little extra reward there, a little money in the bucket. Those numbers actually come up when owners are going to buy, they want to look at your books. They want to see how is this practice been doing and if you can present it as "I have this Profit First Practice and this is how I have it set up. These are my systems" Bam! You just gave them a gold mine because you're building such a good foundation that they can then take. I mean, you can't you can't put a price tag on that. You're setting them up for success too! 

Is Our Business Serving US?

We want to make sure it's serving us to the fullest capacity. So we look at owners pays not just even as compensation that comes home all the time.

Other areas where your business is benefiting you as an owner that you wouldn't be benefiting from if you weren't that person and that's whether you're a partnership is single. We're looking at all those aspects. Money kind of tends to have a negative conversation attached to it because one of the first things when I'm talking to practice owners, is it's like they are saying,  "I don't really want to talk about this. I'm not really comfortable with it." They tend to use the word "fine". "My practice is fine." There's probably so much more to uncover. It starts by pulling back the pieces here and going, you know, this is what we need to look at, and is there anything else that we're missing as far as setting up our systems?

Building Your Triad.

Accounting typically where I gear somebody - but that's not a 100% my wheelhouse. I look at it and I refer out to somebody who's wheelhouse it is. It's also important to understand that no matter what you're doing with this you need to make sure that your accountant is on board with it and that you are being very proactive in your finances all around. Conversations about how should the taxes being paid; should it be being paid through your business or through your personal? Do you take a distribution or you take a bonus check? All of these kinds of questions are really important discussions to be having alongside. You know, if you're working with a financial coach, you're working with the bookkeeper, the accountant, we should be pulled into all of these kinds of big conversations, especially when you're talking about big dollars that are going out of your business and your personal. It's why we're building a business.

Make sure that you're pulling that accountant into there and you have somebody who you can set up quarterly at least by yearly, but if not quarterly meetings with- and they can be a half an hour conversation about you know, this is what I'm doing this month. This is how my profits been looking. I'm taking it home any advice for me. Bringing the accountant in because they are going to be looking at the bigger picture to so, you're kind of creating a Triad here.

You're creating three people that can really help the business. The owner, the accountant, and then hopefully it's the office manager. So you have this team that can really support where you're going with this and they counts can look at the bigger picture and they can help you be more decisive about things such as, this is what you should do with your profits. I think that too often accountants are just looked at pieces of like compliance pieces.

They're so much more valuable to you than that. I think that if you bring them in they are worth their weight in gold when you put them into these deeper conversations on your team, and you really make them part of your team and your financial discussions. They will absolutely support you in your endeavors and what you're trying to do here. 

If you're ready to take your office manager to the next level, learn more about our Providers' COO Program here. Build your team so it can support you.