215: Can You Have Profit First?
Brought to you by Pet Sitters Associates
Summary
Can you have profit first in your business? Wouldn’t you need to be making 6-figures? What systems would you need to have in place to make that happen? We recently read the book, “Profit First” by Mike Michalowicz and wanted to share our initial thoughts about it. We break down who we think this system would be good for, and some of the things that don’t quite fit with a service industry like pet care. Overall, we think it’s a great system if you need something to control your money and understand the health of your business. Then, Natasha O’Banion answers, “How do I be a great first time manager?”
Topics on this episode:
What is ‘profit first’?
What we did (and didn’t) like
Who is this for?
Ask a Pet Biz Coach
Main takeaway: Your business is supposed to serve you, you are not in service to your business.
Links:
Pet Sitters Associates: use ‘Confessional’ at checkout
Check out Start. Scale. Sail. and use PSC20 for 15% off
Give us a call! (636) 364-8260
Follow us on: Instagram, Facebook, Twitter
Subscribe on iTunes, Spotify, Google, Stitcher, & TuneIn
Email us at: feedback@petsitterconfessional.com
A VERY ROUGH TRANSCRIPT OF THE EPISODE
Provided by otter.ai
SUMMARY KEYWORDS
business, expenses, money, book, profit, envelope, clients, system, profitable, read, solopreneur, pet, easy, pay, operate, insurance, bank account, recommends, set, year
SPEAKERS
Meghan, Collin, Natasha
Meghan 00:17
Hi, I'm Meghan.
Collin 00:18
I'm Collin and this is petsitter. confessional
Meghan 00:20
an open and honest discussion about life as a pet sitter. Hello, welcome to Episode 215.
Collin 00:30
Hello,
Meghan 00:31
thank you to our sponsor, pet sitters associates and our amazing Patreon members like Jennifer and Teresa, thank you so much for supporting us every month getting giving us awesome topic ideas and suggestions and helping to produce the show. We appreciate it.
Collin 00:47
Yeah, if you want to learn more about that in what it means and everything that comes along with it, go to petsitter congressional comm forward slash support,
Meghan 00:55
we've covered a lot of different topics in our 214 episodes. But one we haven't really talked about is the finances side of being a pet sitter or running a business. And so we read a book recently called profit first by Mike mccalla wits.
Collin 01:15
Did I Yes, yes, I say that right? Probably not. But why did we read this? Yeah, we haven't covered a lot of finance topics. And this book is basically on every single list for books if you're a business owner or an entrepreneur, but like most of the books that are on that list, we've never read it.
Meghan 01:37
Well. And so the opportunity actually presented itself because, as you may know, I'm a bookkeeper as well as my, the company that I worked for, for bookkeeping, was actually giving these out. And so I thought, hey, it had been on our list for a long time. So many people recommend this. And I might as well read it. So we dove into it. And what did we think
Collin 01:59
I'm not really a business book kind of person I like to read. But I also like to listen to podcasts and short blogs. And I've never actually really spent a lot of time reading a business e book. So this whole experience was quite new for me. So I came at it a little hesitantly not knowing exactly what to expect. But I do enjoy Mike's writing style. He made it easy to digest. And the overall the book is pretty well, straightforward.
Meghan 02:25
Yeah, it made it pretty simple to digest and easy to understand, especially as a solopreneur, soon to not be solopreneur. But it, it made sense that you would take your profit First, we don't have a whole lot of expenses. And so we just pay ourselves whatever is leftover after our expenses. He does give case studies in his book. And I know that's a style of a lot of authors to kind of give credibility to what they're saying. But I'm always kind of a little leery of those, because obviously they're going to rant and rave about the book. But I still think that they were helpful in saying, Okay, this business owner implemented it this way in their business.
Collin 03:07
I think that's exactly my hesitation for reading these kind of books is I tend to read them very skeptically, because of these one off because of these examples that they give that are obviously going to show them in the best light. But I think overall, as you said, the foundations of this are pretty sound. And it's pretty straightforward. So what is profit first without just reading verbatim from his book? Basically, it's an envelope system designed to what I don't know what an envelope is a wonderful lobe. Right, as do you say on furlough per envelope, this is an ongoing debate in our household 10 years with this we need to we need to settle this if you say on envelope, let us know if you say envelope. Also, let us know that
Meghan 03:47
envelope begins with an E. So
Collin 03:50
anyway, it's an honor. It's an envelope system designed to help you manage money in your business, you basically create these envelopes these these buckets of money and you put money in them, and then you only spend what's in those first, the twist here is that you always put money in the envelope labeled profit, get it profit first. So you're immediately profitable. So as an example, if $100 comes in, you would have different percentages that you'd break this out. So 5% would go into profit 50% towards what you'd pay yourself, you'd set aside 15% for taxes and 30% for expenses or whatever the percentages are for you and we will definitely talk about that here in a little bit. And so
Meghan 04:40
you do that for every single deposit that comes in and I think he recommends doing it on the 15th and the 25th of every month you sitting down and going Hey, okay, so this is what has come in and they're already going into these buckets, this percentage for each thing
Collin 04:54
immediately. This is trying that is trying to break the habit of everyday checking your bank account. In frantically trying to move money around, I know that's how I tend to operate, login, see how much money is in there and panic because either there's not enough or maybe there's a large amount sitting in there, I've got to figure out what to do. But setting it to twice a month where basically you put it all into these envelopes. And then that way, you know what's there. And it's really quick and easy to check in, you're not frantically always moving money around.
Meghan 05:23
So this book is really about breaking the bad habits with how we view money. And to get off of the feast and famine cycle that many of us are on. A big question we had when reading this book was what is the difference between profit and owners compensation. So the owners compensation side is linked to your living expenses and needs. So you do need a personal budget set up before all of this. And hopefully you're already doing maybe a monthly budget, it's very helpful to know what's coming in what's going out what you need to set aside for taxes, because we all have to pay those. And so for example, you need $30,000 a year to live that covers your minimum expenses for rent, food, insurance, whatever. And so you 30,000 a year to live for you personally. And your business makes $45,000 a year. So that leaves $15,000 to pay for taxes, operating expenses, and so then you have a profit.
Collin 06:23
So who is this book for? Well, we would basically say that this book is for anyone dealing with problems or troubles with cash flow, budgeting and understanding if their business is healthy. It's really not for a solopreneur. And that's for one big reason. It's because expenses are so low, time and time again.
Meghan 06:44
so low, so low, not so low.
Collin 06:47
But this is a fun episode on semantics. Because expenses are so minimal as a solopreneur. This system doesn't really fall apart, but it's hard to fit it in. And that's because during the book, he hammers over time and time again, the need to control expenses, and the need to really make sure you understand where all of your money is going. As a solopreneur your expenses for your actual business, what you're spending, what your business is spending to operate is going to be relatively
Meghan 07:21
low. Yeah, especially in dog walking service industry, you don't have to spend a lot of money to make money, you probably need a first aid kit, a couple of leashes, insurance and water bowls that take with you on hikes and other incremental things.
Collin 07:37
Yeah, but he's trying to get across that if you're a million dollar company, and you're spending $900,000 a year in expenses, that that's not actually healthy. So it's a little hard to relate his examples to a solopreneur dog walking company. He does have this quote that says colossal growth without financial health will still kill your company. And I think that that is very important for us as we began to think about all the growth that we are experiencing right now with a boom and clients that there are pitfalls to trying to grow too quickly. When we don't understand our finances or how we're spending our money, whether we're big or small, it's still important to know where we spend our money.
Meghan 08:19
And so instead, This book takes a crack at combating really the Achilles tendon for most of us, which is not paying ourselves enough. Of course, you would like to be paid more, I think we all would.
Collin 08:32
So what did we like about this book in the system? Well, as we alluded to earlier, it's really easy. And I think that may be at least for us, we kind of latched on to it made sense to us early because we've used Dave Ramsey's envelope system in the past and think it's a great way to control your money. If you've never used Dave Ramsey system or know what the envelope system is basically, you take $100 and you have envelopes, get this is gonna sound really familiar, and you put money in those to spend on different things. And then you only spend what's in the envelope. And then if you need to go over whenever you just don't spend that
Meghan 09:07
well and a lot of Dave Ramsey's system is like physical envelopes, you physically put cash into an envelope, whereas the profit first model, obviously, you're dealing with a business or you're dealing with 1000s of 1000s of dollars, sometimes millions of dollars depending on what your business is. And so you're using it digitally there, right? Well,
Collin 09:25
this overall is a very powerful system of you telling your money where to go and what to do, versus waking up and wondering where it all went. Yeah, every dollar has a name I think he said well, it also like Dave Ramsey the mic I'm not even gonna attempt his last name. He has an entire chapter dedicated to getting rid of as much debt your business as possible. So like we discussed in our episode on bootstrapping your business debt, when hated poorly and overdone will crush any and all gains that you're making in your business and you won't actually be making as much progress as you think and could be putting yourself in harm's
Meghan 09:59
way. He has another great quote in there that says your business is supposed to serve you, you are not in service to your business, which goes into this other quote of don't underpay your most important employee, you should be making money from your business. And obviously, like we said, dog walking doesn't require that much expense unless you have a team of people. Either way, you need to be paying yourself what you are worth. And if you are solo, paying yourself what you would be paying somebody else don't feel bad for making money, and having an amazing business that supports you. That's awesome. That's what we got into this business for obviously, the awesome and cute puppies and kitties, but also financial freedom. That's why we're in business.
Collin 10:48
We also like how intuitive and natural this system is, anytime we can limit the number of Excel spreadsheets that we have to deal with on daily basis is always a win, the system is pretty easy and straightforward to set up and operate and maintain. Which means that's going to be something that you're gonna be able to continue with, that's not going to be taking up an eating up a lot of your time to be doing number crunching and constantly having to stay on top of I will say he also does have a few segments in here about setting money aside in business and why it's so critical. Now this book was written well before the pandemic, but he mentions a really interesting rule of thumb for savings and business expenses. So he has a segment where he talks about that if sales were to stop completely, and that you didn't have a single deposit coming in. Does this feel familiar? That if you had a 5% profit allocation, that would be three weeks of operating cash. If you had 12% allocated, that'd be two months 24% profit allocation would be five months of operating cash for your business. Meaning that when we start putting money into profit, it acts as a savings account for the business where we can pull from in times of emergency. And we're not talking about huge amounts. Here. We're talking about building up little by little over time. And that was another key thing that we really appreciate about the book was its idea of longevity, and not just trying to do an instant fix in a business. But slowly working these muscles for your business to kind of rewire our brains our behavior, and making the business healthier over time once we begin to operate differently. To be more profitable and running the business the way we want to
Meghan 12:29
an expense that you will definitely have to factor into this process is insurance. And as pet care professionals, your clients trust you to care for their furry family members, pet sitters associates is here to help for over 20 years, they've provided 1000s of members with quality pet care insurance. If you work in the pet care industry, or want to make your passion for pets into a profession, you can take your career to the next level with flexible coverage options, client connections and complete freedom in running your business. Learn why pet sitters associates is the perfect fit for you and get a free quote today at pet set llc.com. And you can even get a discount when joining by clicking membership petsitter confessional and using the discount code confessional at checkout to get $10 off today, check out the benefits of membership and insurance once again, at pets@llc.com.
Collin 13:16
Some things that we didn't like, I for one felt like that this was really too much of a cookie cutter cure that it wasn't exactly relatable to us, like I mentioned earlier. So there are two things. One, we're not operating. Most of us are not operating these massive, multi million dollar companies with tons and tons and tons of expenses. So all of his examples are like you are a business and you brought in $1.2 million. And I'm reading this going, I am a business and I did not bring in $1.2 million. So the number is kind of hard to make sense. And then again, because we have so few actual expenses, we make get profitable pretty easily, as long as we have enough business coming in. Well, and
Meghan 14:00
that's because again, we're solopreneurs once we get staff once we get employees and workers comp and extra insurance and all that sort of stuff, our expenses will go up. And so then we can really use this tool to gauge is our business profitable?
Collin 14:16
Well, and he does define profitable as money that is above and beyond what you need to pay your personal bills and the business expenses. The actual problem for a lot of us, and it's the one that he tells us to avoid is that we are all mostly seeking growth and getting more clients. But he says putting your nose to the grindstone is a really easy way to cover up for an unhealthy business. We think if we can just work harder, longer or better. If we can just hold out something good will happen one day. And this is really true whenever you have a lot of expenses that if you can just out earn those you'll outgrow and you will quickly be able to pay those bills, but in a service based industry where expenses are So insanely low. What else do you have without needing to get more clients. And really, this falls back on a topic that we always have touched on for at least for a long time here is pricing.
Meghan 15:13
That's a good point. I mean, if you're working all the time, and you have zero expenses, which some of us do, and you still feel like you aren't making anything, raise your prices, you should not be charging $15 to board a dog, you should not be charging $8 for a 60 minute dog walk, like you need to be raising your prices so that you can live off of what you're making.
Collin 15:39
And he describes a thing called a survival trap, where as a business, we get stuck in this cycle of trying to just keep the business afloat. And as part of that, he says, when we're stuck in the survival trap, we focus our attention on revenue generation, first and foremost, any client who pays is a good client. And any work that makes money is good work. And that should really hit home for you because I know it did. For us in pet care here, we see this kind of sentiment all the time, people taking on everyone, any client that possibly needs their service. And yet they the business owner is still not making money, and is growing beyond their means.
Meghan 16:21
I agree, any work is good work is not true, because that's why we have boundaries. That's why we have contracts that clients sign. That's why we have business hours that we operate. And when we are away from our phones and our computers, and just being with ourselves and having fun doing the things that we want to be doing. He also said quote, you must figure out the things that make profit and dump the things that don't. And this includes services or expenses that don't serve you. If you don't like charging an extra fee to accommodate a client that's four hours late, then don't just have a hard and fast rule, you have to pick up your dog by this time. Or no, I will not go get your dry cleaning or your coffee because you want me to you can do those things. But if they are a burden to you don't,
Collin 17:12
or if they're not profitable for you stop doing them. So an example of this, maybe, suddenly gas goes way up. That's something we've all experienced recently. And it's costing you an awful lot for the service radius that you've set. Or because of the number of clients that you have in there, you find yourself constantly driving. So previously, it was fine. And you were able to make that work because gas prices were low, your service area was large, and you were meeting the needs and demands, and you were still profitable and making money. But as soon as that changed, driving a lot is now costing you a lot. And that's not sustainable for you. Or it could be that you were just charging too little to begin with in the beginning. And they thought that just by getting busier, that would solve the problem again, this this burnout that we're talking about here and this survival trap, where if we could just be busier if we could just earn more money, that would really be the the problem solver her. But if we're not earning enough on each visit, just having more of them really isn't going to solve the actual problem that we're concerned about is having our time and have it be valuable to us.
Meghan 18:16
So their pricing is really key. The concept of this book really fits more with those that have staff and a ton of expenses. But just an example, in the book, you'll do a rapid assessment to see if you are profitable, you'll input certain percentages based on a table that he gives you your you'll input your revenue from the past 12 months and work off of that in our personal business, we strive very hard and are happy with our low overhead. However, according to this assessment that we took, we need to increase our expenses and decrease our take home pay, which is interesting and a little confusing. I mean, there are caveats that he puts in there. But on the outset, the one size fits all approach doesn't quite work. So then the question is, well, will we be doing profit first? I think we're gonna be giving it our best shot.
Collin 19:09
Yeah, I really think so we're definitely going to try. We love the idea. And it goes in line with how we've been bootstrapping our business for the last 10 years. I think this method certainly gives us a lot more structure at least to how are we going to do this? Well, we bank with novo it's an online only bank, and it actually allows for a multiple envelope systems to place money in. So one of the problems that he says is that if you just have one bank account with one number on it, it's very easy to get lost and confused and be tempted to take money from one and put it in another
Meghan 19:44
well and I think especially once tax time comes around and you're either hit with a bill or hopefully you get money, but you haven't separated that out so you don't really ever see or spend that tax money. I think that's also a big point to this. You need to be setting aside money for taxes, ideally in a separate account that you just put away and never touch. Because you're not getting, like you're not going to be seeing that money ever again. Yeah, that's
Collin 20:11
part of it is the psychology behind this is that we take little pieces away over time, those are going to build into a large piece. And if you see that, it will be very tempting to use that money for something else. So if you are putting 515 percent away for taxes, every time you get paid, at the end of the year, that's gonna be multiple 1000s of dollars. So he recommends putting that, as you said, Megan, in a completely separate bank account unbusy under locking key, there's no debit card associated there, there's no checks, there's no instant transfer, it's locked over here. So we don't touch it. And in that way, we mentally forget about that money. And we operate without it, that's part of leaning our business and making us more structured. So this the novo bank, it's not as stringent of a system as he recommends, but it's very workable, and really important to hear. It's free and very little hassle. The having multiple banks and multiple bank accounts within each one in the system that he aligns, that that he prescribes, does seem quite excessive. But we can really see how doing that would be extremely beneficial if you're having to try and break bad habits, or really get this idea of separate money and only working with what's left for you and your business. So profit first is really a system that inverts the typical way that we think about running our business, we would say a traditional way of thinking about it would be my business makes $45,000 a year, then here are my $5,000 worth of expenses, that means I get $40,000. To me, the way profit first does is goes, my business makes $45,000. I need $30,000 to live. So that means I have $15,000 left over for everything else in my business, it's making sure that you get your cut first. And so that you're not trying to just live on the scraps of whatever's left, then what this will force you to do in your business is to cut out all of the expenses that aren't necessary, you'll get laser focused and going you know what, maybe I don't need all those subscriptions in my business or me I'm you wasting so much on gas, or whatever it is in your business. Because when you see what you're left with, then that's really where you start understanding where your money is going in is part again of the psychological difference in setting up the system in the structure, that at the at its heart profit first is about changing the psychology of how we view business, and what its purpose is
Meghan 22:43
well, and to also make sure that your business is profitable, that you're not operating in the red every year that say you went and bought $50,000 worth of leashes, but you only made 45,000 you would then know that you need to cut out some expenses.
Collin 22:57
And the great part is is that you can be profitable in your business and make sure you are today by allocating 1% to profit. It's a number that you won't even miss or know that is was ever there. But you will know that your business is at least 1% profitable. And then you slowly change that slowly increase that over time, as you work on your expenses work on your living expenses, grow the business a little bit. And then these percentages change over and evolve over time, so that your business is a lot healthier. After one or three years of implementing this, you don't do everything all at once. Because that's a big shock to the system and to you.
Meghan 23:35
And so this is really all about knowing your numbers, your financial numbers. And unless you're an accountant or a bookkeeper or you love number crunching, this probably isn't something that's necessarily in your foray. But it is something as a business owner that you need to know especially if you're going to be bringing on staff or you already have staff. We know that there are 1000s of businesses all across the nation and probably the world that use this system. And we would love to know if you have heard of this if you implement it in your business, and how it's worked for you. If you have there's even a podcast by the author. I think it's profit First Nation. And we'll have a link to that in the show notes. So obviously you love listening to podcasts. So if you if you like his system, you can go listen to his podcast.
Collin 24:22
And we'll also have a link in the show notes to go and read the book and check it out. If you're interested in that. I mean, we enjoyed reading it. It's a pretty quick fast read. I would say that when you do it have access to a laptop or some computer so that you can be working in some quick spreadsheets and just throwing some numbers down in there that will help you work through it quickly. But overall, it's a quick read and probably well with your time.
Meghan 24:45
Natasha is back this week to answer the question how to be a great first time manager.
Natasha 24:51
Now the great thing about managing people is it really isn't even managing. I promise you guys you're not doing what you think you're supposed to be doing. You're not holding They're hands, you're not walking them to the bathroom you're managing is not, you know babysitting. And I think that's where a lot of us misunderstand the difference. Managing is setting up a process and a system for people and showing them exactly where to go to find it. That's about as much management that I ever do in my business. People don't call me anymore. Why? Because I say, Hey, listen, we have a work chat, your question I promise, you probably already been asked by multiple team members, go ahead and put that in the work chat. Anybody can help you out right in there. So now I'm not managing anything I managing technically, but I'm not saying anything except directing traffic, hey, go to the workshop for that, hey, go to our Google Drive, I've actually made videos on all the things that you're ever going to need in this business. And for any reason that it's not in a video or you can't find it, go ahead and put in the work chat. And I promise you within the next couple of days, we'll make a video for you. So every time something comes up, we go ahead and make it a process. We never let anything happen once. So managing is directing people on where to go to move forward. How many jobs have Have you been in, you don't even know the owner? How many fortune five hundreds or corporate america jobs, you're like, who's the owner? I don't know them. But I do know what to do. When I come to work every day. When I come in at nine o'clock. I know exactly what to do until I leave because it's been outlined for me. So that's all you do is let them go back to the outline on where to find it.
Collin 26:33
How do you? How are you able to involve them in that process? So that continues to improve so that you don't remain just static or stuck?
Natasha 26:42
Yeah, the great thing is when you do have a team or even if you're if you've never hired before, and you're doing it for the first time, bring somebody in and say Hey, Collin, this is your actually my first hire, and I'm super excited about it. I'm gonna start taking you through our process a little by little, but things that you're noticing that you need, or you've may have questions on, please go ahead and write that down. Because I'm actually going to make that the process. So you know more than anybody This applies that you need, the actions that you need to take in the morning or what you need to succeed for the rest of your day. But what happened write that down, because you can we're going to make that a policy together. So your new hires actually start writing out the process for you. Because they know that it's fresh write us who've been in the business for years, we're like I forget what people need when we when they first come in. It's hard to kind of remember you're like I do this every day I kind of forgot. But a new person will be the best person to say Listen, this is the stuff that I need is the questions that I have. So now that becomes a training program.
Collin 27:46
If you'd like to work with Natasha and have her be your personal pet business coach, you can head on over to start scale sale calm and when you're ready to work with her use the code PSC 20 for 15% off.
Meghan 27:57
We're hoping to do more book reviews in the future. So if you have a business book or a pet care related book that you would like us to review specifically here on the podcast, feel free to let us know about it and we'd be happy to read and discuss. Absolutely. Thank you so much for listening this week. Thank you also to pet sitters associates and our wonderful Patreon members and we will see you next episode.
