by Adam Litster | Aug 26, 2024 | Profit First, VPS, Entrepreneurship Newsletter
Thanks for being a part of our 3rd weekly entrepreneur newsletter! We are really enjoying writing these and hope that you are getting value from it as well! For today’s newsletter, we want to discuss one of the most common myths that we see throughout small businesses: “A business needs to spend money to make money”. Every entrepreneur wants their businesses to grow. This is a healthy and necessary goal for any business to be successful. However, many business owners focus solely on the top line of the business, sales. And they work tirelessly to grow this number as much as possible, often taking on an unmanageable amount of costs and often debt. We agree that growing our revenue is important, but one of the first things we help our clients understand when working with them is that revenue is not the only or even the best measure of a successful or healthy business. What we focus on and help our clients focus on is actually on the bottom line – profit.
Let me illustrate this concept with a simple example. Joe is the owner of a landscaping business. Last month he just crossed over that golden threshold of reaching $1 million dollars in sales for the year! Great news right! Unfortunately, Joe didn’t seem to feel the relief and excitement that we’d expect from this achievement. While the business made a million dollars in sales, Joe’s business also spent almost every penny of that on expenses like paying for employees, supplies, equipment, or investing in that next great thing that would help grow his business, etc. His business expenses were so high that he couldn’t even pay himself for the past couple of months. As a result, he spent much of his time worrying about how he would pay his mortgage that month, or how he’d keep food on the table for his family.
Too many entrepreneurs focus so much on growing their sales that they fall into this trap: that they need to spend money to make money. So, as soon as money comes in from a customer, that money goes right back out the door to pay for expenses that we hope will lead to more and more sales. While some expenses are definitely necessary (We agree that you should pay your employees on time etc.), this philosophy of spending money to make money often leaves nothing left for the most important employee of the business – you. You own this business. That means you take on all the risk, all the responsibility, you provide better service and better quality than any employee. So why do so many business owners not take a salary or a profit from the business? We have to break this mindset that so many entrepreneurs have and that is the reason the majority of small businesses fail. We need to focus on Profit First! We’ve found through working with dozens of clients that businesses that focus on profit first, making profit the top priority in the business (even above revenue); those are the businesses that are the strongest and the healthiest. Owners who are regularly taking a salary and profit from the business are the ones who feel most in control of their business and confident in the direction their business is taking. And strangely enough, these businesses actually grow faster and live longer than those who don’t! They actually outpace their competitors and have the best ratings from customers and employees! Why? Because they focus on what matters most!
In our experience, businesses that account for profit and pay the owners first go through a process that changes everything for the trajectory of their business. Even though the cash left over is less now (money left after taking out profit and owner’s pay), they are forced to find a way to operate their business just as well as they did before. The only way to accomplish this is to innovate. In other words, these business owners find a way to get the same or more value at less cost. This is the key to profitable and healthy growth. With that innovation comes greater differentiation in your market. You become better than your competitors and your growth becomes natural and accelerates! It’s an amazing process to watch and we are very lucky to see our clients go through this as they both take the profit and pay that they deserve and, at the same time, see their business grow more than they had ever dreamed.
We believe that reading “Profit First” and applying it is essential for every entrepreneur. If you haven’t yet, we won’t be upset if you stop reading and go start reading that book. You’ll see what we mean soon enough!
As always, if you have any questions as you start working through the Profit First principles, feel free to reach out or set up a call with us by clicking here!
Thanks for reading and have a great weekend!
Click here for my calendar to schedule a call or meeting
by Adam Litster | Aug 15, 2024 | Profit First, VPS, Entrepreneurship Newsletter
During today’s newsletter, I thought it would be beneficial to talk about how to make and sustain change in our businesses. It’s easy to fall into the trap of believing that sweeping changes are necessary for success. We often think we need to overhaul our routines or adopt drastic measures to make progress. This is common in managing businesses, employees, and in basically every aspect of our personal lives as well. There has to be a better way right?
Have you ever set a goal to lose weight at the beginning of the year? We all make big goals like this and often make drastic changes to achieve these goals. When we want to lose weight, we often start aggressive exercise and diet programs, but how many times do we make it past a week or two before our goals are abandoned? The challenge is that these big changes often go completely against our current habits and routines. They are uncomfortable and, because we are creatures of habit, they are not easily sustainable. Research and experience shows that leveraging your existing habits can be far more effective and sustainable.
Big, dramatic changes can seem exciting, but they often come with a high risk of discomfort and failure. Our daily routines shape who we are and how we function. Rather than trying to force major changes, we are proposing that we use our existing habits to accomplish our goals. For example, instead of going from never running to running 5 miles a day, perhaps you could start by walking on the treadmill while you watch tv for a few minutes every day. This will not be that big of a lift, and then maybe start jogging during the commercial breaks. Pretty soon, with these little changes, you will easily be running every day and not even noticing how much you’ve changed in the process.
I want to go through some really crucial goals and changes that every business owner generally wants to make, but first, here are a few reasons why we believe this would be more successful as we work on positive change in our businesses and lives.
1. Making small tweaks to existing habits is typically less daunting than overhauling your entire routine. This approach minimizes resistance and makes the transition smoother, increasing the likelihood of long-term success.
2. Your current habits are already integrated into your life, which means they’re part of a system that’s working for you. By building on these established routines, you can achieve your goals without disrupting your entire life.
3. Small, incremental adjustments are more sustainable than large-scale changes. They allow you to gradually integrate new behaviors into your routine, making it easier to stick with them over time.
4. As you make progress with small changes, I promise you’ll start to experience a boost in motivation and confidence. Each small win reinforces your ability to achieve your goals and makes you more excited to continue working toward your goal.
Now, let’s talk about a big goal every business owner wants (and needs!): increasing and maintaining profit.
Most entrepreneurs spend countless hours working to grow their business, all with the dream of turning it into a large enough business to support the life they want and achieve their dreams. Sadly, for most business owners, taking a profit, or even receiving a reasonable paycheck feels impossible. In reality, for most small businesses, as the business grows and revenues increase, expenses increase just as fast or even faster. It feels like we can’t keep up. We often fall into the trap that if we keep slaving ourselves, all we need is that one big client and we’ll be set. This rarely ever happens though and can leave us discouraged.
We want that to change and there is a very simple way to do it! Just as I mentioned above, let’s work with our existing habits to make positive change in our business. One of the most prevalent habits entrepreneurs have is called “bank balance accounting”. We don’t look at the profit and loss or balance sheet to make decisions or know if they are able to pay the bills this week, we look at our current bank balance, and if there’s money there, we can spend it! Most accountants will say, DON’T do that, but that’s just not how our brains naturally work. What I’m suggesting is– let’s use that natural thinking and habit to our advantage! This is what Profit First is all about.
If you haven’t read Profit First by Mike Michalowicz, start reading it today! It’s a fantastic and simple tool that is guaranteed to make any business profitable if the principles are followed. Here’s a link to the amazon page:
Click here to purchase this book on Amazon
If you email me, I can also send you the first 2 chapters for free!
As a summary, Profit First teaches us to use these natural habits that entrepreneurs have to make simple lasting changes in our business that lead to permanent profitability. The Profit First system is very simple. Before paying bills our normal way, we separate our profit out first into a completely separate bank account. Now, with the amount left over, we pay our bills with the funds available to us in our operating account! We always spend what we have available to us. So now, if we have less available (because we already accounted for profit), we will force our business to operate on less and achieve the profit and success that we want.
Remember, success doesn’t always require grand gestures. Sometimes, the key lies in making thoughtful adjustments to the habits you already have. Embrace this approach and watch as your goals become more attainable and your journey more enjoyable.
I understand this is a simplified summary that is discussed and explained through an entire book, but I’m hoping this can at least pique your interest so you will decide to look into it more yourself. If you have any questions or would like a partner and guide to help you through the Profit First system, we are here for you! I’ve included a link at the bottom of this article so you can set up a free call with us to learn more.
Best of luck to you and your business!
Click here for my calendar to schedule a call or meeting
Adam Litster
Certified Profit First Professional and Pumpkin Plan Strategist
(816) 500-5779
adam@betterbizinfo.com
