Episode Transcript
[00:00:00] Speaker A: Foreign.
Hey, everybody. Welcome back to the Total Profit Podcast. This is the show where we help you streamline your business, boost your margins, and build a company that pays you on purpose. I'm your host, T2, and I'm here with the guy who said to me last week, and this was so profound to me, but profit is not a number, it is a culture. It's a culture that we're trying to create. Tommy P.
[00:00:35] Speaker B: Thanks, T2. That's right. I'm here for every business owner who ever looked at their revenues and thought, where the heck does it all go?
[00:00:46] Speaker A: That would probably be everybody, right? But if that's you, buckle up because today's episode is all about building a profit first business model.
One where your company pays you first. What a concept, right? Instead of hoping that there's money left over after the expenses are paid at the end of the month.
[00:01:05] Speaker B: And let's be real, most owners probably are doing this backwards. Revenue comes in, bills get paid, and then whatever is left, if anything, is their paycheck. That's a stressful way to live, right?
[00:01:20] Speaker A: So let's talk about it. What's the big trap that you see? Tommy?
[00:01:25] Speaker B: Well, first off, I, I think people need to understand their, their costs. What, what it costs them to be in business. Whether you do a dollar worth of work or a million dollars worth of work, those costs don't change. And those are your overheads. So getting that foundation down and, and locking into that first and foremost.
[00:01:49] Speaker A: Right?
So many people treat profit like it's a leftover instead of a non negotiable. It needs to be a non negotiable line item.
We worked with a client not too long ago who's making 100, no, 1.5 million a year and hadn't paid himself a consistent salary in almost two years. And so once we put this profit first idea in place, he really started drawing some real income and it only took him about two months.
So that's the shift. Profit is not what's left over, it's what comes first.
[00:02:26] Speaker B: Yes, the profit first model is simple but a powerful concept.
And instead of using the traditional formula, let's just walk through how we work with our clients and the approach we take. So knowing your overhead first, as I said, those are your office, shop rents, administrative salaries, your utilities, phones, softwares, trucks, and equipment that you can't charge out to a job.
You know, calculate your monthly and overhead, break it down into categories, identify fixed versus variable.
The other thing is understand your revenue streams. This is so important when it comes to troubleshooting where your business may be leaking some profits. It's. You can use, you can lump everything into one bucket, but if those buckets have different costs associated with them, you need to break those down into something that we can go in and troubleshoot. So be aware of that. Control your cost of goods. So that's monitoring jobs, what you're spending on the jobs, make sure they're included in your bids, how we're executing the labor, how we're using the equipment, and if we have any additions, make sure we're tracking those costs.
Setting margin targets, that, that's a key. So if you, you know what your target is, it's going to help you understand whether you're bidding it above or below where you want to be in association with your target. And finally, once this all comes to play, like T2 said, pay yourself.
What better way to reward yourself for a great job than realizing those profits and collecting that check?
[00:04:09] Speaker A: Mm.
So it is a flip of the traditional formula is what we're recommending. So get your categories right like Tommy said. But instead of revenue minus expenses equaling your profit, we're flipping that. We want you to think about this in terms of revenue minus your profit. And then what's left over goes to pay your expenses. So you set aside your profit first, like a bill that you have that, that you have to pay, and then you run your business on what's left.
So tell me what that does, Tommy.
[00:04:42] Speaker B: It forces you to make smarter decisions. Suddenly, that bloated software stack or unnecessary payroll of overhead sticks out like a sore thumb. But until you break these down and those come to the surface, it's a struggle and it's stressful.
[00:04:59] Speaker A: So let's break it down for the folks who want to put this into action. What does setting up a profit first system actually look like out in the wild and in real life?
[00:05:11] Speaker B: Well, here's, here's a. The term playbook we're going to probably use through our podcast going forward because it just really as a team concept, we have to refer to our playbook. So it's separate, you know, set up separate bank accounts, create accounts for your income profit owners pay taxes, operating expense. It keeps those, the, those boundaries on that money. The other one is determine your allocation. Percentages start with profit 5 to 10%.
And then you factor in your owner's pay on top of that with your operating expenses. That's your 30 to 50. You got to account for your taxes that you. You're going to have to pay and create that Rhythm, you know, pick a date, whether it's weekly, bi weekly, or monthly, moves funds accordingly. But keep up on those costs and tracking that money and where we need to keep those buckets trim to fit. Operate your business using only the operating expense account and then reward yourself quarterly. Take half the profit account as a distribution, each quarter as a way to do it. Or look at how you want to grow the business. Maybe that is your reinvestment into owner equity.
[00:06:28] Speaker A: I love it.
Let's take a moment to address the pushback that we know is coming. Right?
[00:06:35] Speaker B: Oh, there's pushback.
It's, it's. It's change. And we all know how we feel about change. But number one, I can't afford to take profit right now.
Well, start with a little profit. 1% is better than 0%. And if you double it, that's 2%.
Double it again, it's 4%. And just keep that discipline of growing that.
I'm worried there won't be enough left to cover expenses. When you have your accounts in order and know what those expenses are, you'll have confidence in that. A lot of times this is just not knowing what you don't know.
It seems complicated, but once you set it up and work the system, it simplifies everything, especially with tools like QuickBooks Zero or our preferred method performance margin.
[00:07:28] Speaker A: Right. I'm worried there won't be enough left to cover expenses. That one kind of stood out to me. But. But that's the point, and you said it earlier, it does make those unnecessary expenses stand out like a sore thumb. So you. You do start to trim and streamline and run your business a lot more lean.
Do we have a success story to share?
[00:07:50] Speaker B: Oh, definitely.
One business owner went from cash strapped to building a $20,000 profit cushion and paying himself consistently by just knowing what those costs are and how to properly bid with the proper margins.
[00:08:06] Speaker A: And that's what we want. We want your business working for you, not the other way around.
So here's what your total profit action plan looks like for the week. We want you to audit your finances. All right? Number one.
Number two, we want you to open your bank accounts like we talked about. Start, set your starting percentages. Tommy talked through what those starting percentages need to be. Set those whatever is right for you. And then pick your allocation day and stick to it.
[00:08:41] Speaker B: And remember, it isn't about being perfect. It's about being profitable.
[00:08:48] Speaker A: Quick. Thank you to our sponsor performance margin. This is the software that we use, and it makes profit first even easier.
Real time visibility into your financials, margin tracking, smarter bidding, overall, great software.
[00:09:03] Speaker B: If you're serious about turning your business into a profit engine, performance margin is a no brainer. It's. It's set up by the working people for the working people.
[00:09:14] Speaker A: I love that.
So, all right, Go start building the kind of business that pays you first. And if this episode helped you, subscribe, share, leave a review.
[00:09:25] Speaker B: And until next week.
[00:09:27] Speaker A: Yep. Take her cool.
[00:09:28] Speaker B: Take her Cool.
Don't get excited.
[00:09:32] Speaker A: It's all under control.
[00:09:33] Speaker B: It's gonna be fine.
[00:09:35] Speaker A: Thank you, Tommy.
[00:09:36] Speaker B: Thank you, T2.
