MONEY MONEY MONEY
Raise your hand if you worship at the church of Profit First! Whenever I bring this up to people, they always say, "I can't do it because I have to pay my bills first". And I'm like, "you literally just explained the premise of profit first."
My days of banging my head on a wall to get someone to understand something they are committed to misunderstanding are over - but I can share this here w y'all!
If you haven't read the book, the first 5 chapters are sufficient. If you don't want to read the book, imma try to explain here. Feel free to ask questions below if you need help.
Lemme first clarify some myths:
- You can take a profit AND pay your bills.
- You can take a profit AND pay off debt.
- Once you start this, you are not zip tied to the percentages for each category.
Ok let's go - I'm going to break down this screenshot for you, then give you a link to download the spreadsheet at the end.
- You're going to make money moves on the 7th, 14th, 21st and 28th of the month.
- The percentages in pink can all be adjusted and doing so will formulate the rest of the spreadsheet.
- You will ONLY need to fill in the grey boxes, the rest will be calculated.
Profit first is broken down into 4 categories:
- Operating Expenses (how much it costs to run your biz, not including inventory or the cost of product)
- Owner's Pay
You can adjust the percentages allocated according to your business. You can even set the profit percent to 1% to start! I suggest calculating how much it takes to run your biz (not including inventory and start there since that will likely be the largest percentage.
The book suggests setting up 5 bank accounts in order to manage profit first. I will say it is NECESSARY. These are how mine are labeled:
- Income (all payments from all sources are routed here)
- Operating Expenses
- Owners Pay
- Taxes (this one is set up at a different bank and I don't even have an ATM card for it)
So how does it all work?
- On the 7th, 14th, 21st and 28th I look at my Income account and see what amount is in there. I plug that number into the TOTAL INCOME cell.
- Let's talk about that COGs number: this one I adjust regularly. You can see here it's 10% because I'm 90% drop ship now. When I was full scale, I had it at 50%. Either way, this is the cost of the goods you've sold. Shopify and CS both have reporting on this if you want your exact number for a specific date range. If you are drop shipping, my tip is to pay all your drop ship invoices with PayPal aka cash so you're not having to put it on a credit card, but it's up to you.
- So you can adjust the COGs percentage, but whatever it is, this is the amount you need to reimburse yourself to pay for the inventory you sold. Again you don't need to change the number in grey, just the pink percentage.
- The spreadsheet now has taken your TOTAL INCOME and calculated the percent you need to pay yourself back for inventory sold. For me, this means I move that amount into my operating expense account and pay my credit card bill that exact amount.
- Next is shipping cost. This is where you put in how much you spent on shipping and that is how much you need to reimburse yourself for shipping - same as COGs.
- Real revenue is what is left - this is the amount of money you've made after the cost of inventory and shipping is considered, but we're not done. You can see all the other amounts have been calculated based on the REAL REVENUE. Again, if things with your business change, you can adjust those pink percentages and the spreadsheet will adjust accordingly.
- Now it's transfer time - transfer your funds from your income account to it's respective account and there it stays!
- If things aren't adding up aka you can't pay all your bills, START with taking a hard look at your operating expenses. What can you cut? For example, I knew I wanted to scale my boutique business way back, but had 2 assistants - they were impacting my operating expenses the most. It was the hardest thing I had to do, but I said goodbye. (But it all worked out bc Jesica and I reunited here so all good.) Are you paying too much for text messages? Emails? Etc.
- If your operating expenses are a-ok, but things still aren't working, adjust your profit down to 1%. You want to make sure you are still putting something in there, trust me.
- For owner's pay, I suggest coming up with a set schedule to pay yourself. If you're running payroll, you probably already do that and you can leave your funds in that account until you're ready to run payroll from your OpEx account.
- A couple notes about the tax account. First, I suggest setting this account up at another bank so you are not tempted. I have it connected to my main account so the transfer there is easy, while transferring back is harder. Also, DO NOT adjust the 15% - that amount is 15% of your real revenue and will likely be very close to what you owe at the end of the year. If it's too much and you've saved - you get a bonus.
- Lastly, the profit account should just be growing until you decide how you want to use it. Maybe monthly you want to pay off debt or buy something shiny. Whatever, but try not to dip from it on a regular basis because the positive reinforcement from seeing it grow is powerful.
Ok and on that note - as your reward for reading this whole thing, you get the spreadsheet! Click here to download!