Episode – 014- How the Profit First Method Helped Me Skyrocket My Business
I have been using Profit First by Mike Michalowicz since the very beginning of 2020 and let me tell you something: it changed my business. For the better. It helped me grow, save money to hire new team members and have a rainy day fund if the day comes when things go south. Most importantly? It made my business profitable. Want to know how Profit First can help you do the same? Listen to today's podcast!
Amber Dugger – Profitability calculator
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Hello and welcome to Episode 14 of the Online Business Tech Hub. This is Alessia your host, tech expert for online coaches and consultants on a mission to rescue my clients from tech disasters. And today's episode is a bit different from everyone we've been talking about so far because it's a behind-the-scenes episode, really.
Today, I want to tell you about the profit first method and how it truly helped me skyrocket my business and make it really profitable. OK, so you might have come across the concept or the book.
Profit First is a method, is a book written by Mike Mikhailovich. I hope I'm not butchering this guy's name. But basically, it's a method to make any business profitable. Now, when I read this tagline the very first time, I was like, yeah, sure, the usual American stuff that they always exaggerate and so on. But the thing is that even if it is based on an American structure in the medical business model it is absolutely doable in the European Union as well.
Basically, the way Profit First is built is to basically have different sub-accounts for each and every category he talks about in the book, which are profit, salary, taxes, expenses, and incoming payment. Now, the thing that I appreciate about the book is that it has become so popular that even though it's built, keeping in mind an American business model, possibly like a big company, well, smaller or big company, but that is in person, it's a physical enterprise. And it hasn't been really designed for an online business owner. I really appreciate the flexibility because, for example, I read the book and I was able to adjust the different sub-accounts and the structure for my own needs, for my online business.
So, for example, I keep the incoming payment taxes and expenses together and I have a separate account for profit and salary. OK. The reason why I decided to do this is simply that I've been saving for taxes since I started my business and I don't have a lot of operating expenses.
So because I don't have the rent of an office, I don't have employees, I don't have the usual expenses of another business because my business is one hundred percent online. And I felt like I didn't have the need for a separate account for incoming payments, taxes, and expenses (outgoing payments).
OK, so the flexibility of this method is the key. I started applying Profit First in January 2020. And after a year I can truly say that it has made me feel a lot safer. I feel confident and safe that my business is profitable and I'm seeing the results of my work each and every month.
OK, so it is useful that when you read the book, he gives you a guideline to follow depending on how much money you are making on a yearly basis, and then it gives you the percentages, the average percentages for your sub-account. So for example, he tells you that if you're making up to 250k dollars per year, the profits should be the 5% the owners pay.
So the salary 50% money for taxes is 15% and then operating expenses, it's 30%. OK, so these are just recommendations to follow. But once you have gone through the whole book, you can adjust them based on your business, OK? When I finished then reading the book, I did some research before starting to apply this method because I wanted to really see if it was effective, if it would be useful.
Then I came across a person, a woman called Amber Dugger, and basically she took the Profit First method and applied it to online businesses and she has a free and really useful calculator, which is nothing but a spreadsheet, and I put the link to this free resource of hers in the show notes where you can play around with the different percentages and see how much money is coming in and how it will be split.
OK, so the way I do it and what is also recommended in the book is that you handle your finances twice a month. And what I do is really extremely simple. So I take this calculator from Amber Dugger and I put the money that until that day has come into my bank account as payments. And by inputting the data there, the amount of money that has arrived on my bank account. So invoices from clients that have been paid to the spreadsheet automatically split this money into the salary part that comes to my own personal account. And any extra amount for the salary I want to pay myself goes to my salary fund.
So that's how the salary fund grows. The rest of the incoming payment goes to the profit account and then I leave what is calculated for the taxes and operating expenses in my business bank account. Every quarter you pay yourself half of the money in the profit account on top of my salary. And I have since the very beginning of using Profit First I have decided to increase my salary every quarter and it's really useful. Using Profit First has been so useful because it gave me stability.
So I decided based on what I was starting with last year, based on the clients I had with the incoming payments I had, I decided a starting point of my salary that I would increase every three months, every quarter. And this gave me stability because obviously, I have a stable salary. I paid myself first. The salary and the profit are mine. There is no one else taking that. And I can really see how my business evolved and how my business became a lot more profitable during all these months.
OK, the important thing when you want to get started with Profit First is to start small, start where you are, do an inventory of all the expenses you have, and understand which one you can cut. So ideally you should cut all the unnecessary expenses and then go from there, because the focus is creating a salary fund, creating a profit fund where you transfer the money to your own personal account every three months. So you pay yourself the profit of the shares of your business every three months.
And then you at the same time you build the salary fund while you are also paying yourself a very stable salary. This has made a big, big, big, enormous difference in my business. And this is also the reason why, for example, I managed to invest in Facebook ads or hire a new team member because I had saved money that I could reinvest in my business if I wanted to. OK, I don't depend on the unexpected expenses that are coming in more or less each and every month because I have a fund I can use for emergencies or for anything I want to invest in, for example, coaching and so on.
It really gave me peace of mind at the same time. It gave me stability and it truly helped make my business profitable. I was really skeptical about it. But I can tell you that if you are consistent and if you apply Profit First regularly and you are truly, truly consistent, and you don't change the percentages from month to month. It will truly help your business growth.
So in this short episode, I wanted to share with you how the Profit First method helped me to truly create a profitable business and makes me feel safe and in control of my finances, something that is so important.
And when you have a business, even if it's an online business and you run it from the comfort of your home, from your living room, it doesn't matter. I think it's so important to feel safe, to have peace of mind that your finances are under control. This is so important and this is how Profit First helped me reach this goal. All right. Remember to check the show notes because there you will find all the links to Profit First, the book, to the profitability calculator of Amber Duggar. So that is the direct link to the three resources, to the free spreadsheet that you can download.
Also in the show notes, you will find the link to the online bank I am using, which is called Bunq, which lets you create a lot of different sub-accounts and even takes payments in case someone owes you something. You can ask them to transfer the money directly to your bank, which is written Bunq Bank account, and it can be paid with a bank transfer, but also with something similar to a paper link.
So it's really handy and you can create as many sub-accounts as you want. So absolutely recommended. And of course, in the show notes, you will also find the link to my email marketing intensive day. Take a look to see about the upcoming dates available.
You will also find, of course, my free Kick Start your E-mail Marketing course, which is absolutely free email course, about making the right newsletter platform for your online business. That's it for today.
And I will talk to you next time.