Invest in Yourself (and your Business): Master Profit PlanningSep 12, 2023
Money talks, especially when it comes to business. Without a healthy cash flow, your company can easily fold, leaving you in massive debt and potentially ruining your credit score.
We've found with experience that an easy, repeatable and consistent savings habit makes managing your cash flow a breeze.
Our model is based on the Profit First Model. The profit-first model is a game-changing concept that proposes a unique approach to business money management. Created by Mike Michalowicz in 2014, the model is based on the principle that businesses should allocate profits first, instead of using the conventional sales minus expenses equation that most companies rely on. The concept is quite simple – take your sales, allocate a percentage towards profit, then towards expenses and taxes. This generates a company's cash-flow balance, and it allows businesses to prioritize profit over expenses, ensuring a healthy bottom line for your business.
So while the model is simple, the way Mike Michalowicz describes it is not, so let's simplify.
Step #1 - open up a savings account for each of your savings goals. We suggest 3 (Taxes, Emergency Funds & Bonuses)
Step #2 - determine your average net profit margin for the last 12 months. Determine how much of that percentage should go to each savings goal. For example, if it's 30%, put 10% to each or 15% to taxes, 10% to Bonuses and 5% to Savings.
Step #3 - Each month run your P&L and transfer your savings amounts based on GROSS sales to the accounts. If you had a profit margin under your average you might need to adjust.
What about owner's draws you ask? If you're an LLC you can make your owner's draws part of the % formula or you take those off the top before you determine your % amounts. Whatever math works best for you.
Creating a plan is essential, but consistency is key. By focusing on your operating account and automating your savings, you'll keep your financial goals on track without added stress.
Reach out if you'd like to discuss your specific situation and how we can help you plan for profits!
Hey, you! Yes, you with the awesome business and the passion to make it big! Are you tired of trying to juggle finances and crunch numbers all by yourself? We totally get it - that's why we're here to help!
With our fractional CFO services, Bookkeeping and/or SOP Building packages! With our help, you'll have a team of financial experts at your fingertips, ready to take on all the financial tasks that come with running a successful business. From cash flow management to budgeting and forecasting, we've got you covered.
Our team of skilled professionals have years of experience in providing top-notch financial services to businesses of all sizes. And with our fractional CFO services, you'll get all the benefits of having a full-time CFO, without the cost.
So what are you waiting for? Take your business to the next level and contact us today! We promise, it'll be a decision you won't regret. Plus, our team is pretty amazing - if we do say so ourselves.
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