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After celebrating another lap around the sun for us all. Perhaps we overindulged in the lead-up to Christmas, but here we are as a new year in business rolls around. It is the ideal time to ask yourself, “Is your business financially fit”?
With a whole year of data to be able to reflect upon, the start of a new year is the best time to crunch those numbers (sure, go ahead and add in a few ab crunches too if you are feeling energised, and still adhering to that New Year’s resolution!) and set targets for the year ahead.
When starting out on your financially fit journey, we recommend taking a deep dive into your current spending habits. Where are you spending those well-earned dollars, and where can you make adjustments by cutting back or scrapping altogether? A money diet or detox if you will.
Go ahead and get your bank statements and a few different coloured highlighters. Now start highlighting the transactions that are necessary in one colour for your business (bills, rent, insurance, wages etc). Now choose another colour and highlight the transactions that are nice to have (subscriptions, purchases, entertaining expenses etc).
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It is at this point that most people are shocked at the amount of money that is going out as direct debits that happen every month, almost unknowingly. Perhaps they are only a few dollars here and there, but they sure do add up over time (particularly if you are not using them).
Once you have picked yourself up off the floor, it’s time to cancel those subscription payments that you do not need, or look at alternatives that may be more cost-effective. This is where the magic happens and you can truly shred those spending habits and start to maximise the way you use your money moving forward.
As a Profit First Master, this is one money detox tip that I highly recommend doing. Not only does it challenge your spending habits, it will also invite you to change your way of thinking. Perhaps even some business processes you have been doing year on year, just because it was always done this way. This encourages a fresh perspective on how to move forward in the year ahead with clarity on your spending habits and your processes.
Now let’s set some goals. It’s important to keep these realistic and achievable (gaining little wins along the way will help you maintain a focused mindset throughout the year). The psychological benefits are nothing to be sneezed at.
Ask yourself:
If you answered yes to any of these questions, then I highly recommend implementing Profit First into your business.
The principle is simple. We flip the traditional view of accounting and put profit ahead of expenses. By doing the spending exercise above it has likely highlighted areas of expenditure that can be modified.
When money comes in. It should be broken down into four (4) percentage brackets (These will depend on your business and your situation. As a Profit First Master, I can ensure that your percentages are best set up for your business’s success). However, you can use this as a guide:
*Gross Revenue is the total of all income coming into your business.
**Real Revenue is Gross Revenue minus GST and Materials/Subs.
Please note, the figures listed above are the starting percentages for businesses up to $250k and will vary at different income levels. To find the Target Allocated Percentages (TAPs) for other businesses, please refer to the TAPs allocation table found on our previous blog, ‘How does Profit First work?’
To do this correctly you should set up different accounts for your revenue to be distributed. We recommend the following accounts:
After you have survived your money detox deep dive, the regular training of distributing your revenue into their own accounts will start to make improvements to your financial fitness. Endurance is the key, it’s not a sprint, and with Profit First in place and me as your personal trainer, your business will be in the best shape it’s ever been.
If you would like to kick start your financially fit goals with us, please get in touch with us and book a discovery call.
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