It takes two to three years to make a profit in business, right? WRONG! I will explain on the show today how I made a profit in my first year of business.
In this episode you will learn:
- The three simple processes I applied to create a profitable business
- All about the book Profit First by Mike Michalowicz and how it changed everything for how I manage my business accounts
- What the Profit First system is and how I have applied it
- That we have the traditional income minus expenses formula all wrong
- That no matter where you are in your business journey, it is totally possible for you to create a profit from now on
You can listen to the episode above or read the unedited transcript below.
How To Create a Profitable Business in You First Year
Meaghan Smith 00:21
Hello, beautiful people. And welcome to another episode of the money mindful podcast. I'm your host, Megan Jean Smith, great to be here with you today. I am a money mindset and life coach for women. I help women just like you overcome under earning, make more money and basically just create the life that you want to leave on purpose. So if that's you, you're in the right place. Welcome, welcome, welcome. Alright, if if you're new around here, you might not know that I actually ran an amazing book club for women for pretty decent amount of time. I think I did it for about a year, maybe about a year. And I used to, yeah, host this book club once a month. And we would talk about the books that I had for the month that were mindset books, or money books. And today, I want to talk about one such book that didn't make it to book club. But it's a book that has had a very big impact on me, and my business and the profit that I have in my business. And so I want to share with you all about that book today. But more so I want to talk to you about Yeah, how I have created a profit in my business in my first year of business.
Meaghan Smith 01:58
So I'm just I've just come past my first year of business, I'm sort of into the second year now. And in my first year of business, I created a profitable business. Now, I didn't used to think that was true. I thought that when you went into business for the first couple of years, you don't make a profit. That's what I grew up believing. That's what I experience with the very first business that I ever ran years ago, when I worked as a photographer, I just thought you don't make money in business will not when you start at least, I was pretty convinced of that. And that's the experience that I had when I was working as a photographer back in the day. But there's three things that I have done to be out to create a profitable business, I'm going to tell you what they are. But I'm not going to focus on all three of them. Today, I'm just going to focus on one thing to do with this book that I want to talk to you about. But first, let me tell you what these three things are. Because if you are starting a business, I want you to have a profitable business in your first year as well. And if you're already in business, what I'm going to talk to you about today will apply. You can apply this to your business. So the very first thing, the number one thing I did to create a profit in my business was I started showing up as a person who has a profitable business. Okay, that's number one. The number one thing that I did, and actually the most important thing, and I should probably do a whole podcast episode on that. I also created thoughts and thought them on purpose. I created a belief plan for myself and practised those thoughts. And they were thoughts like, I'm a fully booked coach.
Meaghan Smith 04:08
My ideal clients are all around me, they have money, they want to pay me right now. Like I literally worked on believing those thoughts, okay. And I practice them every day and also any limitations that came up or any any where in my business where I had lack of belief. I took all of that stuff to my coach and I got coached so I heavily invest in coaching. That is my biggest expense in my business. Having a coach I would never not have a coach. I have had a coach the whole time through creating my business and I think it is the number one thing that has helped me. Because, yes, I am a coach, I know how to coach myself, but I can't see my own blind spots. And I want to help myself 100% to get where I want to be. And I think having a coach is essential for that. So have I had a business coach the whole way through? No, I've had general life coaches, I've been in coaching programmes, I've done coaching things specific to different areas of, of business. But like I said, I'm not going to go into all of that in detail today. But let me know if you want me to go into detail about that I can, and I will. But that's the number one thing. So showing up as the person who has a profitable business, having a coach coaching me on all my limitations, and having a belief plan, I just gave you a couple of beliefs that I worked on. But there's, there's so many more. All right, number two, that how I've created a profitable business as I've actually implemented. I a goal setting process, like, you know how to get shit done. And this is what I teach my clients as well, like, I have a process that I follow when I'm creating something new. And I follow that process too. So I can get over any obstacles that like any real or perceived obstacles that I think are in the way of creating the income that I want in my business or creating the amount of clients I want. I have a Yeah, a goal setting process and also a way that I manage my time. And I, I access that I implement that I apply that. So that's another that's like step two of how I have created a profitable business in in one year. And step three, is I took my business and my money seriously. Now, I don't mean to I haven't had fun, or I've haven't had a good time creating my business. But what I mean is that I showed up in my business, like I had a real business, I haven't been thinking of this business like something that I'm trying to create, I have treated it like a real business pretty much from day one. And one of the things one of many of the things that I've done to give you an example of that is that I have a bookkeeper. Now I invested in a bookkeeper, probably before my business was really making the turnover to afford a bookkeeper. But business is about making money. Right? Like you, you have a business to make money. That's what business that's what a business is. Right? And you Well, you don't have to do anything. But I mean to to have money flowing in and out. Like one of the things one of the areas that I think is really important to have a handle on is your accounts like you want that stuff really clean, right? Like, that's not an area that you want to be getting bogged down in. And for me, I think that is an area that is really important to give love and attention to. So yeah, I, I invested in an accountant. And I also have always taken the handling of my money very seriously. And again, that word serious. I don't know, like when I say the word seriously, like I feel like that sounds so serious, like it's this big deal. But in fact, it's the opposite. Like I actually love handling my money in business. I love learning about processes to do with money. And, you know, I've set up systems in my business. So they're
Meaghan Smith 09:11
relatively automated, you know, like I have clients all over the world well from different parts of the world. So I needed a payment system where people could pay me from different places in the world. So that's all part of taking your business seriously, right, like getting the money side of your business handled. And one of the things that I have done as part of that, and that's what I want to talk to you about today is I do the profit first system, and the profit first system is actually a book and I hope I Get his name right. Mike Michalowicz. Mike, if you're listening, and I've said your name wrong, apologise, I actually have no idea how to pronounce your name properly. But anyway, the book is called profit first transform your business from a cash eating monster to a money making machine. And it's by Mike. Michael ovicz, I think, Oh my god, I'm so embarrassed, I feel embarrassed is saying his surname. But Forgive me, please, Mike and anyone else who just realised I said his name totally wrong. So he talks about in the book, and I'm not going to, first of all, if you're in business, I'm just going to say go out and get this book, just do it. Don't think about it. I mean, I can't remember exactly how much it costs me. But it was probably like 25 Australian dollars or something like that, like it was not expensive when you go when you talk about the grand scheme of like the costs in your business. Anyway, I'm gonna tell you a little bit about what I've taken from the book and what I've applied and what I think is amazing, and how I've been able to have a profit in my business. But I also I'm not talking about every single thing he says in the book, and I really encourage you to actually just go out and get the book and read it. Okay, because it's amazing, I love it. And it will help you have run a business that is profitable. So he he kind of debunks this system where he says, most businesses run on the premise that the formula is that you you have sales like you the money comes in, in the business, then you minus the expenses, and what's left over is the profit. Right, but he says we've got that all wrong. Basically, he's saying what we, what we could be doing instead is we the money comes in, like the formula is we we have sales, and then we minus the profit. And then what's left over is the expenses. And if you take anything away from this episode, like that's it, like that's it like you take your profit out of your sales first. And then what's left over, that's what you use for your expenses. And I'm guessing that you might if you have a business already, or if you're in debt in business, or you don't have a profitable business, you might be thinking, yeah, but I have all these expenses. And the the, there is no profit leftover. But that's what happens, right? When we, when we pay for all the expenses first, like there is nothing left over because money's money is often you utilised, like time, right? Like we just there's, we just use the time we have, we don't get to the end of the day and go, Oh, I've got two hours left over. What am I going to do with that? No, we just use up our time every day. Like if you if you get an extra couple of hours, you use it up, like whatever it is that you do. And we often do that with with money, like we have money. And he talks about this, he gave an analogy, like, as if the money going into your bank account is like food on a plate. Like it's just all there sitting on the plate, and you just eat all the food on the plate, right? Like and we really do this right, don't we? I mean, isn't that like a thing in diet culture, like where you use a smaller plate or something like if you want to eat less.
Meaghan Smith 14:07
Because what we dish up on the plate we eat and so he says that, like we have the money in the bank in our business account. And we see that money there. And we're like, oh, we can use that money. And we just use it all up. And so he, I mean, he talks about like, he talks he writes about so many things in the book, but the main premise, which I love, is he he talks about how we try to do things that kind of work against how we are as humans, like how we actually operate like as humans because, you know, like I'm not going to pretend like sometimes with my accounting, I have to wring my bookkeeper and just be like, what how do I do this like it doesn't sort of I It doesn't intuitively make sense straight away to me, when I'm using my accounting software, like some things that makes sense to me in my life, like when I used to do my tax on an Excel spreadsheet, it just felt so simple, right? It's like, this is how much money I made, this is the expenses, I had that seat.
Meaghan Smith 15:20
But when you're in business, things can get a bit more complicated, right, like we have contracted is and we need to pay ourselves a pension or superannuation, whatever country, you're in 401k, whatever you want to call it retirement plan, we, you know, might have ongoing subscriptions, we also might have specific taxes that we have to pay the government like GST or VAT or whatever it is, right? And it can sometimes be hard to work out like, well, how much money do we actually have in the accounts? And so he tells, he tells a story in the book of his grandma, I think it was, I know, maybe it was his mom, no, it might have been his mom actually, how she used to use the old envelope system for managing their money. Like when the money came in, she'd have an envelope for, you know, the mortgage and envelope, maybe for groceries, an envelope for whatever else, you know, bills or something like that. And I've seen on social media that there's some people who use this envelope system, like they just live off cash, right, like that's, that's what they do. And anyway, Mike teaches in his book to have an envelope system in your business. And, like, it seems so simple, but it's so effective. So he's got a specific breakdown of what he thinks like different percentages and things that you can do, but, and also exact,
Meaghan Smith 17:16
like areas of where you should be putting money. And I'm not going to explain to you every single detail that he put in the book, I'm just going to tell you what I did, because, like, that's what I found helpful. And you can read the book yourself and adapt and use his system to suit you. But basically, I went and opened these extra bank accounts in, in my business bank account for all the areas where I spend money. So I have a bank account for expenses, I have a bank account for income, so like all my income comes into one account. And then that income, I like a couple of times a month, when I get paid, I divvy that up into all the areas in, in my business. And so I take out a percentage straightaway for profit. So I have an account called profit. So as soon as like when that money comes in, and I am doing my books in my banking, I take a percentage out and put it in my profit account. I take a percentage out and put it in My Tax Account. I take a percentage out and I put it in owners compensation. So what that is, is like what I'm going to pay myself, I take a percentage out and I put that in superannuation. So in Australia, our retirement fund is called superannuation, and I take a percentage out straight away, because that's the money I'm going to pay to myself in Super. And then the last one is expenses. Right?
Meaghan Smith 18:58
So whenever money comes in, I automatically divvy it up across these areas where the areas that I want in my business, right, like I want to be putting money to pay myself superannuation that is very important to me, and I do that I want to have a profitable business, I want my business running at a profit. I don't want to be using up every single dollar that comes into my business. And as a side note, being able to do that I've talked about this on another episode before about having the capacity to have money. And this is part of that like having a profit account like just having money in there that is your profit. That's about having the capacity to have money, right. So profit and money for my retirement are very important to me. Also having a wage like having money that I pay myself is super important to me, right? Otherwise, like, if I'm just running a business and eating up all the money with expenses, why am I running a business because I'm at zero, right? So paying myself super important. So I put a percentage of that away. And then tax, obviously, I want to run my business legally. So I put a percentage away that I have to pay for tax in another account. And that just sits there and accumulates until I get have to do my quarterly taxes. And then, but then finally, like, what's left over, is what goes into my expense account. And all the expenses from my business have to be paid out of that expense account. Right. And now, there might be some of you thinking, but there's not enough money for me to do that I don't have enough money to do that to be able to pay myself superannuation or to be able to have money left over for profit. And Mark talks about putting away 1%. And I've talked to you about this on other podcasts as well, like the minimum baseline, like 1% is enough. And he talks about this too, like if you've never run your business at a profit, what you can do when you start is you can just put away 1% like you can take 1% out of your expenses, and start putting that away as a profit. And at first like is 1% seems like nothing, right? Like, you're not going to notice 1%. But what happens when you do that is you create the muscle of putting money away, like money going in that is like the backbone of your business. It's the profit in your business. And he talks about what to do with that profit as well. He gives you guidance about things that you can do with that profit and how you might use that. And I won't go into that today. But
Meaghan Smith 22:01
if you've never had a profit in your business, and you want to create a profit in your business, but it seems impossible or out of your reach, start with 1%. open another account today, like no shit, right? Like, open another account today. Like if you're in if you're in Australia, it is so easy to open an online account, like it takes like five minutes you can do it like it doesn't have to be, you know, a transaction account with a debit card and everything like you can just open an online savings account attached to your main account now. And next time you make money in your business, you can just put 1% in there, boom, you're done. It's done. Like Don't overthink this, right? You can do this. And I already like already was quite good at managing my money before I read this book. And I was putting money aside for tax but everything else was kind of just sitting in this one bucket. And when it's all sitting in the one bucket, you don't really know like, if you pay yourself money, it's like, are you going to have enough money to pay for your expenses? Or how much money should you be putting away for your superannuation? Right? Like when you do it this way, you can decide ahead of time, what you're going to do.
Meaghan Smith 23:18
Now a good friend of mine, she implements this system, she had debt already in a business and so she's only putting 1% profit away, right and she's set up a system to pay off debt in her business and she's doing that first. Whereas you know, I've started I started with 5% profit, I started putting 5% profit away. And that worked for me I was able to do that. And now I am just about to start experimenting with putting 10% profit away like I'm changing my percentages. And I'm just going to play with that and see how that works. I might need to reduce that to like 6% or 8% but I've had surplus in my business i'm i'm just going to give it a go because that's what I'd like to get to I want to be able to put 10% profit away. So I'm going to play around with that. But you know, this is as simple as it sounds like I literally just have different bank accounts set up and I transfer the money and I do it straight away. So I get paid. I put more what I had been doing as I was putting 5% profit away first and then all the other percentages. I could tell you my percentages The only reason why I hesitate telling you my percentages is because my percentages of what I've decided that work for me and you can actually just decide what you want to do. Like maybe you want to be putting 50% away for expenses or maybe you want to be putting 20% away for expenses. Like, there's not a correct answer here. Mike in his book, he actually gives examples of how to work out like what, how you might want to divide your money into different percentages. But yeah, you get to decide. And you know, maybe you're only paying yourself a small percentage in the beginning as well, maybe you're only paying yourself 5%. And actually, what you want to be doing is paying yourself 30%. Right, like, you can start with smaller amounts, if you've already been running your business, a freaking out by what I'm saying now thinking, Oh, my gosh, I couldn't do that. And if you're listening today, and you don't run a business, everything that I've just said actually applies to your own income. Like you could actually do this with your own income with how you want to manage your money.
Meaghan Smith 25:59
in your life, like how you want to put money away, you can have separate accounts. To do that, like you can get when you get paid your salary every fortnight or every month, you could just put a percentage of that away for yourself for savings or for investing, or whatever it is, this really applies. So I'm going to stop going on about this now, because I don't want to overload you with information. But I'm going to leave you in summary, just saying that, in the first year of my business, I paid myself superannuation, I also ended my first year in business with over 5% profit in my business. And I did that by doing three things. One was I showed up as the person who has a profitable business. And within that category, I created a belief plan like beliefs that I want thoughts, I wanted to think about my business, I also had a coach, I've had a coach from day one and have never been without a coach. Number two is I've implemented and apply goal setting processes and like how to get stuff done processes like actually how to get things done each week, like, see clients and operate my business. And then number three is I took my business and my money seriously from day one. And one of the main, you know, main tools that I've used is I have implemented the profit first system, I didn't implement the profit first system straightaway. And if you're a longtime listener of the show, you might remember back, I did an interview with Kate tune, and she talked about profit first. And I was like, Yes, I've always wanted to read that book. And I went straight out and got it and then implemented his mic system and it's amazing. And it's so easy. And you don't have to be an accounting whiz. And also Hello, like, let's have profitable businesses. Yeah, like it's totally available to you to have a profitable business at any level. I get any level of income you don't have to be making heaps of money in your business to have a profitable business if you implement this system. Right. It's totally available to you can do it so go out and get this book. All right profit first by Mike, Michalowicz. All right. Until I see you next time. Have an amazing week. I hope this helps you. Bye Bye.
Profit First Mike Michalowicz