• September 22, 2023
• Profit Nation

Smart Money Moves: Profit First Nation’s Expert Advice

You’ve heard it a million times: “be smart with your money,” but as a business owner, that isn’t always a helpful phrase on its own. One of the best ways to understand your finances and make them work for you is to learn from seasoned business owners who can share what’s worked, what hasn’t, and what advice they’d give others. 

Profit First Nation hosts Danielle Mulvey and Mike Michalowicz recently sat down and discussed the most common topics they get asked about – everything from owner’s compensation to costs vs. investments, and more. Read on for the takeaways that will help you streamline your money game and uplevel your business.

Allocate for Retirement Savings

Retirement savings refer to the systematic process of setting aside a portion of your income or profits during your working years to secure your finances for the future after you retire. Mike suggests that entrepreneurs should consider setting up a retirement savings account outside of their business’s five foundational accounts (profit, owner’s pay, tax, operating expenses, and implementation). Entrepreneurs can create a separate retirement account, and you can talk to your accountant about this and you should consider programs such as a SEP IRA or a 401(k). These types of programs have enforced security where you can’t withdraw money unless it’s a reasonable emergency, and if you do you get penalized which most likely would make you leave it there. 

There should also be a systematic approach wherein a fixed percentage of your owner’s compensation or profit distribution will be removed and allocated to your retirement first. Yes, you would make slightly less income than you had before,  which would make you feel a pinch for the first few weeks but sure enough, you’ll find ways to adjust your lifestyle to a lower price point. Danielle suggested too that maybe it’s time to raise your prices to give you that extra lift that you need to start the habit of putting away that money into your retirement account. 

Think Creatively About Your Finances

In this episode, Mike was asked by a doctor seeking to expand his practice and reduce the burden of high rent expenses. The doctor was considering expanding, and joining one of his fellow practitioners so they could train together. Mike on the other hand encouraged the doctor to think creatively and find alternative solutions to address the rent issue rather than immediately seeking an exception to the Profit First approach.

One example Mike provides is the story of a business needing more space but unable to afford it. Instead of simply expanding, they creatively shared space with another business during off-hours, drastically reducing their costs. This kind of thinking, although more challenging, can lead to innovative solutions that ultimately drive the business forward. Profit First encourages you to think creatively about your financial challenges. It’s not about finding exceptions but about finding better, more efficient ways to run your business that have longer and long-lasting results. 

Know the Difference Between the Owner’s Compensation and Equity Ownership 

Season entrepreneurs may already know the difference between the two, but many can still mix it up. Knowing the difference between these two is important because it allows business owners to make proper decisions regarding their business agreements, financial distributions, and growth strategies. This can also clarify the contributions and rewards among other owners, making sure that everyone is compensated accordingly. 

The owner’s compensation represents the salary or benefits paid to the owner for their role as an active operator or employee within the business. It is based on the value the owner contributes to the company’s daily operation. On the other hand, Equity ownership refers to the ownership stake in the business held by each owner. It is typically expressed as a percentage and is based on the number of ownership shares owned by each party.

Distance Doesn’t Matter!

One concern business owners who want to connect with a certified Profit First professional account, coach, or bookkeeper have is that they get disappointed when they match up with someone who lives far from their location. The Profit First Professional Matching System is based on industry experts rather than geographical proximity. The primary aim is to connect clients with professionals who possess a deep understanding of their specific industry. Profit First did some research, and it showed that physical proximity didn’t necessarily result in face-to-face meetings, with most interactions still occurring virtually.

“If you are a retail store, don’t you want a bookkeeper, accountant who understands how inventory works, … As opposed to someone that happens to be in your town that you’re not gonna meet with face-to-face anyway.?”, said Mike Michalowicz answering this question. 

In some instances, the distance and timezone difference can even come in your favor. Let’s say your accountant or bookkeeper is located on the East Coast. They can update your financial information early in the morning based on the previous day’s transactions. By the time you, on the West Coast, start your workday three hours later, you already have access to fresh, up-to-date financial data.

Your Hired Professionals are Investments Not Costs!

Investing in a certified Profit First professional may come with a higher price tag, but the return on investment in terms of increased profitability and financial clarity is well worth it. These professionals are not just accountants, bookkeepers, and coaches, these people have achieved a high level of certification in the psychology of driving profitability. It’s also important to remember that a professional who charges appropriately is more likely to provide dedicated and high-quality service, further benefiting your business, as opposed to those offering cheap services. 

In Conclusion

Every day brings something different when you own your own business, but managing your finances doesn’t need to be one of the things you feel unsteady about. The resources and system from Profit First have allowed countless business owners to get and stay on the path of permanent profitability and achieve the three P’s: Passion, Profit and Play.

Have questions about implementing any of what you’ve learned today? Profit First has a number of resources to get you started. Head over to www.profitfirstnation.com/resources to download our HOW TO guides and resources.

Remember, permanent profitability is within your reach, and we’re here to support you every step of the way. So let’s do Profit First right together!