The Number Forecast
Well, the last segment we talked about something that I know is very difficult for a lot of entrepreneurs and so many small business owners. And that's numbers. That's the financials I know to sign up for that. So we went through some of the rudimentary types of things, and this next segment we're going to talk about, how do we actually improve that? And so many times of businesses stuck because they have a forecast and their expenses their way off? Let me tell you, we're all ofus. Faras expenses in forecast. But a good rule of thumb is when you make a forecast, let's talk about what a forecast ISS, right? We all know about a weather forecast. We're obsessed with weather forecast right today. It's supposed to be sunny. It is really sunny today. It's right, I think, everyday creativelive It's sunny, right? It's fantastic. But the forecast is what's gonna happen in the future and so many times in our businesses. We say OK in the next quarter, in the next year, we're gonna do this amount ...
of revenue, and we think it's gonna cost this amount expense and unfortunately, many times what happens or wrong right, That's a problem. So Ah, pretty good rule of thumb is let's say you decide that you're going to do, ah $1000 in this next month, and it's going to cost you ah, $100 as an expense to generate that Ah, good way to do a forecast is is to divide this by half. So to say, you're only do 400 multiply this times four and this is gonna be 400. You're gonna make $100 that I will tell you of my experience the last 20 years. If you have your forecast forecast and you quadruple your expenses, you'll pretty much come out to what it's supposed to be. Now I know many of you in here and out there saying that's just absolutely absurd. But if you're forecasting a year in advance, that's probably the way it's going to go. The other one reason that you get stuck and your business gets behind. Is it? Lee, You let your ego take control of your checkbook, right? And I know the local here smiling. So I know a lot of her clients have really seen that you want to be at this show you want to be known. So you spend all this money on a trade show booth that doesn't make any financial sense at all. Now, I'm not saying that trade booths don't make financial sense, but you do it for ego or you want to have this big ad in this magazine or on this website, and you're not really thinking about what is the payback. And so that gets to be a problem. The other areas we already focused on a different swing, fixed and variable expenses. All right. And Rina, what is the difference will fix the variable expense, a fixed expenses, something that you're going to continue to be paying off the same amount every single month. The variable expenses variable by the amount of sales that you generate during a month. Excellent. You've made so much progress in the last place we get stuck is that we hire freelancers or we hire employees and we don't really understand their true costs. Everyone just thinks, well, I gotta pay this person 12 those an hour, a $40,000 year. But there's so many extra costs that go into what it really costs to have an employee, right? So we talked about the difference between a fixed expense in a very real expense. Right? And what we really want to do is any expense we have. If we can tie it to particular revenue, that's really gonna be most beneficial. We also have to try to reduce our overhead as much as possible, because the lower overhead is, the easier it's gonna be to make a profit. So let's take a look at this. Let's say that let's say this is my revenue and revenue goes like this, right? And if we could then have are variable expenses go like this? That would be good because we always make a profit and want to do is you want to make sure that your fixed expenses are lowest possible. If your fixed expenses are here, that's really gonna be a problem. So how do you bring down your fixed expenses a couple different ways? Try to outsource as many things as possible. You don't necessary to hire people full time, especially if we're just starting out. Try to do less rent today. So many things can be done virtually. Do you really need to rent something full time. If you need office space, can you pay by per visit? Or can you share that offer space? Hire an accountant to look at and we'll talk about that later. Hired them to talk about how you can really reduce your expenses or what the metrics we look about. Look, look, I'm thinking about Australia. I'm thinking about a run about. No, I'm thinking about a walkabout. And what can we do to lower our employee turnover? Why is it important to try to keep that team together? We talked about that yesterday. Try to build a team at last. Why is it so important, Jana? Yes, very good. If you have a good team of people, hopefully they're not only working for the best interests of themselves, but also for the best interest of the company with the same goals in mind that you have for yourself since you're the owner. But they're also gonna be working towards that unless turnover means less of those processes of. I'm assuming workmen's compensation and, um ensuring that company you know, ensuring that employees and things like that. Well, let's talk about, really. Look, there is a cost of employee turnover So let's say that in one case let's say that you're paying someone 20 $25,000 a year, right? And it takes them, let's say, three months, should you do the math here? So let's say it takes them three months to actually know their job, right? And let's say during this three month period of time, you're gonna pay them roughly. I know that math isn't exactly right, but roughly you're gonna pay them $6000. That's what you have to pay, actually to train them, and then they become productive. When you lose this person, you have to do that all over again. So there actually is a cost of losing someone, and that cost sometimes could be 25 3rd or 50% of the cost of employees. I'm sure Miyoko has seen that when she has various assistance, administrative people, she trains and then they leave and should get trained them all over again. If you had that problem, it's opportunity costs. Yes, a big opportunity cost. So so the first thing is reduced overhead. What can we do to increase our accounts receivable to reduce our accounts receivable? Right. Improving is reducing it. So why would we want to do that? Why? We want to have our accounts receivable lower. Why would that be important for our business? Cash came in. Immediate cash comes in immediately. That's and we want more cash as soon as possible. So here's some things that you should do. You just set a goal for yourself. There's something called de eso days sales outstanding. How soon do you actually want to collect the money that's owed to you now? Ah, lower number is better, but in most cases, it really should be under 45 days under 30 days if you can under 15 days if you can, because the sooner you get your money, I'd much rather have the money sitting in my bank account than in their bank account. Another one is you have to really ask for your money early and often. Most people that you contract with or you sell things or services they want to pay their bills right. And the way you do it is you go through this process and the process you go through is when you send the person a bill for services rendered, you call them or email them and say, Did you actually receive the bill? They say yes or no. Sometimes you don't get the bills. That's the first thing. The second thing you want to do is you ask them, When is it scheduled to be paid? They give you a date the week before scheduled to be paid. You call them up and you say it is still scheduling paid on this date. And then when the date passes, you say, was the check sent in that day? Now I know this may seem like a lot of work, but the squeaky wheel always get to the grease. What? The mistake that a lot of small business owners make is that they wait until the time passed, when the monies do until they make that first phone call. But if you make those phone calls early, you is a squeaky wheel. We'll get paid and will be reduced your accounts receivable. Remember credit people not paying for things up front is a privilege. It's not a right people really have to earn. It's not automatic. You really have to get the money up front. That is really important for the cash flow of your business. And if you can't get the money up front, then you can settle for installment payments. It is much better to get $100 a month than toe. Wait for a promise of maybe getting $1000 in three months. It's a much smarter way to go. So another thing that we can do to improve our accounts payable so improve our accounts payable. What is improving accounts payable mean? We wanted pounds payable to be really as high as our vendors will let it go. We want a lot of time to pay for it. Now. What you don't do is steal extra time. Ah, lot of folks are small business owners just like you. If you negotiate three days, you really should pay within 30 days. But what you want to do is take six months or year and pay on time and then say, Can I pay in 35 days? Can I pay in 40 days? Can I pay in 60 days? You will be surprised how many people will say yes. At least some of them will, and she'll be able to hold on to your cash longer and your cash flow will go up when you develop systematic payments. You actually develop trust over a long period of time, and that's very, very important. So let's talk about inventory management and let's use Shane A as an example, so she now wants to be able to have as little inventory of instruments as possible. But she can't have no inventory because then, when her customers come in, there's nothing to buy and will have to wait. If they have to wait, they may not be able to then by the instrument, right? So you want to have his little inventory is possible and you want to have sales greatest possible. So you get a lot inventory but doesn't sit there for a long time. So in her case, she needs to do an analysis of when I go by an instrument. How long does it actually sit there and inventory before I buy it? Because remember, the longer it sits in inventory, that's cash. That's really out of my business. So she has to set. At what point does she were ordered? Mawr Instruments, optical instrument, and when she reorders, how many does she order? So the 1st 1 is What's the reorder point? When do I reorder and the other one is reorder quantities? How many day order This is an entire science people that have inventory ice on a mail order catalogue company. This was a huge part of our business because based on this, it was whether we had money left at the end of the month or not so a very important part. Overall, you have to make sure that you understand the math and part of this course on Creative Live and in various insistent. Whenever I talk to small business owners, I take them screaming and yelling through the financial part Onley because I made the mistake myself, and I don't want to see you make that same mistake again. So I understand what the math is. Don't just assume with the bookkeeper says of the counting, The Countess says is right, because that's gonna come back and bite you. Every business needs toe, have some kind of cash flow plant project conservatively, what your sales are gonna be. Remember we talked about before. If you think it's gonna be 100 bucks put in your budget, it's gonna be $50 right? Project what your receivables your inventory is gonna be and then adjust it really? For for growth. The cash flow plant, as we said, is probably one most critical areas. Because you want to know, Are you gonna have enough money at the end of the month, really, to pay all your bills? The other thing that people don't realize is there's a lot of costs to an employee. Of course, we have the compensation, right. But then here in the United States and in most other countries around the world, you have to pay your share of the payroll tax. Sure, employees get some taken out, but this could be about 11%. You can also have to pay them for time off. So if someone takes ah weeks vacation, that's a cost to you because you're not getting any productivity out out of them. You have to pay that their health insurance, which sometimes could be 5%. You might pay into their retirement fund and then obviously invested with Yoko's company, right, and that may add 6%. They're also perks that people give, like bonuses or public transportation. Um, and there's also management of that. Employees could cost 1% and then you have to give them things to do their jobs. And then there's usually 30% of whatever their cost is to train them. So the costs an employer employee is actually pretty high. So the utilization of that employee becomes really important. And you really have to figure out and again in that free download Chris of how to Get Your Business on Stuff 25 ways to get your business going in actually go through a mathematical example off how you correctly utilize your employees. So you sure you make money on them in order simply to have a 50% gross margin on services that an employee or freelancer provides? Let's say you're charging $100 for that employees time, and they cost you $50. You have to make sure that 81st 5% of the time they're actually utilized if you're gonna make money on them. We talked a little bit about budgets. I think budgets are really important. We talked about forecasting about how we need to cut your revenue by 50% and here we have two X. I'm more comfortable with four X and your budget. Make sure you don't keep revising every single month, because what's the point? It may make you feel good, but you're really not measured against anything. Ah, couple more things I want to mention before we leave the financial air and introduce our very special guest. Remember, having too much money in your business actually makes you stupid, Krista says. I hope God makes me a blithering idiot, right? That that is, sometimes if we have too much money, we end up wasting that money because we don't got I'll just throw money at the problem Throwing money at The problem is your business is not really the way to solve those problems. And you'll start to be careful because any time you grow your business, it actually sucks cash so you can grow yourself. Broke will be very careful about that. Don't worry about getting rich. I know many of us start our own business because we want to make a lot of money. It's an important part, but if you build value for your customers, you build value for other companies. Somewhere along the line you will get rich and remember overnight successes. Take 7 to 10 years. Even the wonderful success stories that you hear about in the paper. Most those people have been working on things for 10 2030 years. And finally, and I love we talked about with Karen yesterday. You gotta be cheap and partner up. If you could outsource something, go ahead and do it. So you have to bear the entire expense. So the action items from this section really are. Understand how your company makes money and make sure you have someone that you know that could review the financial statements with you so you can make the right decisions for your business. Now we have a very special guest. One of my great friends and a great small business speaker and author and extraordinary Mike McCalla, Wits who I know has had a show on creativelive. Hey, Mike, I appreciate your doing joining creative life. Can you tell us a little about yourself for the few people entire entire world? I don't know who you are. Yeah, I suspect is the entire world s on Mike McCalla. It's It's a pleasure to meet everybody. It was funny, Barry, when they said Can you great. Before it came on. They say, Can you see Barry? I said, All I see is a guy complaining about his own business. They said he had. That's Barry. Now we're fun. We're friends. Ate the banter. Ah, yes, I'm a business author. I love studying entrepreneurship. I've been an entrepreneur myself for 20 years. I've spilled and sold a couple companies and now write about the different kind of paradigms we have about business and often find why they're wrong. My most upcoming book and we'll be talking about creativelive is the paradigm of sales. Minus expenses equals profit, right? That's the formula we've all been told to use, and I'm calling it out as a lie. It's actually the worst formula to use in many businesses. I suspect many of the folks watching right now run a business that runs check by check, barely surviving year in year out. And the good news is, you're not the problem. The formula is the problem is a foundational problem with. It is a simple fix. And that's what all share. Uh, yes, you have. You have a great book called Profit First, and I think you're right. A lot of people The issue really comes into play Mike, where they're making a little bit of money or they're breaking even. But they're really not getting rich the way they want. You have a very simple solution, that which I love. Can you talk about that? Yeah, well, let me dig into the problem to explain the solution. The problem is, sales minus expenses equals profit, right? That's that's how we run our businesses, teaches us that profit is an event. So what that means is you have to sell really, really hard and hope that your sales are so strong that your expenses don't have time to catch up. Because, quite frankly, as you sell more you we find, inevitably, by incur more expenses, it's a profit. Becomes this one thing one day opportunity, but never happens in the moment. So there's this constant pressure to sell more sell more, and that formula, quite frankly, makes our business into a cash eating monster. As you grow, your business actually comes more daunting. I know many entrepreneurs. I myself started resenting my own business. So what I suggest is we flip the formula and put profit first. What I mean by that every every watching right now. Make that three D effect, everyone. Right now, I'm glad of the three D glasses on my where you got those on creativelive glasses. Right now, you can do this in your business. Take your profit first and that formulas, this sales minus profit equals expenses. And I mean by this is when you generate sales and you collect the money from the sales, the very first thing you do in your business is extract a percentage that money as your profit, maybe 5%. 10% healthy businesses. I'm working 20% gets removed inputs and put into a profit account. And what happens here now is the remainder of money is available for expenses. In our perspective of expenses becomes totally different. Because right now, how most businesses, Barry, how they run their businesses, we make sales. We put into our checking account. We log into our bank account every single day. See how much money is there. That's the sales. And then we say, Okay, I pay bills. We take all the money out and pay all these other people. We never take care of ourselves. He there's something left or of the end of the month. But unfortunately, many times there ain't. Yeah, there ain't. And in most cases there's nothing left over. And it's at the end of the year, you know, you do your tax return, your account comes back and says, Congratulations. You made five or $10,000 you're like, Where is it? I don't see it that that's a paper profit. The fact is, all that matters is cash. What we need to do is when we collect that money, the sales go into our bank account. The habit of checking our bank on every day, I'm telling, is a good habit. But looking at one checking account where all the money goes is the danger. We must extract and separate our profit out, put into a separate account. And now the money left over is compressed down. That expenses that was this big is now this big and that the miracle happens and you were suggesting it just a minute ago. Money makes you dumb. When you have more money, you can just spend it frivolously. Uh, we don't consider it frivolous. We very logical makes sense, but we can spend it when there's less money available. Surprise, surprise. We find how to get things done with less money. Innovation kicks in again, and the prophet since has been tucked away. First, we've paid ourself first in our business, now starts accumulating on the side. That's the core principle. So let's talk about the example. We have one of our guests in our studio audience arena, right? And so she runs a business, which is PR and coaching and things like that. So let's say that Rina gets paid $5000 from one of her coaching jobs, right? What's the first thing she should do? Because she had some questions in the last second about how does the money actually flow? And I think we go through a stiff example. It may be helpful, Mike, Yes. Oh, say $5000 deposit comes in the normal behavior. Most entrepreneurs that goes right into the checking account. And then we look what bills have piled up and we start paying our bills based upon an act. If there's some money left over, often doesn't go profit more often. It goes to Oh, I can finally buy that computer. I need it or make that small investment Here's what you should do. Arena when that money comes in at $5000 the first step is to take a predetermined percentage. I'm suggesting Start off with five or 10% but a real, healthy business. I think you have to 20%. But let's see, let's say, 10% just for easy number sake. So $5000 comes in. 500 gets a meal reserved in a profit account. A separate physical account from your operating your checking account. You reserve that money away now. The more sophisticated of the next level of profit first is we need to allocate money for other purposes. To you is the owner need to pay yourself? You read that you are the best employees at your business. I don't care if anyone else works with you. There is no one at your office. Says is dedicated, hardworking, as committed as you. We need to pay you. So we take, say, another 20% of that. So $1000 it's allocated owner pay. There's gonna be a tax responsibility. You'll have to pay taxes. Arena the business with corporate tax responsibilities. Roughly 15% gets allocates that so $750 of that it's allocated. Then you do the math. What's left over to pay bills, and to get this stuff you need is really gonna be 3000 or 2500 over the number works out to be. But now, by separating the money into these different accounts, you see what money is allocated to. The best analogy of this Barry is my grandmother's old envelope system. My mother did the same thing. Mike. Yeah, right thing. Every grandmother and mother did the system, and it's genius. And we, as entrepreneurs, need to embrace this. My grandmother had five envelopes she would get, say, $100 in from From the work she did should allocate $5 to the vacation fund. She would take $20 put into the food fund, should put $10 into the give back to community fund and other expenses. The house payment, what happened was there was always money available for every component because she had pre allocated it. And when it was food shopping time and there was only 10 bucks in there, that meant there was $10 to buy food, so there was always enough. She's had the work with what was allocated for that function. I think what one of the entrepreneur may entrepreneurs do is we have one envelope, that checking account for all the money in there. And we say we need to buy food and we take all the money out. We spend it and then we look back and say, Oh, how am I gonna pay rent? How much I pay myself? Set up these envelopes different accounts at your bank and you'll see where the money is allocated, what needs to be used for when every deposit comes in. So what happens, Mike? If at the end of the month or whatever period of time your expenses are actually higher, you're gonna be tempted to go into that profit account and borrow the money to pay your expenses. Right. But what I call a steal from Peter Pay Paul, you know, that's the common saying. It's very tempting to borrow from ourselves and that if you do that, that's where the system falls apart. You have to understand the what your business is telling you in that moment when you don't have enough money left over in your expense account to pay your expenses. That is your business. Screaming and shaking you. I'm trying to shake you all through the screen right now. It's your business. You're shaking, Barry, Is your business shaking? You saying you cannot afford these expenses? Find him or innovative. Way fine. Alternative. The rent for the studio space you have $1000 a month is not working for us. The business can't afford it. You have to find how to get the same thing done at half the price or 1/4 the price. And I'll tell you, Barry, when I implement this system with people and everyone watching right now should implement this starting today. It's something you can do immediately. What I like. Envelopes. Where do you buy the envelopes? You don't buy the envelopes as an expense. Are you kidding? You said of the bank account. You're not learning, but you should start doing this today, and what's gonna happen is within a couple weeks or are within a month when your bills are due and you've allocated money to a profit toward paying yourself for taxes. You will hit that that moment, saying, Oh my God. I can't pay my expenses, and that's the moment you have to find ways to cut costs and squeeze all the juice out of your investments. If you're doing stuff that's giving a monetary return, keep doing it. But squeeze everything out of it. If you're incurring cost that you're not seeing return from your business is telling you you're not ready to incur those costs. It's very nursing because I have a client that has 50 employees at the end of the year. Show only makes $25,000 I say you're basically running a public works or charity organization here. How do we get entrepreneurs to really break that cycle? I guess the question before this, why do entrepreneurs pay themselves last instead of first? How did they get into the habit in the first place? But that's what we're told to do. You sacrifice yourself is you even said yourself overnight Success happens in five or seven years and what? And I'm not saying that's wrong. People become the populace becomes aware of a significant business in 5 to 7 years, but as an entrepreneur, you know how I interpret that I got to pay my dues for 57 years before I learnt a penny for myself. But very quickly, Barry, that becomes a habits. And I got to keep earning my dues. I gotta work harder. I gotta sacrifice myself. I gotta sweat my way into success. And I'm telling you that is seeing that profit successes, a event. And I am telling you it is a habit. It's something you need to bake into your business today. I don't care if your business makes $1000 year, a $1,000,000 a year or $100 million a year. You have to make profit a habit and bake it in. Starting today. So can we. Can we work with one of the people in our studio audience to go through that? Because if we can work with Karen who just start off our business so we can make sure that she's celebrates some good habits Karen, why don't you work with Mike and what is really the goal in 2000 and actually gold this year, the second of this year? How much money do you really want to make in your business? And Mike's gonna show you how you can make that money. Right, Mike? You put profit first. Absolutely. Absolutely. Hey. Hello. Nice to meet you. Nice to meet you too. I think for yogi stream dot tv to start off the year we're halfway through the year. I know that. I would be thrilled if we kid round out the year with a nice 50,000 for the beginning of the year. The beginning. Not the beginning for you or for all of your partners for Yogi Stream. Okay, what about that? We're talking about you because you have. We're not talking about prop for the company. We're talking about profit for you as one of three partners. Right, Mike, that's exactly right. Exactly Right. 50,000. 50,000 you personally want Take home $50,000 from your business this year. Okay, So Yogi Stream is a service based business, I assume, or an online online live streaming yoga. Okay, so basically, I believe that for most early stage businesses that do under a $1,000,000 in revenue and from what you're saying, I think you're doing under a $1,000,000 in revenue. That's where most businesses are. I believe they can take about 10% profit and I'm writing this down. That they can take the owner pay could be up to about 25%. Paying yourself that taxes is usually a 15% liability. So that's 34 then 50% of your money is left over for operations. And I don't know how well this will go over this the TV. But I kind of wrote down the different allocations. So we knew is we take your $50,000 If you could see this and we divided by 0.25 Now tell us the revenue we need to achieve so barrier. Could you do that number for me? Oh, way. Start dividing by decimal. That's kind of where I draw the line. All right? I actually think it's multiply then by four. So what is that? $200,000? 200,000? Yeah, I just woo Wow. Wow, We're in the presence of a genius. Look at that. That good job. So the first thing that comes to me, Karen, is we need to do in your business $200,000 in revenue to reasonably support that. Now. If what's your business doing right now? If you're willing to share that. What kind of revenue? We just started. And so right now we have start up costs with no income at the moment. So income zero. So the first True. My wife signed up last night. So we're there. Okay, guys, we got one client, right? So the lesson is, when you're just a brand new start up is you figure out you can pick any number you want. How probably want to be or what you want your pay to be. We want to be 50,000. Then we can back calculate to our revenue target. So we have to figure a way to make 200,000. And this this first step is often an eye opener for many businesses saying, Oh, I thought I only had a 50,000 right? I only want 50. I thought I need to make 50. So the first eye opener is if you want, take home 50,000. The business needs to make 200,000 I found. For many businesses, this changes the perspective of what they sell. A item that sells for $10 a month may not work. I made the find how I can sell stuff for $200 a month or something like that. So that's the first thing I dio. The second thing is, if you had some revenue, say you were doing about 50 or 100,000 currently, I would then say Okay, if you're doing 100, that means and you want to go on 50,000 lead to allocate 50% of your money toe owners pay. I don't know if you can sky, you can see that. Uh, okay, that means that this 50% for operations now becomes 25% so you can shift the percentages around. I don't know if you can. Okay, you can shift the percentages around. So while I'm saying you start with a 10% profit for most businesses, 25% for the owners pay 15% for taxes and 50% for operations. If we're a smaller revenue business, how do we get the owners pay up to 50%? But would that will does is we have to take less in our operations, we got squeeze our operations. So now that perspective comes okay. At the start of cost you had How do we stop any new costume coming in. And how can we still deliver the same goods on do the same thing, but but less expensively so immediately? Uh, because your brain is startup, I'm thinking, How do we get costs so thin? But but prove out this concept and can start selling it. That's where I would start if you had some revenue. If you had 100,000 so coming in, then I start shifting around, allocating more donors pacing. I could squeeze down costs, and I do no hard and fast. If you do 200,000 and revenue in your in your business, you can be taking home 50, plus plus 10% profit so you could take on the other 10,000 for you. And the taxes 50 will be paid for you by the business. So that's a real take home, a dollar amount. That's basically how it gets started and came like the key here really is that as a business owner, I need to selfishly guard my profit because again, if I'm not making a profit, then really what am I am business for? Yeah, Yeah, that's exactly this strategy I'm telling you isn't is a behavioral strategy. Traditional accounting is counting because of something is very logical. Sales minus expenses equals profit. And Karen, that's what you're already doing. You start telling your costs right away, and that's very logical. I'm here to say that entrepreneurs, humans, we're not logical were behavioral were driven by emotion. And the problem with that is when I see when you see money come in, you're gonna make emotional gut decisions saying Awaken, allocating expenses, Aiken grow the business and so forth. We just need to put a guard rail that captures our behavior and takes our profit first. And if you start taking your profit every single day, you get one sale last night. Karen from Barry's life you got there should be a profit this morning. Allocated the natural tendency of businesses say, Well, I can now pay some most costs. I had no, no. Take your profit first. And if you make this your habit every single day, start taking a profit. You'll start automatically and instinctually adjusting your business costs and operations to ensure that profitability is perpetual. It's a great point arena. I know that you had a question is great. So now we're going to check in with you the first year to see that $50,000. Right? Apple, Right. Reno, you wonder you have a question for Mike. So you were I was kind of referring back to what you were talking about with Karen as faras allocation between, um, owners pay shifting, the owners pay and the operations, when you're just starting out for owners, pay to be greater amount. Because the owners doing all the work through the employee, the owner, your everything, right, Right. So when one gets to the point where they're overwhelmed being everything and ever to everybody and they want to start allocating things out in operations, then that then that's when that starts to shift exactly under certain stages. And you've totally set me up here. I This is actually a free download. I'm giving creativelive. So when you sign up, this is one of downloads. But it's a fundamental thing you have to be aware of as your business grows. Um, you will. Your responsibilities will change. There's a fantastic book out there by Michael Gerber called E Meth and an e myth. He shared the core principle. Maybe you've heard of it he says, Don't work in the business, work on the business right? And and I wanted that I had dinner with Michael Gerber about two months ago in Mexico, and I said, You don't challenge your concept because while I believe in, it's accurate, it seems like it's a switch go from in toe on. But the reality is it's a transition. When you start out, you're everything to your business, and we need to pay you like an employee and owner, and that's why you get paid more. But over time, when you become a $1,000,000 business, you're still working in the business. You're probably the number one sales person. You're so managing h r. So even as you get bigger, you're still employed. But not as much. So you're right. Your your compensation starts. That percentage starts decreasing, but it doesn't just switch right over. And so as your business grows in size, your compensation percentage will decrease over time. Your profitability should increase. And so I have all these pretensions. I studied about 100 companies of different sizes and found the rough, approximate numbers and a method to find exact numbers for your own business. and, yeah, it's a free down little creative life. So So definitely I'll take him through that process. As from from entrepreneur to business owner. Company owner? Yeah. Yeah, that sounds like I think we're we're entrepreneurs, you know? Think about, um, Jeff Bezos of Amazon. He's still an entrepreneur, right? I mean, that coming billions. But I'll tell you this when Amazon has a big sale, like a big corporate relationship, they're selling like $100 million deal. Jeff is at the table. He's acting as an employee, so you never switch all the way off. You just switch slowly as you grow. One of the question that I had for you, Mike, was that Ah, lot of people say okay, I know I have to reduce my expenses in order. Pay my profit first, but people go. I don't know. I gotta have that expense. And I have to have this one. And after this one, have this one. How do we distinguish between the must haves? The half the haves and the want? 1/2. So how did we do that? Because many times have to break the paradigm in order. Say All right. This is improbable. We got to do it a different way, right? So their expenses can be broken into two categories. Costs or investments, and we need to distinguish is they cost something where you put money out and there's no return or the return depletes immediately. Then there's investments, investments where you put money towards something and it returns. And again, just like the Michael Gerber example. This isn't an on off switch, their stuff that's in the middle, like renting office space. Is that a cost on investment? It's a cost because I was cost. Unless you're retail establishment, it really is a good investment. Exactly, exactly. So you have to gauge in your instance, I believe that most of the costs expenses that businesses are in fact costs. You need to find alternative way. But here's what you should dio sort out all the cost you're currently incurring by the most or biggest cost of top to the least cost of the bottom. You know if it at the top is rent and your staff is the most costly and the bottom is paper like, you know, you buy $50 of paper supplies every six months, but your rent is is $1000 a month. Getting rid of the papers may feel good, but is gonna have no impact on your business. So start with the biggest cost to say how to, like, get rid of that $1000 rent and get down to zero or a very low number yet still derived the same benefit, right? It is a great example, because that's what I went through when I ran this assessment on my own business. I did have $1000 rent month, which I thought was very reasonable, and I ran this assessment and I was $5000 over where I could afford to be and be highly profitable. So I said, Huh, I can't afford this rent. My business is shaking me now saying, Mike, you can't afford this. And I I literally moved from an office based to a factory where I got free office space, the front of the factory and free. There they make cookies free cookies so I can get a deal. Yeah, you know, the little I got a little stomach free space. There's always an alternative. And here's Here's the proof. It's happened for every entrepreneur in the room and ever and watching right now, if you've started a business, you've already proved you can get things done by hook or crook with basically no money. As you've grown, you've become money dumb as barriers pointing out earlier as monies come into your business. You've relied on that. Go back to your original course elf, and you will find innovative ways to get the same thing done at practically no cost. This is great information. I just want to point out that if you do trade rent for the cookies, this is really what happens. Mike, thank you so much again. This is really a different kind of concept, and I really believe that something we have to adopt because so many times entrepreneurs of small business owners work there but off all year. And then they looking to go, Oh, my God, I'm making a lot less money than did when I had a job, and if you pay yourself first, I'm going to go a long way