Changing the Sequence & Allocating Profit
Second technique I learned from this fitness guys and watching tv he goes the sequence we food in is not a good sequence most of us we go out to dinner j k o we'll order a big steak bash potatoes and his vegetables and was he do he digs into a steak and the vegetables just sit there on the side maybe player and the mashed potatoes maybe barrier hide the vegetables with mashed potatoes and either all steak we need to stop going out to dinner. Giving like filming is like living in norway. Yeah, I know your life is just well so um so it's the sequence we food that's the problem when all this stuff is presented at one time we'll go to what's most appealing. If you like steak it's that if you if you like something else that's going to be the thing you like I am crazy about desserts uh I think I did not see in desserts out there during lunch period I would order the lunch break I would have ran and grabbed all of the the cookies and stuff and I have been fighting you guys away to keep it he ...
said what we need to do is just simply change the sequence still consumed the fate saying food continue the habit of eating the foods we eat just change the sequence we eat it in he said instead of serving everything at once, put the vegetables down your salad or self eat that first, the whoever's cooking on the side keep that on the side, put the vegetables down, then eat that. What happens is we'll eat more of it because it's, the first thing served us when we're hungriest anyway, we eat it, it fills up space in her stomach and then when the steak or what ever it comes that you're going to eat next, you've less stomach space, you're going to eat less, your appetite has diminished a little bit and then you eat that and then you don't even need your dessert. So simply by changing the sequence in order, we consume less and the vegetables have all the nutrients, all the elements uh, all the vitamins that we need. So we actually have a better healthy diet. Um, well, in our business, the very first thing we need to dio looking at this account these accounts when the money comes into income account, the first thing you do is not pay bills. First thing you do is not even take money out for yourself. The very first thing you do is the vegetable allocation. The very first thing when this money comes in, you says, should be zero you bring this to zero and you signed the money to the different accounts based upon percentages, so regardless of how much money comes in here one hundred dollars a thousand dollars a million dollars you're going to do the same percentage is across the board first always allocate first, um, this clarifying question like tim es is asking, could you just clarify what size of business this profit first system works best for? Did it really not? Yes, so they're the best is any size business it doesn't matter how much money you're making or not, and I'm not saying that just flippantly I've worked now with a my first public company, that's implemented the system, they're big business and they're doing this now there's certain laws is that they're the compliance, they can't exactly this way, but they've been a profit first they're signing their profit of front. I've worked with companies that are between five and ten million and they're doing this, they have department heads, they're big enough, they have people running departments and they're saying to run your department first we talk about the profitability percentages and so forth and mo more often I've worked with brand new startups and freelancers doing one hundred thousand revenue down to zero small, small businesses actually implementing this, so I'm not saying flippantly any size business, ken and should implement this even if your cash crunched and fernando z or fernando said, as we'd say in english, is asking from which account would you take money from so you can re invest in your business? Where do you keep that, uh, what money to take from to reinvest in the business? Yeah, that's, your operating expenses reinvesting is a dangerous a term we use because it feels so appropriate. Reinvest, plough back, push back. These are all different terms we use for taking money we've reserved aside to put back into the business. But that means is some people say, I need to reinvest my profit into my opry expenses. Well, that means you should never put here in the first place. It really needs to run here, which means if you're putting more money into opera expenses, you're not running super efficiently. You have an issue going on. So the second I hear reinvest plough back pushed back anything. These terms, if you can't have your operating expenses, my question back to you is, how do we get this business even healthier, how we get leaner and meaner, okay, and lots of viewers who are joining us for questions are saying they have partners in their business do they need to separate two separate accounts for owners pay or do they separated later and just profit go into two separate yeah that's also great question so what we do first is his allocation writes the income comes in I don't even see the lines I didn't do such a great job here but this seven thousand bucks gets allocated based on percentages different accounts one of them is the owners pay account this account is for all the or is your business many businesses have two partners maybe the distribution of ownership is fifty fifty it's a curse on you and I were in business together going fifty fifty when it comes to sharing the profits fifty fifty percent ownership is fifty fifty sharing in the profits now our owners pay our pay for the work in our business maybe different maybe you're working really hard your design that proxies stuff I am just processing the orders and running into distribution but you're doing most of work and we've agreed that your salary should be higher than mine then your salary and my salary is coming out of here based upon the apportionment that we've agreed you were gonna make it was for a round numbers you take one hundred thousand this year congratulations yeah you keep kicking ass on I take fifty thousand well then the distribution is whatever the percentages work out that they'll be easy but it's not you're taking I know you're taking like seventy five percent I'm taking twenty five percent or whatever that's not doesn't sound right but we break out the percentage that way we need to also ensure the company has enough income coming in and that we're alka enough percentage the owners pay that we could make that a reality but if time slow down the income isn't is basically one we keep our percentages so the owners pay all comes out of owners pay as many owners is there are comes out of here yeah so say in my business I do have partners that we have actual percentages that are written into like the operating agreement right or I think you're hot shit right now I'm not going to come on up to the hot seat here an election coming up I hate that we take did you tear up the second one you have rid of both of you okay you're staying right there so let's all right so kirsten's business uh sprout right shell sprout show okay, who are the owners? You have you okay how much do you want? Uh forty well currently signed agreement wise what you really legally I will kill you anyway currently I own fifty one fifty one percent ok and who's the other owners can you share their names? Yeah, my mom mom industry mom because my mom yeah that's her name everywhere I have one e she has five percent okay moms gouging you I'm kidding okay and uh my aunt and her name yes okay legally she has the right is that forty six this is fifty sixty fifty one plus five fifty six whatever our differences with you on a different ship whatever that yeah that's forty four okay how much do you have you discussed salaries for each other we're just okay because there's no sours currently how much work you put in the business so you do a hundred hours no one hundred percent of the hour so your mom's a silent investor effectively both ain't silent when it comes to dinner right you the baby you're running the business okay um so they invest money how they get this percentage is just in the beginning um my mom invested money okay? I mean it was both of her nice company um and our percentages were different then when we started and then we brought our aunt my aunt in she was investing money and she was helping out and she was doing stuff ok and so that's how it goes then broke out so this is what's called equity distribution they use and they used to do stuff but they don't know so but that's why I said legally this is what we all know what you need to do with your partners your mom and your aunt and what we need to their business partners is realize there's two types of participation in business there's equity participation equity means the actual owners have usually occurs by exchange of money or they call a sweat and where someone makes effort exchange of being paid they get percentage it sounds like your aunt was a very sweaty person she sweat her way and she did good so she sweater way in sound like mom gave you some money. So this is your equity distribution equity gets distributed through profit. Okay, so as the proverb comes out, if they say it's a thousand dollars to make this round when you distribute profit, you get five hundred ten dollars, your mom will get fifty bucks and your aunt will get four hundred forty bucks. Okay, what equity? Now, hourly, you have to also agree with your partner's on what your salary is and doesn't know what you've agreed on that. No, but you are working one hundred percent time. They're not working any more, presumably if they agreed to it, all the owners pay will go to you if they agree to that great he's got together agreement writing. Right? Okay, okay, so that's, the big thing is owner you, as an owner of an owner operator of the business, are getting compensated from the business two ways your pay for the work you do that comes out of here and then your profit, which is a percentage of this money. The pay you should determine a salary your business and it's. Real simple way to look at the history of your business and say, over the years we've made x number of dollars on average per year. Therefore, it can reasonably support a salary for me of five hundred bucks a month or thousand, whatever the number is. And now we have it in our target is to do better than that. Accumulate more than that and raise your salary. They make total sense, like martial sense or no sense. Yeah, no, that makes a lot more sense. So, yeah, that's, how we have to get going. So eat okay. Okay. That was an easy one. You can take the gun with us. So step one was to set these different accounts. Small plates. Step two is your vegetables first allocate money first. And kirsten, thanks for coming up on explaining kind of breakdown, which is very common. What you're going through experiencing third step. This fitness guy says, remove temptation now my temptation, uh, kind of spoke up here are three things twizzlers I'm enjoy. And chaka dials so I love twizzlers like addicted to them if I drive by any convenience store gas station I feel like I could feel the steering wheel this nudging in and like twizzlers I'm enjoy same thing you'll see armand joy wrappers anywhere in my facility and chaka dials is even rember the chocolate I'll anyone you brought him back they brought back I heard I was tempted to bring you one today but I did just it would be I could not obscene chon if you don't know chalk it all up this is a treat from the seventy uh you're the twinkie is right oh yeah okay a chaka dial is a twinkie covered with chocolate and wrapped in love it's so delicious thing so temptations any candies, imitations or anything guys to giving into the jelly mallow oh yeah it was also in the seventies but I could never say it so I could only have it if I could point to it in the store the jelly mouth one of those places like a marshmallow with it wass with kelly in the sense that he's all wrapped in chocolate yeah, nice any other temptations like girl scout cookies? Yes and what's the best girl scout cookie and I like that you're wrong it is the samoa samoan you're that's a runner up and other temptations you have me to yeah cheesecake factory cheesecakes good key lime pie okay, temptations. Not like, uh, shoes. Perfect. Okay, the thing with temptation is this outworks. If there's thin mints put in front of you, you're going to struggle to not eat it right? It means your favorite girl scout cookie and I got a minute, it's a good cookie you put samo is in front of me done cheesecake. You know, rick and I were going to fisticuffs over this cheesecake. The most effective way not to consume something that you're tempted by is not to be tempted by in the first place. Get out of the room so it fit the sex works that so here's an easy thing. Like if you don't want to eat twizzlers so you could say to me, but this was how I absorbed it. If you don't want any twizzlers or almond joy, don't have in your house, we have soda thing going on in our house for a while. Um, I didn't drink much, so did buy drinks. So did my kids, and we'd stop minnesota. This is about ten years ago. I haven't exploded out in in ten years in the ten patients waiting so much. Actually, if I see the store on uneven, like, buy coke for myself or whatever, remove the temptation. In our business we need to ruth and ten patient and everything it was john who pointed this out, he says you know, when I see the bank accounts set up like this, I still see twenty thousand dollars here still got twenty grand and yeah, you put it in their profit account, but if I'm tempted I need that money I'm gonna pull it out you have been reserving money for taxes I know I owe the government but the government can wait they don't care they care here, you know I'm not pay I won't pay taxes right now borrow the money and I'll pay him later then we take the taxes, we spend it on expense and so forth and then city of san francisco comes in where's our mining right we need to remove the temptation to borrow from ourselves it's so easy borrow from ourselves so here's what we do well, here's the two things I love for you do by the time we're done with these two sessions tonight said multiple accounts you got the five accounts income profit owners pay tax and operate expenses get account or two accounts with another bank, not your current bank so if you're working with bank, eh, don't go to bank a for more counts I want to go to bank be if you're working with a large bank chase I n g whoever's out there go to a federal credit union started something with with with an f c u go to go to a large back several separate bank and the idea is tohave also they're a profit and tax account the reason we want to do this is that when we transfer money into these accounts the profit tax air first bank were then immediately going to invoke a transfer over to a second bank where it is not easily accessible I've a friend his name's peter laughter he's a very close friend of mine we had a conversation this morning he's got business on wall street in new york uh and um he said this prophet account we had a conversation about his business and he's like you know what? I'm gonna set up profit first this process we're talking about his business, he says you know, the challenge I've had is his business as a huge sale cycles that huge drops he's like we put money aside because I'm tempted by a lot I borrow from the lot he's gonna set the second bank he recounted the story to me it was kind of interesting he went to this second bank and he went in said uh I like to get some new bank accounts to store some money there they said great they said, you know we've always convenience options you could do online banking we could do we could give you an apt for your iphone you know all these things he says I don't want that I don't want online banking don't want app and they said well would you want to store your checks? They don't even like checks and the bank is like what we talked about you like I don't want any convenience options whatsoever the on ly waken withdraw money from this bank from your bank is if I come down here personally asked the bank man should come over and she has already banker's cheque to me that we countersign he made it so inconvenient that when the money was put there it was no longer tempting for jeff day that taking taking your thin mints you freeze um like sub zero put him into a locked box and shoot to outer space you any good talk from bow write the same thing the temptation wants so removed that you can't get to it and that's what I did now people people see this they go mike why even have these profit tax accounts here at this first bank if you're saying I gotta move this to another bank so it's it's out of sight out of mind why don't I just take it right out my income account? The reason you do this is the allocation vegetables first will show you where your money is assigned to and can happen instantaneously if you order your bank today online whatever money's in your income account you could transfer today into these different accounts will happen instantaneously if you tell a second bank too with pull money from here we'll take a day or two for three days and that's a day or two or three days of temptation of it sitting there so by moving the month these different accounts at least for momentary amount of time for two three days you see where it's allocated its reducing your temptation temporarily before the money's pulled out entirely makes sense okay yes john so in bank one the accounts really the prophet account the tax count could be checking accounts a supposed to savings accounts here too right? They should be savings a constant bank too but they could be checking it could be checking here yeah you are going to make frequent distributions from them to the ones that are going to be saving correct these could be checking accounts in the last step will show you why you're not going to eat every single day and why these can be savings accounts but you're totally right you're totally right and it may just be the easier thing to send his checking account's the reason I set them up a savings account account is because I do this last fourth step that I learned from the health industry it's called frequency what this fitness instructor explained is uh the problem with with our diets is often most people eat too infrequently or too frequently not the right amount most people weeks actually eat too infrequently we all have you know, lunch, breakfast, breakfast, lunch and dinner planned but then we skip breakfast you know I had a rush to get here quick by as um as I'm coming in and then buy lunch I'm starving and I eat too much and then dinner I skip again because it's gonna be a late night most people plan to have three meals a day and actually have two and they're our stomachs we go into almost like a starvation mode we're too hungry we overeat conversely said another portion people are eating way too frequently called a constant stacker you know we're snatching the desperate eating is air going either way results in too many calories too many calories translates into waking and we start to become unhealthy so he said actually for the diet the best frequency may have heard this is actually five meals a day and you know it's a breakfast, a small breakfast snacking between lunch small between dinner and a late dinner and your office sleeping is a small dinner so we need to achieve these five meals a day this kind of frequency well guess what in our business we have the same kind of relationship most business owners uh managed their books the financial part too infrequently or too frequently I don't know if we want to show my hands, but your bills do you pay him? Sometimes once a month? Do you pay him when the money's available? You kind of panicked, you do it whenever dollar comes in and you pay your bills, he has experience that you do somewhat so you guys, a lot of businesses are on a pay when I got rhythm, which is the constant snacker, I got the money got little money or just wait and wait and wait until the last minute of the phones ringing and you're collection calls and where is our money? And I just got enough pay all the bills I can and I'll start panicking all over again. We start gorging inter businesses, I argue we want to establish my called the ten twenty five rhythm. The ten twenty five rhythm is what we want to have in our business what it is is paying bills twice a month to his allocation twice about going through the financial management twice a month. The reason I called the ten twenty five is I found there's actually two magical days a year. I'm sorry. A month to do the profit for a system I'm teaching you is the tenth in twenty fifth these days are such great days. Because that thiss counter size and my thought, but the tenth. If you pay bills on the tenth of you, send money on the tenth, they'll arrive to your vendors used by the fifteenth. Most of our bills are due on the fifteenth or the end of the month. And that's. Why? If we pay bills on the twenty fifth, they arrive by the end of the month. So by paying our bills doing this money management twice a month on tenth and twenty fifth will usually comply with the requirements are vendors have set up, says a great system to take care of our vendors. And I'd argue it's very important to take care of our vendors there a critical part of our business. But there's, something is way more significant. It comes out of this by doing this allocation, this money management twice a month you start experiencing what I call the ocean waves in our business or the tidal waves of cash flow. Any of you visit the beach in the last year to ugo? Uh, rick, when you went to the beach to are you the type guy? I do this where I take my beach chair, I find the right spots of the ocean waves just come up and I hit my feet just a little bit, yeah, that's like the best when the ocean waves stop hitting my feet I will pick up my chair and move closer right through the ocean sometimes have you had this arena? Where does it what the sleeper wave yeah, the sleeper ways what cicely I know is every time but what's the sleeper wave sleeper wave is when the pattern changes in the way of system and it washes also everything is so sick sand gets in all over your shit going on every also funny funny like I arrive at the beach I got like, you know, a little bag with my phone and stuff a sleeper wave will hit me and all of a sudden there's like matchbox cars they like, where are all these things coming from it they get pull stuff out of the earth so what happens when you buy a sleeper wave is you pick your chair up, you slide back right what's interesting about reckon rina and me what we're doing and I suspect you all do is we're adjusting our seats to the tidal waves to the tight we watch the waves, the waves are indicative of how the tide is adjusting so we're actually monitoring the tide we don't have to go on the internet and say once the tide coming in or out we just adjust to the waves it's very obvious well, our business is experiencing waves too money flows in and flows out flows in and flows out if we're doing our business like we were before where it's like I'll see how much money I have and pay bills today or a collection call comes in from someone and we try to pay the bills were not responding to the waves but by going into this rhythm of letting money accumulate into the income account let me go back to the slide uh here if we allow money to accumulate the income account it compile a pile a pile up until the tenth then on the tenth and I realize now if the tenth falls on a weekend or a holiday or something it doesn't have to be in the tenth just do the business day prior but on this particular day when the money is all piled up allocate first toe all these different accounts then pay your bills have operate expenses I'll tell you what to do with profit in a little bit owners pay based upon the sour you've determined for yourself you can take you can draw from owners pay your taxes will be transferred to the other uh temptation removed then starting the eleventh as kirsten's point earlier this account goes to zero then some money comes in money comes in money comes in by the twenty fifth all the money's piled up again then on the twenty fifth you go through the exact same sequence take the money all the way on the income account distributed to these different accounts based upon the percentages you've predetermined and we'll talk about that in an upcoming session. Um, or segment, you allocate all the money and you go through this process within a month or two of doing these allocations on the tenth and twenty fifth, you will start seeing the title rhythm, the cash flow rhythm of your business, how much money you typically make during any given two week period. And so what happens is, as these waves of cash come in a certain point, you said cash that that little way was awfully small. That wasn't why I normally get it raises a red flag. The wave is too short, it means you need to adjust and what this does is it triggers off a response where marcie, you'll go into your business and say, did I not saleh's? Well, do I need to make some collection calls me a collection aren't happening, what's going on. Conversely, a sleeper hit you, which is a blessing in this case, a huge wad of money comes in, but it also raises a flag is like, whoa, I got a lot of money and this is great, but it's different. Why are things different is are you selling better or maybe does a big order came in and you will have to account for this uh in the expenses that are coming up but it will raise a red flag? It is the simplest, easiest way to get control of your cash flow and truly understand what's going on this process of of of profit first gets to leverage or does leverage our habit of checking that bank balance earlier on I don't remember which segment it was I asked you guys said who checked your bank balance every day somebody raise your hand, some people check in once a week that have it we've been told change your habit, break that habit look at your income statement your bounce she tied into your cash flow figure this stuff out because this stuff is here I am telling you logically great you can do that, but behaviorally or habit is to check our bank balance every single day if that's our habit with this system you can continue that have it this puts the guard rails in place is that you can continue doing what you're doing and now you can instantly assess where your business stands, how cash was going, what the man has been allocated tio start becoming profitable yeah if I'm checking every day though what removes the temptation toe play with the income account well the s o the income will be piling up right? So what? First when when you do the allocation into profit and owner and attacks that money will be transferred to a separate right back so that we removed owners pay you gonna start paying yourself operate spencer's we might you have available for expenses you're gonna pay your bills all the bills you can out of that that day then my start piling up here now what happens because you're only paying bills in the tenth and twenty fifth even though you're checking every day you're simply checking how much incomes in but you've no bills dio because you paid him already then on the twenty fifth it's time to pay bills again but the first thing that binds me al qaeda here you'll see what you can pay now the days and happy I gotta run to the camera get the day's gonna happen one of these for a studio and said here what do you guys keep moving that your business your business is going to look at you and say we don't have enough money in our operating expenses to pay our bills what should I do that is when your business is shaking you saying you don't have enough money to pay them you could get a little close okay all right you twisted my nose that uh you don't have enough money so I'm paying bills so when your business when you don't have enough money to pay your bills, that is your business shaking use and you can no longer for these bills it's no longer appropriate for you, you cannot continue it and your minds and say, well, there's, some income coming into some profit? No, when there's not enough money, here is your business saying enough's enough, we've got to change with god to get healthy. And this is how any business of any size I don't care how much you're making, uh in revenue can be profitable. You've got to find another way and here's the miracle part. You guys are entrepreneurs, you're the most innovative people on this freaking planet. You will find a way. When I did this assessment for my own business, my rent for my office space was just under a thousand dollars in office in a small town called boot, new jersey. Nice office, thousand dollars very affordable. I ran this assessment, we're gonna do this next session of to figure out how much money was available things. When I came to my operate expenses, I didn't have enough money to operate the business and pay that kind of rent I couldn't do it, and so what I do, I said. Put the innovative entrepeneur kick in and I moved my business to a rent free space eyes is a guy I know who has a big manufacturing plant they make cookies nonetheless, which is ah horrible factory to be and he said, yeah there's um office space up here and we moved in and it's fantastic and a thousand dollars less the old me would have said, well, you know, we need the space really impressed his employees and stuff like that and we're gonna do is we're gonna take a little less profit now when you don't have enough money to pay your expenses, get innovative, find ways to do it there's always ways to do some stuff things for less I think this is related to this mike is the question from colleen that's being voted on quite a few times is saying she really wants to know how you avoid looking your profit account and just simply not spending the money treating you move it to the second second bank transfer money you disable convenience, right? So you don't want convenience so you don't enable online banking, which sounds weird, you know don't get a checkbook for you drive down the bank at the end of the quarter and won't talk about that a second toe look how much profit in there and take out your percentage now here's the deal jeff and other accounts and the book keepers are still doing your accounting for you. It's, not like accounting, goes away. When I tell people this system, they think, oh, I just threw out my accounting. No, this sits on top of it. This is designed for the entrepreneurial mind, but we still need to maintain books, so you actually are. Books still report this stuff, all behind the scenes, and if you want, you can pull up the report and look at it. But when it comes to the money management, you don't want to see it out of sight, out of mind.