The Quarterly Adjustment


Manage Your Money for Maximum Profit


Lesson Info

The Quarterly Adjustment

On a quarterly basis, you're going to make a profit but here's the deal have you ever listened to like any other news channels bloomberg or npr you're just flipping the channels as the end of the quarter quarters just for a year january february march is first quarter april may, june second quarter and so forth you'll be listening to the radio and they say, hey ford is announcing a second quarter profit distribution fifteen cents a share I remember when I hear that go good ford owner's stockholders are making fifteen cents a share their own their own business that's really tough once you start taking your profit first and started allocating inside on a quarterly basis, you are going to take a profit, you're gonna take the money in that prophet, can't you store it aside and take it out as a distribution for yourself? So maybe you've stored away five hundred bucks or a thousand bucks over a quarter when the folks at ford or given fifteen cents per share you're like I'm getting a thousand...

per share is suck it, I love it and you're celebrating so the quarterly basis you're taking out a profit for yourself now here's the rules when you take a profit out for yourself it may not go back into the business you cannot plough it back cannot re invested you were to use it to celebrate your your life to use it some way you want to for your own purposes on lee why is this because the whole reason you started the business in the first place when you started your business you started for financial freedom that's why you did this and that's why when we take out a profit it's coming to you to celebrate your life to do something with it go out for a great dinner for god's sake take me out to a great dinner do something with it but you take the money out to celebrate for yourself in the first time you take a profit distribution I don't care if it's a thousand bucks or ten bucks when you say a profit distribution and you celebrate with it at starbucks for ten bucks a nice time at starbucks for ten bucks or a thousand bucks for a nice real nice time out, you will start changing your relationship to your bed from your business. Owning me and you know this business is just taking control of my life to you and taking control your business and started appreciating your business as opposed to resenting your business. We have to get this behavior sign profit, keep storing away and take it out no plough back for investing, fueling growth and stuff like that you have to find a way to do it on what money's available your operate expenses and I'm here to tell you, and I'll say it a hundred times is if you've grown your business to where you are today, you've been innovative enough to do it with what you had it's called parkinson's law, we're all innovative enough to do with what we have, so we could give ourselves less in the operating expense account, and we'll start rewarding ourselves. We change our relationship with our business, you're going to a quarterly profit distribution, and once you do like your second or third time, it becomes the most awesome thing ever because the money starts piling up and you're sitting here I go of sixty days away from prophet, baby, thirty days away when you take your profit out here's one tip don't take all of it out say you've been you've been schooling our talk, talking away a few hundred bucks. Five hundred bucks and old man accumulates in there. Fifteen hundred box, two thousand dollars your profit account when you take your profit distribution on lee, take about half of it out and the reason is sometimes truly dark days come, I had a friend of mine is business, the building collapsed, not think I know it was there under a massive snow storm that came through new jersey. They had this prophet counts toward aside it got him by jason I'm gonna grab you not this session but next session share a personal story of how his profit account as I know he's been doing since last year it's getting you through a very difficult period so it is there for aa for a rainy day fund but a good portion but half of it every quarter is coming out and using you're using it to celebrate makes sense course there's a couple of people not that started confused we just want some clarification km shan's and I'm michelle they're asking about their fixed things like insurance etcetera that all comes out of your apartment expenses you run your business, verify that for them. Yeah, yeah. Any expenses come out of there now, prophet say, um I'll just have to trust the board so it becomes real obvious say your first quarter you accumulated around numbers take a thousand dollars in this account. Okay, you take out half of that is profit half of that's five hundred bucks. That means going to q to you already have five hundred dollars still in there now say you make another thousand dollars in profit that you put in there, but you had five hundred sitting in there because you only took half out before now you have fifteen hundred dollars you know this fifteen hundred mess it up you take out half of that's now you're taking seven hundred fifty dollars as profit and then going into q three you have another seven fifty that stays say you make another thousand dollars in profit now you have actually seventeen fifty in here and then when you take it out it's roughly nine hundred dollars that's coming out it's profit so by taking out half of it over time your profit will actually increase a little bit it does cap off by doing this about six times if this profit level stays the same a certain point this well kind of crest and your profit distribution we about the same coming out of your accounts every single time but you only want to get half of it see if allover of a rainy day fund so makes sense everybody have question mike from daydream no sorry from future vision for people vote on this one when you have a significant amount of debt how do you manage profit? First they said they've actually been taking out five per cent of everything coming in and putting that away separately but they're not sure that's actually the best idea to be dealing with debt yeah, so we're going to a whole section on debt but I'll give you a little tip now is you still do profit first proper first means I don't care what position in our house much of business has been struggling we have to establish this new process we need to capture your good habits and put these guard rails around it then there's a mechanism for destroy called the death if the debt party there's a way to destroy debt from the profits are coming in so oh that's just my little hint but it's coming your way the last thing I wanted to share with you before we bring on our guest is this is the percentage is um so your income account represents one hundred percent of the money that comes in from sales okay, your profit account you're going to have a percentage now in the next segment we're gonna talk about the specific percentages so I'm just going to give you a rough number based upon small business lots of small businesses will post about five percent to profits owners pay upwards of fifty percent for very small businesses now again it depends bun the size of your business the revenue you're making this number can change dramatically so don't take this as fact these were just some some rules but I'll give you the facts in the next second tax for most businesses is somewhere about fifteen percent of the total income the businesses so sign attacks so that the owners pay so the owners tax liabilities are taken care of then the difference five six seven operating expenses is thirty percent now I don't know what your business is running like now and I'm saying this represents for a small business a very healthy set up if your business is not doing this now maybe for some of your businesses you've had zero percent profit right um maybe your pay you're taking twenty percent of your income maybe taxes zero and about eighty percent is going to operate the business if starting tomorrow you take this business house running today and you just throw into his new percentages it's like taking a frozen mug in the freezer and sticking into our hot iron hot oven it's gonna shatter it's too much of a change these percentages that were to go into in the next segment we're going to go into these things I call these taps target allocation percentages these air taps numbers were targeting but if you start with these taps right from today is confusing hack out of me is that mean okay so this is uh deborah on the phone okay okay okay, I got you um so your taps is the target allocation percentages what we're hoping to get to this is what I call caps your current allocation percentages were absolutely we're currently doing the last thing I want you to do on a quarterly basis now we have this rhythm of the tenth and twenty fifth we're paying bills allocating money on a quarterly basis we're taking a prophet on a quarterly business quarterly basis were also adjusting our caps current allocation percentage if you had no profit travis last quarter in your business I want you to do a puss why call the plus one bump is up by one percent so whatever your profit was last quarter and if you've never complaining proffers before you don't have any profit right now I just want you to add one percent to it so you're new cap will be one percent if you were taking his owner twenty percent now we're moving up to twenty one percent you weren't al kane tax before we start one percent and then the difference he's going to take it out offering expenses it drops to seventy seven percent and that should come out that's our new allocation then next quarter we add one percent one percent one percent again and we start adjusting our business slowly. It starts putting pressure on our operates pence's and start squeezing it down. But it's not this brutal fast change itjust squeezes overtime and by doing that, your business will have time to adjust. That's how you handle that debra's been implementing this with businesses throughout northern jersey where I first matter and also in new york so why don't you bring her up? I'd like to say I never yeah, there she is hey debra hi mike, how are you? I'm good. How are you? Good. Are you in new jersey or looks like you might be at your house in pennsylvania? I am I'm in pennsylvania in my office. So debra, I met how emilie five years ago I think probably I remember you saying that your vision was to have a place in pennsylvania and, uh and you did it. So congratulations. I did. Thank you. So you've been working with clients uh, implementing profit first for years now, right? Yeah, yes, about three years. I'd say. So what we just did in the o r session here is I introduced everyone to the methods the main methods of seventies multiple accounts doing the allocations on the tenth and twenty fifth what's been your experience with your clients when you first bring this to them? Are they like, oh my god, this is perfect and are implementing it or is it is it told his ass or somewhere in between it's really a mixed I have clients that jump right on board and we get started and I have clients that I need to kind of lean into it and once we get started they're excited and once they see that there are some result of course they get really excited and how long does it take to get results from your experience when you start doing these allegations that's a little bit difficult to say because it depends on the current situation financials situation of the client at the time that I come onboard sometimes the clients are in a disastrous mode on other times they're they're running pretty good and I'm able to move right into it very quickly and we start seeing results within the first three months if not sooner okay s so but if someone's in disaster mode was that mean that they have tons of debt or what experienced yet awful cash flow if any cash flow er usually it's a lot of debt I've had clients where they're they're very close to bankruptcy and we start implementing this a lot slower but we have been able to turn them around and so okay so what's the technique to implementing this too right sizing it for your client's circumstances the technique the technique basically um the first thing I do is go in and life all of their financial structures their cash flow um I happen to be a pro involved is there for quick book so I go in and make sure that the quickbooks is providing intelligent information for them to baste the progress on and then we just start implementing it we start very conservatively and work from there okay? And I think that's why he's trying explain I called think caps or current allocation percentages to start with a conservative number have you find people try to start with a big number and then they lapse back because it was too big to start with yes, it was and then they get front straight id, right? So it's a you sell more details around that or a story around that where you've had a client that's okay, too much money to profit from the get go too much money to their own pay and then were the consequences were when it didn't work out? The consequences are of course, then there's not enough operating funds um and you can't pay the bills, and then we end up taking back the money that was put into those other funds into those other accounts, and that defeats the entire system right mean, everything it defeats the entire system, plus leaves a very negative taste in their mouth, right? You know, right? And, you know my experience, deborah, because you've helped me implement debra, by the way, is a book a bookkeeper, she's a prophet first professional and we've been working together, helping many clients with this. My experience is when someone goes in to intensely too fast put kallick it's too much money that they're turned off the system forever because they say it doesn't work now have you experienced something like that, too? Not really because I am involved with them on daily basis. So where? You know it's a continual conversation and we get it tweets to something that's more comfortable at that moment with goals set in place. But I use ah, cash flow projection worksheet that helps us get to where we're trying to go. And is there any common areas where people your clients you find are spending too much money where they can cut back on expenses is their typical areas that we should look as we ratchet back expenses in our own businesses? Yes, one is payroll on the other is cost a good soul, depending on your business. Okay, so they're usually the two cores. Okay, so payroll means employees that you're paying? Yes. And so that sounds pretty scary. So if I want to reduce payroll is I mean, at the lay off people, um, potentially main have more employees than you actually need to produce the work. And I have I have had clients. Absolutely. That is the problem. Yeah, but the employees were busy, right? They find a way to keep him busy. They're all active sometimes. Not. Okay, always. I've walked in and see them having a party, so, you know, a lot of times, the owners are not totally aware of what the employees air doing or how much productivity they have let me ask you this on this's curious from your perspective, so you're the bookkeeper, you're the one who's the bearer of bad news, and while they say, you know, don't shoot the messenger, I suspect when you come in, typically to clients that you're spending too much money of too many people there angry at you typically that true or not, no, not usually the employees may be angry at me, but okay, okay, the owners, usually usually the owners are not getting paid or they're not getting paid what they should get paid. They're struggling to against meat, and they're looking for answers of what needs to get done, how to streamline, how to make them busy, boy efficient and okay, so these owners are underpinning themselves when you implement the system and you tell them they gotta pay themselves. Mohr what's the response they're getting excited good, very, very excited, good that definitely helped the process along with the image that someday they're going to get a paycheck, or at least they're going to get more pay check than they've been getting and why a final question for you is when you implement this approach, these percentages private first approach for your clients, are you finding that at a certain point? That they kind of run with it on their own and they get it is there appeared a time or do they need your assistance the whole way or how's that work they do get it once they start seeing some results they do you get it and they get totally on board and you'll see that the mindset changes on how businesses run, which is usually why they call me up to try to get them out of the situation. Okay, so then so then here's my final final question after implementing when these company starting their profit first, when the owners are paying themselves first what's their relationship to their own business after they go through this process they're much more involved and they're more choice they're more excited about being owners of their business. Okay, great. Thank you. You passed the test? I think, uh, I think all answers have been answered, deborah if if someone wants to reach out to you how two people contact you if the questions you can call may you want my phone number? You know, when we get a lot of phone calls, I don't know sure maybe I know more than willing to answer any questions and the phone number is nine, seven, three, six one eight I'm too eh? So I just here's why I suspect your phone system just went down uh, there's three thousand people watching. How about three thousand phone calls coming in? I hope tina at the office is ready to answer a lot of phone calls, but, debra, thank you, it's, always a privilege talking with you here. Welcome. Enjoy the rest of your session. All right, goodbye, my she's. Awesome! And one thing I tried to egg you're into, but I maybe she didn't experience this. I found when a bookkeeper and accountant, some, like debra, comes into an office, they're often the messenger and saying, listen, you have the more profitable you can't afford this expenses, and all the owners, like you don't understand my business. I'm unique. I need this money going to these different things, and they shoot the messenger. But once you implement this system, this becomes a messenger, and then the people you surround yourself with, just become your allies and helping you.

Class Description

Ready to take full control of your business’s financial health? Join Mike Michalowicz, author of The Pumpkin Plan, The Toilet Paper Entrepreneur and his newest book Profit First, for an immersion into understanding the shockingly simple principles behind financial management and leveraging it to grow your business.

In this course, you’ll learn the core four principles of financial health and how to use them to create a profitable "rhythm" for your company. You’ll also learn about the psychology of managing your debt, whether you’re struggling with credit card debt, loans, or personal guarantees. Mike will also cover ways to bring new money into your business through cost-cutting, renegotiating, finding lost revenue opportunities, and much more.

By the end of this course, you will have escaped the panic-driven cycle of operating check-to-check and you’ll have a foolproof way of ensuring that your business becomes permanently profitable... from the very first day that you watch this course.


Ella Heath Photography

Wonderful class!! Not only is the content very impactful and life-changing but Mike's funny character made the class very entertaining - the marker on the forehead story made my husband and me laugh to tears!! We are implementing Profit First right away. Thank you CL for hosting such an amazing class.