[00:00:00] Fi Johnston
Too many small business owners focus so much on not spending too much money, rather than working out how to make more. If you like spending money on coaching subscriptions, being able to travel for work, coming to Ripple Festival, awesome. The more you bring in, the more you can spend and it actually works. You can see money building up in your expenses account, and you can start to get it. Excited about how you're gonna invest that.
Intro
If we want to be able to tip the scales towards the favor of marginalized people, we need to understand the secrets to making money in small business. The more we talk about money and the secrets that usually. Stay at the golf club, the more likely we are to be able to make money. My mission is to get more money into the hands of good people, specifically good business people like you. This is Money Secrets, the place to learn about the money secrets of successful small business owners. Let's go.
Acknowledgement of Country
[00:01:00] This podcast episode was recorded on the lands of the Wie people of the KO nation, and I'd like to acknowledge them as the traditional owners and custodians of this land and water that I live, work, and play on.
I'd like to pay respects to elders both past and present, and note that sovereignty has never been seeded. This always was and always will be. Aboriginal and Torres Strait Islander land.
Today we are talking about how to take care of your money. So this is what we're gonna cover today, cashflow problems, which we've all had at some point, and how to reprioritize them. Learning to trust yourself with money with the right system. What Profit First is all about the percentages that I reckon you aim for.
And just a final note that if you like spending [00:02:00] money, make more money, make more revenue, focus more on bringing money in than on worrying about what's going out. We'll get to that in a moment. So cashflow is one of the most difficult things to deal with in a small business, and it's also one of the number one reasons why people close their businesses down.
And it's not always that the business isn't profitable, it's more that they're not able to manage the timing of when money comes in and out of their bank account. So I still occasionally have cashflow issues because that's life. Like nothing is perfect, and sometimes even our best laid plans don't work out.
So just want to hold space for the fact that money can bring up a lot of fear. But bringing more money into your business may not actually be the solution. So here's a concept that's so old that no one [00:03:00] actually knows who said it, and it's this concept of revenue is vanity. Profit is sanity, but cash is reality.
And when I say cash, I mean money in the bank. If you are walking around with wads of cash, that's cool too. So a lot of people focus on this idea of revenue because it sounds good. It's like I'm a million dollar business owner, or you know, I bring in $500,000 a month, or I bring in 5,000 a month, or whatever it is.
But if you are focused just on revenue, you are focusing on the wrong thing, because being profitable is much more important than bringing in more money. What's even more important is understanding what money is actually in your bank account and how it moves in and out. Okay? People who focus on cash flow are the ones who understand the most important number.
Revenue is really important. Profit is also really important, but neither [00:04:00] of them is as important as how much money is in your bank account and how that is moving in and out. So for some people you might find that money, bringing money in feels easy for you, especially if you're a marketer, because marketing is one of the key channels to making money come in.
But it's this spending of the money that feels hard. So it comes in and then it's like, what the fuck do I do with it now? Or it might be that you find both of these hard, that you are having trouble bringing in as much money as you want to, and once it comes, you're still not feeling totally confident about how to spend it.
So there's even a song about this mo Money Mo problems. So it's a real concept that when we grow too fast, we will have cashflow problems, especially when you are growing a team or you are growing as a product [00:05:00] business. And the reason for that is because our expenses always come before our income. So if you are expanding your business in some way, you'll notice that your expenses start to increase.
And there's often this delay between you investing the money and the money being returned to you. So that's the bit where a lot of businesses get into trouble is during that growth phase. But there's also this belief, especially with women. That really sabotages growing our businesses, and it's this idea that deep down we don't actually trust ourselves with money.
We don't believe that we have the ability to manage large amounts of money, so we sabotage our income by doing things like taking too long to get back to a lead and losing the lead, and therefore the revenue doesn't come in. Or it might be that you discount somebody right at the [00:06:00] death knoll of getting the invoice to them because you just all of a sudden feel flustered and it's like there's no way that I could send that invoice, which happens to everyone.
I still sometimes have funny feelings about sending invoices out when they're large, and so a lot of that comes down to the fact that we don't have evidence for the fact that we are good with money. So if you think that you are not good with money, which a lot of us do, you will probably be doing things in your business that stop you from making money, and you probably won't be conscious of it, but it's something that if you can look back and reflect on your behaviors, you might start to see.
But the really cool thing is, and you can take this from me as being an expert. I have been watching women manage money for 25 years, and we are really freaking good at it. We just think we're not. In my experience, women are better money managers [00:07:00] than men. So a lot of the women that I work with, especially my one-on-one clients, they have huge cash reserves.
The male led businesses that I work with don't have a lot of money in the bank because they're always spending it. So one isn't better than the other, but it's just something to give you more evidence that women make really good money managers, especially when we have a really good system. So if you want to trust yourself, so who wants to feel like they can trust themselves with money?
That when money comes in they will always know what to do with it? It's definitely something that I'm aiming for. And the larger, the amount of money that comes in. The more that this will push up against your kind of triggers, right? Because money isn't something that we just do and then it's done. So like I meet people and they say, oh, I've already worked on my money mindset.
I'm like, cool. So you've worked [00:08:00] on the thoughts that you've already had, but there's gonna be millions more thoughts to come as you proceed in your business. So your ability to trust yourself actually becomes different as your business gets bigger. Because you might feel comfortable managing a hundred thousand dollars a year, but when that amount becomes $500,000 a year, your nervous system might start to kind of buck a little like a horse that's kind of like, shit, I don't know if I want this.
Thing on me, which is the $500,000 of responsibility for that year. I've never used the horse analogy before, but it made sense in my mind when I said it. So this is what Profit First is all about and we have a lot more resources around Profit First in Kajabi, this is the starting point. So Profit First is a book and everybody who's recently joined will, uh, be about to receive a copy of the book.
So that is our [00:09:00] gift to you, that you'll have the book there to read at your leisure. But I essentially, it's a philosophy around deciding to be profitable at all times. What's happening in your bank account is often quite different from what's happening on your profit and loss statement in zero or rounded or whatever you are using to manage your bookkeeping.
So accountants, which is me, we say income, less expenses equals profit. So what that means is that whatever you have left, if you have any left after paying all the bills, will be your profit and that is very passive. What Profit First says is income, less profit equals expenses. So in other words, profit comes first and the expenses are what's left.
So it's a direct flip on the way that [00:10:00] accountants talk about money and have talked about money for hundreds of years. So the idea is that you decide. How much profit is it that you want to make from your income? If you wanna make 20%, you can only spend 80%. So it's just a direct flip that says, I'm not just gonna have profit left at the end.
If I'm lucky, I'm gonna have profit left at the end because I'm gonna make it that way and I'm gonna make it that way by only spending the rest.
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So here are the kind of principles of profit First. They come from nutrition, um, and kind of. You know, a very old school, but not diet culture kind of idea around food, which is that if you separate your money into categories, you'll know where everything is. So what does that mean? It means you pay yourself first.
So when you are doing your profit first transfers, it's just a little psychological tweak, but we pay ourselves first. Then we pay our profit, then we [00:12:00] pay our expenses, and the a TO gets their money last, right? So making sure that we are allocating money to the things we need to, but making sure that we are paying ourselves first, not last.
Most business owners only pay themselves if there's money left. What I'm saying is you get paid first. The bills come second. The other thing that we wanna do is remove temptation. If you are somebody who has trouble not spending your money, which is a lot of us, so for example, if you have a credit card and you almost always are right up to the limit, you are probably somebody who has trouble with the temptation of seeing that there's available credit there and feeling like that's available to you.
So if that's you, and this is definitely me by the way. I need to keep money away from my kind of daily view. Otherwise I'll start coming up with reasons to spend it. So with our [00:13:00] profit and our A TO money, in an ideal world, you put those into a separate bank that you don't look at every day. But if you are really, really good with having money in accounts and not touching them, you can ignore that advice.
The other thing we wanna do is enforce a rhythm. So Profit first is something that we do every single week, and then it just becomes easy because we just do it every week and it's just part of the norm as opposed to trying to do it occasionally. You're just never gonna do it. You're always gonna find a reason not to do it.
Just like I now have like a permanent booking on Tuesday and Thursday nights to do my strength training. And even though I don't wanna go ever. Because they're in my calendar and I know it's there and I've already paid for it. I just go, okay, so because I'm going every week, it's making it easier to just go.
Same concept for profit first. How does the system work? [00:14:00] The system has multiple bank accounts that help you see immediately what you have to spend or invest in each part of your business. You wanna have different allocations or buckets for your business that come out before you get the chance to spend it.
So what that means is that you are actually gonna be able to make your own investment decisions with your business money without anybody else needing to be involved. This is a self-driven system, which is why I love it. Because it's not about getting your accountant to do this work for you every week.
It's about you taking ownership for your money and having the skills and the information to be able to decide whether or not you can afford to buy something, because it literally tells you, is there money in the bank account, court expenses? If not, I can't spend it on that thing today. So I'm gonna have to work out [00:15:00] how to get more money into my expenses account so I can buy that thing.
Now, not gonna lie, getting started with profit first is a pain in the ass, setting up the bank accounts, moving your subscriptions, which is probably more annoying than the bank accounts is really annoying, but it's worth it, and I highly recommend that you do not use a credit card in your business anymore.
You get to decide with your own free will, whether you want to take that advice or not. What I don't like about credit cards is it makes things muddy. So when we have available credit on a credit card and we use it, it means that we are no longer 100% clear about whether we are spending within our expense budget or whether we're not so.
This is a little analogy for you about toothpaste. So when you get a brand new toothpaste tube, generally you are gonna put heaps on the [00:16:00] brush because you can. But when you get to the end of the toothbrush, jar, or tube or whatever you use, you are gonna be putting a tiny amount on the toothbrush. But either way, your teeth get clean.
And so what happens is when we have more of something, we spend more, we use more for the same reason that when you got your last pay rise, when you worked for someone else, all of a sudden you started spending the extra money that you are being paid without even realizing. So what we wanna do is treat our business like it's the end of the toothpaste tube all the time.
So we're not about being tired asses or roos or not investing in what we need, but we're about using as much toothpaste as is required to get the result we are looking for. And then moving on, how do you slice the pie? So what we end up having is a bank account for [00:17:00] income, which is the one that you already have.
That's what your clients pay into. We generally don't change that one. Then we want the addition of a people account, an expenses account, a tax account, and a profit account. What we do is we work out what percentage of our income is going to go into each of these buckets, and so the income account becomes just a serving tray for the other bank accounts, so its only purpose is to put money into the other accounts every Monday morning.
Now I talked about moving subscriptions. That's because currently you are probably paying your subscriptions like Zero and Canva and those sorts of things. And Good Money Club, you are probably paying those from a card that's attached to your income account, which means you don't have the clarity about what percentage of your income is going to your expenses.[00:18:00]
So every Monday morning this bank account gets cleared back to zero. Some people choose to leave a hundred bucks in there in case you know there's a subscription that you've forgotten to move. And what we do is we pay based on your particular percentages. We pay an amount into people. We pay an amount into operating expenses.
We pay an amount into our bank account for the A TO and Super, and we pay an amount into our profit account. Now what we wanna do is get your mind right when thinking about this idea of profit first. So a lot of people have a negative connotation around the word profit. So what we wanna do is think about profit being profitable as something really great, and it means that you are doing really great things in your business.
It means that your pricing matches the market and you are delivering at that level. Your brand [00:19:00] marketing and messaging are working well. 'cause you can't make a really great living or be a premium service provider without incredible brand marketing and messaging. And your profit helps you to create impact for you and others.
So a simple example of this would be using your bonus to take your kids to Tokyo or whatever. So we can have a physical representation of how we can use our profit to impact us or our family. You could also use your profit to donate to charity or whatever it is that you want to do. Getting started with Profit First is a pain in the ass.
It's definitely still worth it. And if you would like to have more money to spend on things, focus on how to make more money come in. So this is not the kind of community where we agonize over $30 a month decisions, and whether or not you [00:20:00] choose to pay that annually or monthly couldn't care less. What I'm interested in is you making $30,000 decisions that work in your benefit.
Okay? Too many small business owners, especially women, focus so much on not spending too much money. Rather than working out how to make more. So yes, occasionally I'll ask you to review your expenses and make sure that you are getting really great bang for your buck. But most of the time, like 10 times as often, I'm gonna ask you to look at how could you increase the amount of revenue you are bringing in.
So if you are someone who loves spending money. Which is everybody, by the way. Everybody loves spending money on things they want to buy. It's stuff that we don't want to have to buy that we don't like spending on. So if you like spending money on coaching subscriptions, you know, being able to travel for work, coming to Ripple Festival, et cetera, if you like being able to [00:21:00] spend money on stuff from your business, awesome.
The more you bring in, the more you can spend and it actually works. You can actually see money building up in your expenses account and you can start to get excited about how you're gonna invest that. Okay. So for the newbies, this is a lot of information. It's okay if you're like, what the, is they talking about?
That's okay. Just sit with it for now because we're gonna keep working on profit first with you for the next six months. Okay.
Outro
Thank you so much for listening right up to the end. I hope you enjoyed this episode of Money Secrets, where we talk about the money secrets of successful small business owners.
If you enjoyed the episode, I'd love it if you subscribe to the podcast, but leave us a review or share this episode with one of your friends. I hope you learned something. I hope you got a new perspective and I really hope you enjoyed the listening [00:22:00] experience.
