Book Club: Profit First
Hello friends!
Welcome to our first book club post! As a reminder, this book was announced back in April, you can see the original post here. If you didn't read it in time for this post, no worries! You can read it at any time and still come here to answer these questions and share what you've learned. And stay tuned because at the end of this post I'll share the next book I'm reading in case you want to join in on that!
Let's dive into Profit First. This book is one that I read back when we first started our business and it's been really helpful for me as we have grown. I'm not going to do a full summary because you can hop over to our website and read a lot more about it here so let's just dive right into our discussion questions! Feel free to share your own answers to these questions below (even if you haven't read the book or finished it yet) - I love seeing how other people run their businesses!
*How are you currently organizing your finances?
I've been doing the profit first method for a long time, so I have several bank accounts under our main account. Every week I take the money that has come in and separate it out based on the percentages below. As you can see, I have more accounts than the book mentions which shows you that this system is super customizable! I also have adjusted these percentages throughout the years depending on our needs.
Operating (20%) - This is where all our money flows in. I use this account to pay all our business expenses and pay our credit card.
Rent (6%) - This is where I set aside money for our rent. I wanted to have this account to also save rent money since I want to be able to pay at least three months of rent at any time.
Payroll (32%) - This is where I put aside money to pay ourselves every two weeks. You can choose to pay yourself whatever is in this account, but we choose to pay ourselves a salary that we set so that our income is more predictable.
Profit (5%) - One of the tips from the book is to put aside 5% of everything that comes in and give yourself a quarterly bonus. We do this and then give ourselves the bonus every time we pay quarterly taxes. It’s been amazing to see how significant 5% is and makes paying taxes a little more fun.
Tax Savings (35%) - This will help eliminate the inevitable shock of tax time. It’s recommended to set aside about 30-35% of your income for taxes, but you’ll want to look up the tax rate in your area and talk to your accountant about what they recommend. You’ll also learn over time what makes sense for your business.
Savings (2%) - I really like savings (can you tell) and so I put aside a little money from each check in case of emergencies. At the end of the year, I try to spend at least some of this, either to fully pay off our credit card or make a larger purchase to make our expenses larger for tax purposes.
The biggest thing that has come from breaking out our income is peace of mind. Yes, I've seen our profit increase and it helps with our spending, but I also really love knowing that we have enough in the bank to pay 3 months of rent or 3 months of salary, etc.
*How do you feel when you pay yourself? Are you currently able to pay yourself a reasonable salary?
We're able to pay ourselves a reasonable salary now but it hasn't always been that way. I would say it took us about a year of running our business full time after I left my job to feel like our salary was reasonable. Paying ourselves feels great - especially paying ourselves a profit sum every quarter as a bonus because that really shows how much we've made.
*What are some expenses in your business that you can eliminate to "trim the fat?" and run your business with a smaller plate?
We're currently struggling with the balance of how much to spend on advertising because the more you spend theoretically the more you make but we aren't always seeing a huge return on that investment which makes it challenging to know if we should put in more money or decrease our spending in that area.
This year we cut back on a lot of discretionary spending on things like meals, decor, office supplies etc since we knew we would be working less. Some of those expenses feel small and insignificant but they add up and I would definitely consider them to be "fat".
The idea of a smaller plate in our business is really helpful to me, really thinking through what is actually necessary can help save money but looking at the money you have left after paying yourself and only having that money to spend really helps you to actually cut out anything extra.
*What is your current routine to check on your finances and pay bills? Are there ways that you can streamline this process more?
I currently check in on our finances weekly to break out our income, update our budget and do our bookkeeping so I stay on top of everything. This also gives me chance to see if there are unpaid invoices that I need to follow up on.
I want to find a better way to manage our budget, I'm just using a spreadsheet right now and that works ok but I don't stay on top of it as much as I should so I spend a lot of time trying to catch up and going back through our expenses. I think there could be a way to be more organized and stay on top of our spending more.
Technically all of our money is categorized in Quickbooks and I just use a spreadsheet because it's more detailed but maybe I should just use Quickbooks and have a more general budget to save me time since it probably doesn't make a huge difference if money was spent on an IG ad or a Pinterest ad, all I really need to know is that it was spent on marketing and we have X amount to spend on marketing each month right? If I really want to dive in more I can look at the items in that category in Quickbooks. I might test out having a more general budget for the rest of the year and see how that works for me. I would love to hear how all of you handle budgeting.
*Do you have multiple bank accounts set up? If so, what are they? If not, what could they be for your specific needs?
See above haha.
*What steps can you take today to create a more profitable business?
I think our biggest struggle is marketing, we want to grow our audience and customer base both for our services, podcast and our educational resources but the only way you can do that is through good marketing strategies so working on improving that is my goal for the rest of the year. I want to develop a plan for each area of our business that I will actually execute and then stick to them.
I'd love to see your answers below! If you want to read Profit First, you can order it here.
The next book I'm reading is Best Business Practices for Photographers by John Harrington! I haven't read this one yet so I'm really excited to dive into it over the next couple months and then discuss it with you guys at the beginning of August!
If any of you have book suggestions feel free to share those with me as well!
Is it the weekend yet?
Elle