Episode Transcript
[00:00:00] Excuses. Here I am. So.
[00:00:05] Hi guys, and welcome to this week's Profit first podcast. I'm Steven Edwards, the founder of Grow Profit First Accountants. We talk about all things to do with Profit first because we're Profit first certified accountants. We help people basically make more profit and make more cash, but ultimately build their dream business so they can live the life that they truly deserve. I'm a business owner myself. I, I didn't start a business just to work longer, to be busier and to be stressed all the time and to earn less money. And I'm sure if you're a business owner, that you agree with me that we have these aspirations and these intentions and these goals. We first start our business and then we kind of get stuck in the weeds sometimes. So this podcast is all about using profit versus the foundation, but ultimately giving you a compass and a sat navigation to build a better business. And if you listen to last week's podcast, I talked about my book that I. My personal book that I released last year, which is how to build a Business that runs without you. And my name's Stephen Edwards, Edwards with a pH.
[00:01:15] You can find it on Amazon. And it complements Profit first because firstly, we need to make enough profit, we need to make enough money. We need to have the profitable business to build a business that can run without us. However, Profit first goes into the financials, it goes into the cash, it goes. Goes into human nature. My book, how to Build a Business that Runs without you covers topics in terms of what you need to put in place in able to build a freedom business.
[00:01:42] And step two of the system is all about having a numbers plan.
[00:01:47] Last week I talked about having a clear vision. Just give you a recap if you don't have intentions in terms of what does your life look like, what you want it to look like.
[00:01:56] And I said to go away and think about that, write about that, journal about that, create a plan, and then to move on to what does your business need to look like to deliver that?
[00:02:05] So you, you really need a business plan. And it starts with maybe just writing down on paper what does your business look like. But ideally, there's a structure to it. There's a system. We've got one of the previous podcasts and newsletters. We go deep into that and we also help people one to one, and we've got resources to share to create your own business plan. And this week is now step two, or all about the Numbers, because you can do all this stuff, but the numbers needs to make sense.
[00:02:29] So when it comes to numbers, a lot of business owners get overwhelmed, they clam up, they get overwhelmed, they put their head in the sand, they get a little bit scared. And I just want to reassure you because you might be thinking, I'm not an accountant, I'm not a bookkeeper. Maybe I wasn't good at maths. And news alert, most business owners were not necessarily good at maths. They wouldn't. We don't have to be super academic people. Obviously it depends what your vacation is, what you do.
[00:02:58] You don't need to be an expert, you don't need to be a mathematician, you don't need to be a bookkeeper or an accountant. But what I can promise you, being around lots of business owners myself in our practice, but also masterminds and really successful, successful business owners, the best business owners, they know their numbers. And when I say they know the numbers, I don't mean, you know, a profit and loss inside out and you know accounting rules and you know jargon and you know all the tax rules and you know your balance sheet, you don't need to know all that stuff, but you need to know the fundamentals of I buy something for a pound and I sell it for £1 50. That's obviously a very simple example, but we need to get into, you know, put a bit of meat on the bones in terms of what do the numbers look like at top level. And I talk about this in detail in the last few weeks. You can go back to previous podcasts, but I just want to talk about how important that is because we need a model, and I talked about a model a couple of weeks ago. We need a model that can deliver the numbers for you and your, your life. Because we need to know what you need personally from the business. Let's say, let's say you need £50,000 from your business every year. It might be 100, you know, whatever that number means for you. But let's say £50,000, that is after tax, after all of the expenses. So it might be that we need to, you know, chuck off around, argument's sake. Let's say £65,000 in profit from the business to give you £50,000 in cash. And then we need to figure out how much does your revenue need to be to give you £65,000 in profit. That's the level of planning I'm talking at a very high level and it sounds quite simple, doesn't it? And, and if it might be that you need a hundred thousand pound revenue to get £65,000 worth of profit. That would be a 65% profit percentage. It might be. You need £200,000 worth of revenue, which would be around 33% of net profit for every pound. So that means. And when we're talking net profit, how many pennies in the pound are you keeping at the end? That's all. That's all we're talking about with net profit percentage.
[00:05:03] So am I keeping 33 pennies in the pound or am I keeping 66 pennies in the pound? But you need to say, right, do I need £100,000 to give me the amount of income I need personally, or do I need 200? We want to start there. And then what we do is we say, right, hopefully it might be that you're close to this figure already, but I'm talking about have a little bit of ambition, dreaming, dreaming big, not too big. That doesn't feel real. But if you're already, you know, close to that figure, I want you to plan ahead for another five years, another 10 years.
[00:05:36] So let's pretend that it was 50, but it's now 100. I want you to map out what does your revenue need to be, and then we need to map out what does your overheads need to be. What does your team cost need to be. And you could literally do it. Pen and paper. I talk about that a lot because pen and paper clarifies our thinking.
[00:05:54] One of the founders of OpenAI that started ChatGPT, he's, you know, he's just pretty much changed the world with ChatGPT AI and it can do so many wonderful things for us to make our lives easier. You've probably already played around with it. There's also Gemini and it's built into, you know, the latest iPhone nowadays.
[00:06:13] But believe it or not, the founder of ChatGPT, OpenAI, actually uses pen and paper to think he's created this amazing technology, but he still uses pen and paper to think it might be voice notes, whatever works for you, but essentially I just want to keep it simple and whatever that means for you, keeping it simple.
[00:06:31] And I've. In my book, how to Build a Business that Runs without you, I talk about on chapter 11, step two is called your numbers plan.
[00:06:41] I talk about an example business and I called it Dwayne's Web Design.
[00:06:46] And in year one of Duane's web design, the turnover was £40,000, the overheads was £10,000 and the profit was £30,000. And then I added a little bit of information. This was a fictional example of how to just Have a rough numbers plan and it can get more complicated. You can do budgeting, you can do forecasting and yes, we can help people with all of those things, but I'm talking at very high level. So you are sold and you understand that your business is going to work on paper first or it's going to take you to the next level. And the commentary on year one was Dwayne plans to generate revenue using his existing contacts and he expects limited costs since he already owns a laptop and the necessary software. His primary expenses include some local marketing and some general overheads. So that's why he's only got £10,000 worth of overheads on £40,000 worth of revenue and sales and that gives him a 30,000 pound profit.
[00:07:39] So what we're talking about here is what is the story behind the numbers for year one, for year two, whatever time frame you're mapping out your numbers, what do you expect to happen? You know, you need to have a little bit of a sensible plan and logic behind it. And this is where having other people involved in your business as a sounding board, whether it's a coach, a mentor, an accountant, you meet, whoever it is, another business partner, it could possibly be your spouse or a friend, but ideally you want someone a bit objective, they can sense, check the story makes sense with your numbers. Year two, in this example business was turnover. £90,000 and turnover and sales is the same thing. Overhead £20,000 profit 70.
[00:08:21] Year two. Dwayne expects growth from referrals due to his personal touch, but anticipates a challenging year managing increased workloads by himself. So essentially in year two, in this example business, Dwayne goes up from 40k to 90k because he slogs it, he grinds, he's doing all the work, he's probably working more hours. And actually this kind of sits a little bit with my personal own business when I started it about 15 years ago. You work longer and it pro, maybe this resonates with you. You grow it through your own blood, sweat and tears and the grind and the effort, essentially you're working harder.
[00:08:56] Year three turnover, £150,000. So it's gone up from 30, 17, 150. Age is now 60.
[00:09:04] Overheads 50. Profit only £40,000. This is an important distinction in what I'm trying to share with you because Dwayne's profit in his web design business has gone down from 70 to 40 in year three. Why? Dwayne plans to actually hire staff in year three and possibly acquire an office space to foster a team culture, resulting in increased overheads and a dip in profits. And do you know what? If that's Dwayne's business, if that's your business, that's, that's fine because there's a plan and there's a roadmap. So essentially there is a one to three year plan. And then if I carried on building out that example in my book, which I didn't, it might be years 4, 5 and 6. It scales because Dwayne's now got a team that profit can increase because if Dwayne didn't hire the team, he would have reached a limit at some point. And maybe he already reached his limit.
[00:09:57] So who cares about Dwayne's business? Who cares about Steve's business? I want you to think about your business.
[00:10:02] So I want to sketch out what do the numbers look like for me in the next 12 months? What do they look like in the next three years? Five years? But if you haven't done already, go back to last week when I said start with your personal vision, start with your business plan and then work back and then you can create your numbers plan.
[00:10:22] Next week, I'm going to talk about step three in my own system, the entrepreneurial freedom system, which is all about core values. Most of us have core values, whether we realize it or not. And a core value is what's important to you. What do you hold close to your heart in terms of being a business owner?
[00:10:40] You know my wife's cousin, his name's Dan, he's a builder. He might not have his core values written down, but I promise you one of them is quality is of the utmost importance in everything he does, because he's not cheap, he's premium, but he does a fantastic job and the finish is amazing. So one of their values will be quality. But I'll go deep into that next week and I'll also explain why it's super important to build a profitable business and one that ultimately gives you the life that you want to live. Cheers, guys, and I'll see you soon.
[00:11:13] Excuses.
[00:11:15] So.
