[00:00:00] Hi, guys, it's Stephen Edwards from Grow Profit First Accountant. So welcome to this week's Profit first podcast. As always, you may be watching, you may be listening, you may be reading to this. So we've got the Profit First Club newsletter, which is on Beehive. If you'd like to read things. We've got the YouTube channel and we also put it onto Spotify. So just to give you some background, in case you've never come across me before, so I'm the director of Grow Profit First Accountants, formerly cta, formerly Cheltenham Tax Accountants. We are Profit First Certified Accountants. So we do all the normal stuff with chartered certified accountants. I've personally been an accountant for over 15 years. I've been in the industry for 20, been running my own business for around 12 years now. We have a team of about a dozen people. But we're super passionate about the philosophy behind Profit First. And some people kind of know me. To talk about Profit First, I've been called an ambassador. I guess in many ways I am. But the reason I talk about it a lot is it's kind of the foundation to give people a good business. Even if you don't follow the system. The ethos of what Profit first is about is super important to me. Like, it resonates with me because I see so many business owners who struggling day to day, week to week. You know, it's cliche, but paycheck to paycheck. And the whole concept of Profit first is, you know, turnover is vanity. Profit is sanity. What we see as accountants and what a lot of people see in their own business is as the revenue goes up, their profit doesn't necessarily go up with it. And it's just a bit crazy when you think about it. If you said, why are you growing your business? [00:01:49] 80% of businesses are going to fail within the first five years. There's something like 1 to 5% of the businesses are going to be super, super successful. So to be part of the other 15%, which makes up the top 20%, we want to create a business that gives us a lifestyle we want that serves you as the owner serves your family. Yes, you can do amazing things and have your customers, but ultimately it is a vehicle to give you the life that you want. So Profit first puts your life center stage. It's not just about profit for the sake of earning more money. It's about profit to make you more sustainable, to make you more resourceful, to make you more innovative. If you look at what happened, you know, when Covid came in the People that were more profitable tended to have more cash reserves. They could sleep at night a bit better. Don't get me wrong, that was a, you know, that was a, the biggest storm I've seen in business. But this is one of the reasons we're so passionate and we've seen it firsthand impact people's lives. And that's why I love it. Because, you know, if you're a huge business and you're turning over sort of 10 million plus, you've probably got a whole finance department. [00:02:59] But profit first helps smaller businesses. So today I want to talk about one of the kind of myths, so you could call it a profit first Mythbuster in many ways. So, oh, profit first is just about cutting expenses. So that's what a lot of people think it is. They kind of shortcut it to say all you're doing is you're cutting expenses and you're putting money into pots. How on earth can that grow my business or make me more money or, you know, short sighted? Because it's a scarcity mindset. We're just diving in and taking some costs out of our business. So I just want to talk about that for a few minutes and that's what my focus for today is that firstly, and I've talked about this a lot, profit first is not a scarcity mindset. It doesn't mean you're not trying to grow your revenue, trying to hold on to what you got and you don't want to grow. We've just rebranded to Grow Profit First Accountants because we love growing. We, yes, we want to grow your profit first, but we also want you to grow as business owners, want to grow a team, which great business in whatever ways that means for you, Profit first aligns with that very well. So essentially cutting expenses is a part of profit first, but it's not so much about cutting expenses, it's about what expenses do you really need. So I want to talk about the difference between a cost and an investment. [00:04:28] And you might have heard the term quite a lot. The, the cost is or the investment is. So I'm going to give you an example around marketing because it's the best example I can probably give you. If I was to say to you, are you willing to spend, I don't know, let's say 500 pounds per month, if it will, if it's going to bring in 2,000 pounds per month into your business, most of you will probably say that is a no brainer. It does depend on your numbers, it does depend on your margins. And this comes back to knowing your numbers. You know, 2k top line is not necessarily bottom line, but if you had, let's pretend you had a 50% profit margin, so you're going to make a thousand pounds profit on that £2,000 that's coming. So you would happily spend 500 quid to generate that revenue. So I wanted to give you that as an example because that's. Most of us would call that an investment, not a cost. [00:05:25] You know, we think of investments in terms of shares, stocks, property, but we don't look at investments in terms of what we're doing into our business. We've got to be a little bit careful because one of the kind of challenges around most business owners, they can go too far down the investment kind of approach and they think everything is an investment. They're like, oh, I'm going to invest in this, I'm going to invest in that. And I've seen it with so many business owners, I mean, lots of entrepreneurial communities. Anyone listening or watching to this, who's part of the entrepreneur circle, you know, you, you all want to, we all want to grow our business. That's why the community exists. But it can be a bit dangerous if we think everything's an investment. So we need to get crystal clear on, on how is that investment or that cost serving our business. And when it comes to costs, we've got must have costs and we've got nice to have costs. So if you go through your expenses, when we do an expenses analysis and review with our Profit first clients, we look at things like, well, we go through their profit and loss account and that's quite an interesting process because most business owners don't get challenged in terms of what they're spending in their business. But we go through and say, okay, that's your rent. We know that is a must have. However, I had this conversation with someone literally last week. Although that's fixed, are you using all of that space? You know, could you sublet? Part of that space is, you know, some people call it sweat in the asset. How do you get more from that asset? Yes, it might be costing you £2,000 per month. However, can it actually bring in an extra 800 quid worth of revenue? So even when we look at your costs, we need to kind of take this holistic approach and be innovative and Profit first really helps us think along those lines. There'll be some expenses on your, on your profit and loss, which are again essential. So light and heat. If you run a premises, you might have Certain staff expenses you might have, like accountancy costs to stay compliant and to get the support and advice you need. You might have regular marketing expenses. And you know for a fact that if you turn off that tap, your business is going to stop growing. So there might be essential costs in there, but you're probably going to have some expenses that you do not need. And then normally the smaller expenses that go below the radar, it might be that £50amonth subscription, it might be that £30amonth subscription, but that's £600 a year, 360 quid a year, and it all adds up. And normally when we do this review with people, we're often saving a few thousand pounds, you know, just going through things. But you can also apply this logic to your team. Your team should be an investment. You know, a lot of people think, I've got to pay the wages, it's a cost. But actually your team, if you're doing it properly, should be an investment because they're helping you grow your business. They are an asset in many ways. They're one of the biggest assets you've got in your business. [00:08:31] However, you need to consider the different types of team members you've got. There's Woody in the background, we've got Woody and Buzz. [00:08:41] Bonus point, if you know what movie that's from, the Dogs in. In the House. So you need to be able to figure out, you know, this particular team member, what, what is their role and what kind of investment am I looking for? Sometimes it's intangible, sometimes it's difficult because it's indirect. So, for example, a receptionist, how can you say exactly how much they're bringing you in? You might analyze how important it is to answer the phone when you get a new prospect. You know, there's a lot of data out there saying if you calling the golden 10 minutes, if you reply to a customer within 10 minutes, you, you, you far increase the chances of converting them into a customer. So your reception receptionist could probably be pretty key, so you can attract to figure out a monetary element in terms of the benefit they're bringing to your business. There might be easier examples. So in our business, we've got accountants, we've got bookkeepers, and we can say this is the amount of you're doing every single month. So we can see the investment we're getting back. If any of you have got sales staff, then basically what they're bringing in is, is the return. But sometimes it's not so obvious. It could be back office staff and it can be other areas of business. So really what I'm trying to do is I want to get you thinking about the different types of costs and investments in your business. When was the last time you went through everything in detail? And I want you to kind of just categorize it between it's a nice to have, it's a must have or it's an investment. [00:10:11] So an investment is going to be something you're expecting a return on it and if you're unsure what the return is and the investment can sometimes be not monetary, that investment can be, it's buying back your time. People that are building successful businesses buy back their time. So the investment might be, that is saving me five hours a month, it saved me 10 hours a month. Then you can equate that to a monetary return. So just want you to think about the different costs, expenses, investments you have in your business. Because to be honest, most people we work with, they haven't done that and they get kind of cobwebs in terms of the expenses in the business. So as you grow, we're not looking to constantly cut your expenses, but what we want to do is we want you to be certain you are getting a return in the right way or you know what that expense is relating to in your business. It's about being in control of your, your finances and knowing the story and, you know, not kind of just putting your head in the sand and hoping everything's going to work out. [00:11:17] So if you haven't done that, I recommend you should should do it. And it's probably a good exercise to do a review every three months, just simply going through your profit and loss on Xero, QuickBooks, Sage, or Go through your bank statements just to see is this something we still need in business or, you know, is it giving us some kind of return? Hopefully that's useful, guys. Just give me a shout if you've got any questions. Cheers.