Growing Too Fast? Here’s What Most Business Owners Miss

[00:00:00] Excuses. Here I am. So. [00:00:06] Hi guys and welcome to this week's Profit first podcast. I'm Stephen Edwards. I'm a Profit first certified professional, award winning Profit first accountant and founder of Grow Gro Profit First Accountants. So today I want to talk about some stories. I'm going to mix it up a little bit because I know I've gone into other areas of running and growing your business because I think it's all important, I think the finances of the foundation, I think Profit first is a game changer for most business owners that ultimately want to give themselves the life they want and quite frankly, they deserve. But we've gone into other areas recently. We've talked about how to build a business intentionally. We've talked about how you manage your time, we've talked about strategy. I'm going to bring it back down to Profit First. Some real life stories, you know, straight from the fire, really. I'm going to share some recent stories with people running actual businesses and I'll share as much as I can without giving, giving their personal details away. So, okay, so this, this first story and probably the main thing I'm talking about today in this week's podcast is somebody who'd grown a fairly big business. They were pushing towards a million pound revenue. They hired a very big team, over a dozen team members. Everything was going well. It was happy days for the first few years. And quite frankly, this is classic profit first. At some point they got pinched. At some point, you know, they realized that it wasn't all about growth. There was knowing the numbers and having certainty and predictability and constraint and control. [00:01:48] And a system to understand your finances was super important because the numbers ran away from them. The capacity with the team, the overhead, the over reliance on new clients, new customers, the pressure to retain and keep your current customers created lots of challenges in that business. And you could say in many ways it's classic over trading. [00:02:13] A lot of businesses that are fortunate to be able to acquire customers to bring in revenue because a lot of people can't, quite frankly. So I do take my hat off to anybody who can actually grow their top line. [00:02:25] The next challenge is how can you make it sustainable? And this is why the language I use in our, in our website, in a lot of the content we share is how to build a profitable and sustainable business. It's not just making short term profit, it's about making long term profit. So but basically they, they, they were not implementing Profit first. And I'm not saying that is the only way to, you know, build A sustainable, profitable business. But it certainly helps. [00:02:54] It certainly gives you the right perspective to make sure the business works for you. [00:02:57] And you don't, you know, get too sort of carried away with the growth. It's more about knowing the numbers, knowing the margins, and quite frankly, my experience, it's about having regular conversations with someone to challenge what's going on. So when we work with people on a one to one basis with profit first, we meet them generally quarterly. Some of the bigger businesses that want a kind of CFO type support and they want to feel like we're, you know, we're really part of their business, we meet them monthly, which can be overkill if you're not, you know, turning over at least half a million pound in revenue, but certainly at least quarterly. We are having these honest conversations. We are looking at the numbers, we are understanding the trend. If your business is trending in the wrong direction for too many months, too many quarters, something needs to change. And for a lot of people, we're talking months, not quarters. If you have a bad month or two, that can put people out of business, you know, because a lot of smaller businesses do not have those cash reserves. One of the great things about profit first is yes, it's about paying yourself more, it's about, you know, rewarding yourself through owner's pay, but it's also about building reserves, a cash surplus, a little pot of money on the side for, I call it a rainy day fund, a vote of money on the side that if something happened, you've got that peace of mind. And also when you've, when you've got money set aside, you have a more abundant mindset, you know, because when you haven't got many set aside, scarcity kicks in and you're worried, you know, should I hire that team member, you know, can I afford it? And your decision making gets skewed because you're in this scarcity mindset because you haven't got enough cash. But when you're building at cash reserves, when cash flow's healthy and it doesn't always mean you need to be growing, growing, growing all the time with your top line. But when you're building up this pot of money, you've got money for your tax, got money for vat, you've got money for your overheads, you've got money to pay yourself, you got money for your stock, if that's relevant for you, and you've also got this spare pot of money to pay yourself a bonus, but also a rainy day fund, it's such a nice place to be in your business. It kind of feels like, okay, this is what mature, serious, professional business owners do. When you've got that, you make strategic decisions. So in this case of this business in many ways is classic profit first, the business grown, but everything got pinched and, and then that, and that causes a little bit of a vicious cycle because what do we, when we're in that position, we might let team members go and it creates a bit of a, you know, a challenge in culture and atmosphere within the team because other people might not, might go, they're worried if their position is safe. It creates this kind of, this feeling that maybe we're going backwards. So there's not really a good atmosphere in the business. But often to survive, not only do you cut costs, but you might need to get into debt to catch up with that HMRC payment, that corporation tax, that SAF assessment. We're speaking to someone recently that's got a very large, very large surprise tax bill because previous accountant didn't do any tax planning with them. So they've got a fortune to pay and they're, you know, they're needing to finance that personally, they're needing to make some big lifestyle changes to finance that surprise tax bill. And then the business needs to, then not only is it shrinking, it's got a smaller team, it needs to pay off the debt. And I've got an interesting theory behind, you know, how you can turn debt into a strength actually. But so the story here is this business has shrunk and now they're looking to apply profit first. So the takeaway for you is if your, if your revenue's growing and don't just presume everything's fine. It's, it's kind of, you don't need to be operating profit first if you're struggling. We're talking prevention versus doing something when it's too late. If you look at the NHS for example, they focus on when, when it's too late, when someone's got a problem, when they've got a heart issue or they're way too over overweight. They don't talk about prevention, they don't talk about long term thinking. So if your business is in a happy place, don't take it for granted because that's the time to double down and put the systems in place to build the healthy habits, to understand your numbers. Because you don't really want to be in that position where it's too late. I think the moral of the story is whether you're profit first, you know, I speak to a lot of people where they're struggling and they want to implement profit first. But even if you're not struggling, it's always a great time to implement it because you put the discipline, you build the habits and you create amazing conversations where, you know, rather than just kind of having all the numbers in your own head and, you know, thinking everything's fine, you're having healthy conversations with someone who can look at the numbers, take a step back and you can put the right controls and KPIs in place early on. So hopefully that's useful for you guys. If you're wondering how to get started in profit first, I always say start small, start with 1%, set it aside, build that habit, put that little extra pot of money aside. But if you want to do profit first properly, you want to implement the proper pot system and you don't know what percentages to set aside, reach out to me, because that's basically what we do. [00:07:56] And it's one of the biggest challenges for people is they might read the book, but they get a little bit overwhelmed and they don't know where to start. [00:08:03] The kind of the art and science to it is to start with the right percentages for your business and your industry. If you start with the wrong percentages, then it's going to cause you issues later on because maybe you're going to have to put too much money aside and it's not sustainable, it's not going to work long term. So it's all about making it realistic but also challenging so it can move your business forward. So by all means, if you want to know how to get started, reach out to me or someone in my team and I'll see you next week. Excuses. Here I am. Sorry.