Episode Transcript
[00:00:00] Excuses. Here I am. So hi guys, and welcome to this week's Profit first podcast. So I want to talk about something that's really close to me as a business owner to the point where it's actually in my book I released last year, how to Build a Business that Runs Out. You. Yes, I am a Profit first certified accountant. I love the system.
[00:00:28] We've helped dozens and dozens of people change their lives through creating a more profitable and sustainable business, including our own business grow. You know, our numbers have been transformed since we've implemented Profit first several years ago.
[00:00:42] However, Profit first in itself, in terms of the system is part of one of many things you could and should do to build your dream business and ultimately to give you the life you deserve for you and your family. Because the truth is, too many business owners are just surviving. Kind of. I think around 80 of business owners on some level are surviving. And that's going to link into Busy for Mistake number seven from my book, how to build a Business that Runs without you. And you can find it on Amazon. No shameful plugs. Just reach out to me if you actually want a free copy. More than happy to send that to you. Or you can order it. Amazon yourself is literally only a few quid. I make it really easy to order so more people can have access to it. So the Busy four mistake number seven is I call it the cash problem. And this links into that surviving percentage. I just shared that 80% of business owners are surviving on some level. So I'm just going to quote some of the ideas behind this chapter in the book Busy for mistake number seven, and it's page 83 and it's the cash problem. So the thing that you do is you. This forces you to say yes to every customer. And newbie business owners, they typically say yes to every business owner if you're a new business or you can remember being a new business, or even if you're still doing this, can you remember a time when you don't discern between what type of customer, what type of job, what type of relationship you want to take on? And the reason you're doing that is you're just focusing on the money because you've got a cash problem in your business? Because you've got a cash problem, because you're just surviving. You need the cash to pay the bills and it forces you to take on the wrong customers.
[00:02:29] So yes, I'm just going to give you an example of how this can have such a big impact on the profitability of your business. So let's say, for example, you run some kind of trade business. So there's some, you know, there's, you've got team cost to deliver the service and the sale price should be for the particular job or project for the customer. Project should be, let's say, £6,000. That should be the price. And the cost to deliver that in terms of your team is 40%. That's 2,400. That gives you a gross profit of 3,600. So your gross profit is typically sales minus your direct team cost to deliver the service. And also it can include materials, but we'll say there's no materials in this example. So that gives you 3,600 left. That's your gross profit. You've then got your overheads, and let's say your overheads are 20% of the 6,000. That's 1200 quid. So 1200 quid comes off of the £3,600 and you've got a net profit of £2,400. So if I've lost you, because I'm throwing lots of numbers at you, we started at 6,000 pounds. We got net profit 40%, which is 2,400.
[00:03:38] Okay?
[00:03:40] If you were desperate for cash, if you was kind of struggling, you know, month to month, a lot of business owners are going through this. You don't know who you want to work with. You've got bills to pay, you've got overheads to pay, you've got all that pressure in your business.
[00:03:53] Then a client, a prospect might come along, a potential customer, and they're only willing to pay £4,000. And on the face of it, you're like, do you know what? We need the work, we've got bills to pay, I've got wages to cover.
[00:04:08] Let's 4000 is better than nothing. I will take on that customer at £4,000. Okay? So you know, you've just reduced the price by a third because it was £6,000. So on the face of it, you're 33% worse off. Okay. However, let me run through the numbers. Your new sales price is £4,000. Your cost to deliver the work is still what it was before, it's 2,400 because it's 40% of the 6,000 what it should be. Because really it's a 6,000 pound job.
[00:04:36] That means you've now got a gross profit of 1600 pounds. You still got the same overheads of 1200 pounds. You've got a profit of 400 pounds and you should have had a profit of 2,400. That means you need six times the work to make the same profit. I hope that silence lands with you. That 33% discount from 6,000 to 4,000 means you now need in this example, and this is just an example, but it could be your business. You could run through your numbers. You need six times the customers. Just think how crazy, how it's business suicide. But the truth is lots of people are doing that. And the problem is they don't even realize that's what they're doing. And the reason they don't realize that's what they're doing is because they don't know their numbers. One of the things we do at Grow Profit First. Grow Profit First Accountants is we help people know their numbers. Yes, we love Profit First. Yes, we file accounts at the end of the year, we file all your tax, we do your bookkeeping, do your payroll. But one of the most important things we do is we help you understand your numbers. And you cannot get any deeper and more important than understanding the profitability of your customers. We worked with someone previously that was a 1 million pound business, 1 million pound building business.
[00:05:58] Build, build a company. And he did not know how profitable each job was. And that business failed. That business went out of business.
[00:06:06] I've just worked with someone recently and he's been working with us for Profit first for several years. And I've just helped him create a spreadsheet to understand the margin of every single job. He now knows if the job doesn't hit those margins, you don't take alarm. And there might be somebody listening to this saying. There are some rare exceptions. Yes, there are some rare exceptions. Because the truth is, if you've got overheads and you've got no cash coming in, you've got to pay those overheads anyway. So if you've got no work and you've got the job, then something is better than nothing. But do not build your business on that. You need to discern. You need to take on the right customers. But to take on the right customers, you need to know what they are. You need to know what they look like, how they think they communicate, what sort of age you rage. You expect them to be. What do you think their disposable income is? Some people call that the icp, your ideal customer profile. You need to get ahead of your customers and you. And the best way of doing this is think about your best customers you already have. Model it on them, find more of them. What, your best jobs. How could you get more of that type of work because not every job and not every customer is equal. Hopefully you found that useful. Guys, we're about to launch Grow Academy. Grow Academy is only for our clients and in that academy there's going to be thousands of thousand pounds pounds worth of training. In the last ten years, I've literally spent probably in excess of a six figure number, probably 200,000 pounds plus in time and money to learn more about business. And in the academy it's going to be everything about profit first. So the sort of stuff we talk about in the podcast, you can learn at your own pace. You can implement, most importantly, what I've learned as a business owner. It's not what you know, it's what you do. So Grow Academy is going to help you get more things done and that's accessible to all of our clients. If you want to learn more, please reach out to me. And also if you've got any questions, please reach out to me anyway and speak to you soon. Cheers guys. Excuses. Here I am. So.
