Episode Transcript
[00:00:00] Excuses. Here I am. So.
[00:00:06] Hi guys. Welcome to the Profit first podcast. I'm Stephen Edwards, the founder of Grow Profit first accountants and today I want to dive into the 5k growth system. If you're listening to this on the podcast, I urge you to go onto the website and go onto resources blogs and you can watch the video version of this because I will share my slides but it will, hopefully it will make sense if you're listening to this as well. So what is the 5K growth system? So it's the system that consists of three pillars that we use when we work with our clients on a one to one basis that are paying us thousands of pounds to implement profit first and ultimately build a business that gives you more profit, more cash, more freedom. Because we all want more freedom in our business, but we cannot do it if we're not making enough profit. That's why profit comes first, that's why it's so important. Normally when I go through in this system it's an hour webinar and you can watch the full version on our website as well. But I'm going to try and keep it short and sweet, as close to 10 minutes as possible.
[00:01:09] So let's dive in.
[00:01:12] So just give you a little bit of background.
[00:01:14] Where does the 5k a month come from? So it comes from experience of working with real clients. We've implemented it in our own business and the exact figure depends on your numbers. Obviously if you're a really small business, it might be harder to generate an extra 5k a month, but we've seen results from, you know, an extra £10,000 per annum profit and cash all the way up to an extra £2,000 in profit in cash. It really depends on your business. But to give you the chance of making a huge significant difference, you need to do three things and we will go through the three things. Today most businesses hit a ceiling and they kind of spin the wheels and if you keep on doing the same thing, you're not going to get different results.
[00:01:54] So I want to give you an action plan on to give you a system and a way to actually take action. This isn't about reading books, this isn't about going to more workshops, this is about making real change in your business. Business is a serious game and it's about you and your family ultimately. So understand your numbers is the foundation of everything. So ultimately as a business grows, it kind of turns into this cash eating monster. More expenses, more overheads, paying more people, just moving money around. So how can we turn it from A cash eating monster to, to a money making machine. And that is literally what we're trying to do. I won't really introduce myself. Most of you already know me or already, but I'm Stephen Edwards. I guess I'm going to introduce myself. I started my accountant firm grow Profit First Accountants. We're award winning Profit first accountants about 15 years ago.
[00:02:45] I'm also an author of the book how to build a business that runs without you. You can get that from Amazon. I'm also a qualified accountant, chartered certified accountant, among a few other things. I coach people. I'm a certified high performance coach. But ultimately the reason I'm in this position to share this with you is a. I've been running my accounting firm for over 15 years. We've worked with hundreds of businesses and we've learned a lot about best practice when it comes to running a business, particularly around your numbers. But I've also invested over £200,000 in my own development in the last 15 years.
[00:03:19] So this isn't something I'm making up. I've been in rooms with really successful people. So this is actual real world case studies. This is stuff that's proven, this is stuff that works. But you need to apply it to your business because we're all, we're all in a different place in our own journey. So take everything you know that I share and then relate it to you and your circumstances.
[00:03:44] Okay, so number one is all about finance foundations. If you're watching on the screen, I'm just whizzing through the slides to get there really quickly because this is normally a 60 minute kind of talk that I do. But I'm going to distill it down really quickly into about 10 minutes. So what is finance foundations? So really we're talking about building a system of your finance systems pretty much runs the world. It runs our habits. If you've read the book Atomic Habits System habits and systems correlate pretty much into how we all live our lives on a daily basis. The problem is we don't have a proper system for our finances. And no wonder we get stressed, no wonder we get surprises. So I'm going to give you a system that a it help you understand your finances and run your finances a lot better, but will give you a blueprint and a framework to make more money to, to give you more freedom so you can do more stuff with your family or whatever you want to do with that extra money. Because we all started our business for, for a reason. And there will be a personal kind of vision of how the business serves us. But it starts with strong foundations. And what are strong foundations when it comes to your finances?
[00:04:54] So first and foremost, you need to have numbers that are completely to date. If you're behind, you know, if you're waiting for three months to understand what's going on with your figures, if you don't do your bookkeeping on a weekly or two weekly basis, you, you're not going to have the clarity and the understanding of what to do, more of what to do less of when it comes to your numbers. So we're talking about having your bookkeeping on zero. We're talking about sending your receipts, your bank statements if you need to, linking your bank feeds. All of that needs to be done on a weekly basis. And business is.
[00:05:32] Numbers is a serious game. People that are successful in the rooms I've been in, the people we work with, they've got one thing in common. They understand how important their numbers are. It's not just this necessary evil I've got to do, it is fundamental to your growth. If you don't understand your numbers, it's so difficult to build a more successful businesses. You need to understand what to do more of as I said, or what to do less of. Because business at the end of the day is a numbers game. You know, it's a numbers game when it comes to finances. It's also a numbers game game when it comes to the sales, the marketing, the performance of your team. How many jobs can you get done on a weekly basis? So understanding the numbers is key to everything. And it needs to be completely up to date, clean and accurate, real time. And it needs to make sense because your numbers tell a story in many ways. We are storytellers in our business and we help our clients understand. Does this story make sense? How can we rewrite this story? And we want to get to the point when we're talking about foundations, that you've got pots for everything. And I'll talk about that in more detail with Profit first in a second.
[00:06:35] But if you get that surprise tax bill of 8k through from HMRC, it won't matter if you've got a pot just sat there with £9,000 in and there's a nuance and there's a way of understanding what to set aside. And we'll talk about that in a second with Profit first for some of our bigger clients, we do keep it on a daily basis. That's probably the point where a lot of businesses want to get to, and you just want that visibility Month to month, quarter by quarter, am I heading in the right direction? Trends is everything when it comes to understanding your numbers. You don't need to become an accountant, you don't need to become a bookkeeper. But in the same way you've got an architect or a builder to build your house, you need to understand what's going on. Same with your numbers. You don't need to do it. Actually advise you, probably not to do it because it's not the best use of your time. But you need to understand what's going on. You need to be involved, you need to be interested and you want to get to this point where you can have a weekly glance, you can look at all the different pots in your bank account, whether you're Monza or Stalin. I've got, here's my tax, here's my owners pay to pay myself every month or to pay myself this week. Here's my pot for my materials, here's a pot for my profit for a rainy day.
[00:07:44] You want to be looking forward, so you've got the money sat there and cash flow is not a problem. But the main thing with strong foundations, it gives us the blueprint to look forward to and make better decisions. How can I make this look like this in another 12 months? How can I improve those margins in the next three months? What do I need to do to get that revenue up? If you don't know where you are? Often when I'm speaking to your new prospective clients and I'm asking them questions about the numbers, they don't know, you need to get to the point. If you look at Dragon's Den.
[00:08:17] Dragon's Den, the first thing they ask is then their numbers. What was your revenue? What's your profit? What was X? What was. Yeah, and, and also, if you don't know your numbers, it kind of makes you less confident about your business. And business is a confidence game. If you're in a more confident state because you know what's going on with your numbers, you haven't got this dark cloud hanging over you. You're going to be, you're going to shirt better in that sales meeting, you're going to deliver a better service to your customers. You're going to lead your team better and they're going to, you want to get more and they're going to become more effective because you're generating better energy. So it links into everything. So I've gone through really quickly, but that's the foundations.
[00:08:55] Number two is about profit improvement. So when we talk about profit Improvement, yes, we're talking about profit first in many ways, but profit first is just a vehicle. You know, in many ways I don't care about profit first. I care about helping you guys and, and all the people we work with make more money. Not to be greedy, but to give you a better life. Because if I'm trying to get a bit sentimental, life is short. And we want to make the most of the opportunities we have as business owners, we've got a lot more opportunities than, you know, someone up the road. So profit first is just a proven system that we know works. That's why we're all in on it, that can make that difference. And at the end of the day, turnover is vanity, profit, sanity, sanity, Cash is king. And profit first focuses purely on cash primarily. That will then have an impact on your profit. But a traditional accounting does not take into account your loan repayments, your, your backdated payments to hmrc. There's lots of things normal accountant doesn't look into, but profit first does. It doesn't rewrite the rule book. Normal accounting is still valid, you know, still need to comply with all the rules. But in terms of the information that for the business owner, it completely changes your understanding the numbers. Because we're focusing on the reality of what's happening every single week in your business and we want to identify, identify the leaks. If you haven't done this already, what I would say is look at your bank statements for the last three months, categorize it. What's a must have, what's a nice to have and what is an investment. So if you're paying for something because it's an investment for, to help you learn something that you know is going to benefit the business later, or it's a marketing investment, that's the sort of stuff I'm talking about.
[00:10:43] If you're, if you're taking a new member of a staff, that might be an investment or, but you might have staff that are essential because you, they have, you know, you need them to deliver the service. You might have subscriptions that are essential. Rent, that's essential. But just look at your, your bank statements and go through, is it a nice to have? Is it a must have? Is it something I'm looking to get an investment from? And a lot of people don't do this. This is one of the things we do. Most businesses can actually cut some of the fat when it comes to their expenses and that's not what we're going to do all the time when it comes to profit first. But it's a good starting point.
[00:11:16] Ultimately it's, it's a, it's a, it's a mind. And if, if you've.
[00:11:22] This is the first time you're hearing about profit first. It's based off the best selling book Profit first written by Mike Michalowicz. I recommend you read it if you've never read it before. But we're just distilling the important stuff for you today. So instead of saying sales minus expenses equals profit, sales minus profit equals expenses. When it comes to profit first, because what comes first matters, you don't put your family last, you don't put your health last. So why should we put our profit last? So we want to flip the script in many ways and I know it's not easy just to change all your expenses, but when you look at Covid, people had to change the way they run their business and it forced innovation, it forced people being creative, it forced them to think of new strategies. That's what happens when we implement profit first. Or when you implement profit first in your business. If you have to take 50 grand out of 100k revenue business, you've got to think differently. And the reason all this is so kind of relevant is because of Parkinson's law. Parkinson's law tells us the more we've got available of something, the more we consume. So when there's no water ban, we spray, water the grass, do the plants, you know, we don't care when there's a water ban, we have to be a bit more careful about it. If you look at Christmas, people tend to eat more food because there's more food in the cupboard. It's that simple. We buy more food, there's more food available, we consume more food. So we want to apply that logic to money, but in a way that serves us. So we want you to think that you've got a little bit less money to run your business.
[00:12:58] So actually it forces you to make different decisions. Rather than just throwing money at the problem, you need to think more strategically because just throwing money at every single problem is not going to solve it or it's not a long term solution. And I'm, as I said, I've invested a lot of money in self development over the years. I'm not saying we shouldn't invest in things, but it shouldn't just be the default answer to every problem.
[00:13:22] I'm a strong believer in building a business that could run without you. I've literally wrote the book how to build a business that runs without you on Amazon.
[00:13:30] But ultimately it needs to serve you financially for you and your family first. And then there's the right time to hire the right person. There's a right time to invest in that next thing, just finding that balance, right? So ultimately there's five to seven pots. There's the income part, the profit part, the owner's pay part, the tax part, the operating expenses part, and then depending on your circumstances, a VAT part if you're that registered, and a cost of sales pot if you buy a lot of stuff like, like materials or your builder for it, for example, you buy and sell things. So I'm going to, you know, sort of whiz through this for today, guys, because I said I want to keep it short and sweet. The third pillar is wealth maximization. So wealth maximization, just going to skip ahead on the visual version of this is all about tax planning, primarily about tax planning. So most accountants, and I'm conscious, look, you know, a lot of people listening and reading this are watching this could be clients of ours.
[00:14:30] But what we've realized over the last couple of years is most accountants not charging to do a deep tax review every few years because your business changes. So if you started your business one year ago or 10 years ago, it's probably very different now. Your family situation changes. So your children might have went from 18 to 13 or 13 to 18.
[00:14:50] You might have got married, you might split up, you might have had this, you might have a second property. All of this impacts your tax strategy. So, yes, there's certain things that need to happen at the end of the year. But every now and again, if your business has changed, but at least every five years, you should have a deep review because you don't want to leave money on the table. There's actually 33 ways to save tax. You can access that on our website.
[00:15:15] So what we do with a lot, we start to do with a lot of people and we're literally rolling this out to our existing clients. If you're a client of ours, we'll be speaking to you shortly. Or by all means, if you're watching this, reach out sooner. And we do what's called the tax diagnostic.
[00:15:29] And that's where we do a deep review. We go through all the things in your business, we go through your family situation, we, we look at the 33 ways to save tax. You don't need this every year because it's overkill, but every three to five years for most people, it's generally for limited companies turning over more than £100,000 and we charge a one off fee of around 695 plus V80 depending on the size of your business.
[00:15:51] For a really small business it might be a little bit less, for a bigger business it might be a bit more. But if we don't save you at least £2,000 in tax, we don't charge you a penny.
[00:16:00] On average we save between 5 and 10k and the most we've ever saved is £49,000.
[00:16:07] You don't need to, you don't need us to do that. If you want us to do this for you, go onto the website, click save 5k in to save. Yeah, save 5k in tax and you can book a tax cor with me to see if you're a good fit because it's not for everyone. Or you can go onto our website, click on Services Tax MOT and you can literally download the 33 Ways to Save tax, I believe and you can look at it yourself.
[00:16:30] But as I've come to learn, we've got so much information nowadays on the Internet AI, it's not the information that's variable, it's the implementation, just whether you can actually do these things.
[00:16:42] So the important thing is I want to arm you that you should do a deep tax review in your business. If you've not done one for the last three to five years or, or if your business is literally nothing's changed exactly the same, then potentially it's not relevant for you. But the next thing when it comes to wealth maximization is having a financial advisor. A lot of people, business owners don't have a pension. They say their business is their pension and I said the same a few years ago. But the thing is, your business for most business owners is not going to be worth anything by the time you retire. Ironically, if you build a more profitable business that can run without you, it's more likely to be worth something. But most businesses, probably 80, 90% are not worth anything because the business is run, is the owner, is the business. It's kind of a glorified job.
[00:17:29] That's why it's important to build this extra profit and build a team around you.
[00:17:34] But in any situation, for most people, it makes sense to not have all your eggs in one basket. So having a financial advisor will just give you some advice. Long term, if you want to make more money, you need to keep more of it in your pocket when it comes to tax. And you also need to keep more of it in your pocket when it comes to investing. That's wealth maximization. So three things. You've got finance foundations, you've got profit improvement, and you've got wealth maximization. They are the three things. As I said, I've kept the short and sweet. I've gone literally three times quicker than I normally would when I do a webinar. If you go onto the website, watch the full version if you want any help with your tax diagnostic, because that's a good starting point for a lot of people. If not doing any of this stuff, then by all means go onto the website and you can book that that in and you've got any questions. As always, guys, reach out to me and I'll speak to you soon. Have a great weekend.
[00:18:28] Excuses.
[00:18:30] So.
