Episode Transcript
[00:00:01] Hi, guys. Welcome to the Profit first podcast. This is Stephen Edwards, the founder and director of Grow Profit First Accountants. We are a Profit first certified accountancy practice based in Gloucestershire, but serving ambitious businesses throughout the uk. So in this podcast I talk about all things Profit first, but also anything that can help you build a better business and ultimately live a better life. Because that's what we got into business for. We started our business to often have more freedom and more financial freedom, time and financial, so we can do the things we love, have that choice, have that flexibility. And that's where Profit first is so important.
[00:00:43] Because without the right amount of profit in your business, you cannot do all these fun things. It's just fundamental, it's the, the bedrock of everything else. So one of the. I'm going to share a couple of practical tips around Profit first at the end, so please carry on listening if you want some specific Profit first advice this week. But I want to talk about a concept that's really, you know, I'm, I'm passionate about and it's been a big thing I've come across this year and it was inspired by Richard Koch, who's the author of the 8020 principle. We've all heard of the 8020 principle or rule or the 8020 law.
[00:01:22] And often it's thought of in financial terms that 20% of our customers might give us 80% of our revenue, but actually it's got far wider reaching implement implications in terms of the time we spend. You know, 20% of our time has 80% of the impact or 20% of our problems. It's only 20% of our clients that might give us 80% of our problems or 20% of our customers give us 80% of our problems.
[00:01:54] So it's that kind of way of thinking and I want to apply that to how you can go through and break through your business and get to the next level of growth. And often when we start business, it kind of seems easy. And the reason it seems easy is because we don't know what we don't know. It's that simple. We're a little bit naive as business owners. We're kind of amateur business owners when we first start.
[00:02:19] The dangerous thing there. And I'm, and I'm assuming anybody listening to this, this is not you because you are listening to this podcast and you probably listen to other podcasts. You probably listen to people like Stephen Bartlett online or you read books or you listen to books. You're open minded, you've got an abundant growth mindset, you're willing to learn. But there's business owners out there that don't realize that when they first start their business, they're an amateur business owner and they think they should have all the answers. But the truth is we don't have all the answers. And it's impossible to have all the answers. And even if you want to try and spend 10 or 20 years finding all of the answers, it's far quicker to find a blueprint, a roadmap and someone who's already done it. That's why getting a coach, you know, I personally coach other people and with Profit first, we kind of coach business owners in a financial sense. But whether it's a mentor in your industry, whether it's the local coach up the road, whoever it is, having, that's why that is so important and it's so popular because you're going to save 10 years of failing and making mistakes if someone's already been there. So when we first start business, we kind of, we're a little bit naive, we're wet under the ears and we think it's easy because we don't know what we don't know. And then at some point, and you might never get to this stage if you're not really trying to grow it, but at some point it becomes hard and it becomes complex. And actually what I find when you listen to stuff like this, or you read Profit first or you go on business workshops and sign up for courses or whatever it is, you kind of start realizing there's so much you don't know. And actually the next level up from kind of complete naivety, I've been a complete amateur. The next level up is you become overwhelmed. You've got a growth mindset and you learn. And most business owners I come across are stuck here, so. So they're open minded, but there's so much to do. They've got a million things on their list to do. They've got so many problems, so many goals, they've got opportunities and obstacles and they don't know what to do first. They want to do everything, but they still need to get the stuff done, you know, on the tools, so to speak. And that's where the complexity and overwhelm kicks in. So what I want to talk about today is there's another type of easy. There's the easy. When you first start, there's complexity later on when you try and grow your business and overwhelm. But if you can come through that, if you can break through that, if you can smash through that if you can learn from someone who's already been there, if you find a roadmap, a blueprint, a way of, you know, tackling those problems and overcoming that obstacle and getting to the next stage in business, it then becomes easy again.
[00:05:02] But the easy from the other side of complexity is a completely different type of easy, because you've gone through complexity and you've simplified it. You've kind of cracked the code, you've hacked the code, and now it becomes easy. And I'm not saying I've got all the answers, but I can promise you, this year, in 2025, my views on business has evolved. I've been in business for nearly 15 years now. I've been on a huge growth trajectory in terms of my own learning and mindset and our own business development in the last, you know, five years plus. And this year has been a bit of a breakthrough year because I've kind of realized it's easier than what I thought because for the last few years, I had all this stuff I wanted to do, I had all these ideas, and it just made it harder. And I realized less is more. There's only a few things we need to do, we need to do them well. So, for example, when we speak to, you know, a new business owner who's looking to work with us, and we go through how we help them, one of the things I talk about is how fundamental your finance function is, which is where profit first comes in. But profit first is just part of your finance function. You've got all the important things to do. You've got what I call the finance foundations.
[00:06:15] You've got to make sure you've got a proper bookkeeping system that's online, and it's accurate and it's timely. It's real time. You can. And the numbers make sense. You've got to make sure you file everything on good time. You've got to make sure your VAT is done, your payrolls done, and it's streamlined. You know, hopefully you're not a bottleneck as a business owner in that process.
[00:06:34] And then you can move on to the more fun stuff like profit first and improving your profit, generating more cash, really trying to maximize your profits. And then we do other things like tax planning. But all of that is part of your finance function. Essentially, it's all part of the numbers in some shape or form. There's only really three other functions. There's sales and marketing, there's hr, and then there's operations.
[00:07:00] So if we put sales and marketing together, hr, operations, and finance. And when you think of business in those terms, there's four big machines that you need to solve. And when I say a machine, something happens in a machine. It's a process, it's like a production line. And when you think of business in those terms, it becomes easier. And you can only solve one big area, one function at a time. Yes, they're all important. You need a marketing sales function and a finance and on operations. But you cannot prioritize all of them at the same time. So what we do with people is we help them get the finance function solid, scalable, sustainable. So you're no longer winging it. You know, you're not making things up as you go along. You understand your numbers, you understand it's important because that's what professional business owners do. They understand their numbers are important. But I'm not necessarily talking specifically about finance or profit first. I'm just talking about the concept of simplifying how you build and grow your business. When you break it down, it becomes so much easier. And it's at the other side of complexity. There's easy when you start, it gets complex when you try and grow. And then we come out the other side and we can simplify only because we know how to simplify it. When we've done it so many times and we, we've learned our craft, we can fine tune it, we can tweak it, we can optimize it and we can scale it and make it a lot easier. So that's my kind of main topic for today. And a couple of profit first tips for you related to the same thing is if you haven't really got started, you've read the book, you've listened to the book and you want to get started properly, but you don't know where to start, then there's two things I would do. One is, and this is first by mile, is start separating your vat. I've spoke to people turning over millions of pounds and, and they don't have their VAT in a separate bank account or separate pot. That is honestly the first thing you need to do. Because the VAT money you receive is not your money, it's the government's money. So you need to get in the habit of running your business by separating the VAT money. If you cannot do that, it means profit first is highlighting something that needs fixing in your business.
[00:09:13] It might be a cash flow planning, it might be your profitability, it might be your pricing, it might be your cost control, it might be your working capital. Cycle. So how long it takes you to receive money from your customers and how soon you pay your suppliers. But it's normally my experience it's going to highlight something if you cannot do that.
[00:09:32] So I would start there and if you cannot do it, speak to your accountant. If your accountant cannot help you, speak to us, contact me. More than happy to have a conversation, but I would start there by separating your vat.
[00:09:46] The other thing I would do, and I would do this at the same time, because they're not mutually exclusive. You can't do, doesn't have to be one or the other, is create a profit pot or a separate bank account just to put 1% of your revenue aside. Yes, we can get technical and we can talk about turnover revenue versus real revenue. If you've listened to the book, you've read the book, there's something called real revenue. And it can get a little bit complicated. It's essentially, it's the same as gross profit. But to keep it simple, 1% of your top line, 1%. Whatever hits your bank, put it into a separate account or separate pot. And you are building that habit. And that's the main skill we're trying to build. We're trying to change your mindset as a business owner. And then you'll teach yourself that. If you can survive with that 1% set aside, if you can survive and run your business and hopefully thrive with a VAT set aside, you know you can do this. And then what we want to do is we want to build on that momentum and do more over time. And that's where we come in, because we give you a proper plan. We like getting a personal trainer at the gym, we create a proper roadmap, we put your business on the scales and we figure out what's achievable. We look at what profit you're earning, what cash you're earning right now, and we give you a roadmap where you should get to in the next 12 months. But I would certainly start there. Less is more. If you haven't got someone who can help you and hope you have a great week, guys, and see you soon.
