Episode Transcript
[00:00:00] Speaker A: Excuses. Here I am. So.
Hi everyone. Welcome to the Profit first live session. Hi Tom, you are the only live attendee at the moment. Can you hear and see me? If you can just pop a message in the chat Tom, just so I can know if you, you can hear and see me. Okay. Okay, so just for, yeah, perfect.
I'm just going to see if I can give you access to, to your mic.
[00:00:30] Speaker B: Hello.
[00:00:31] Speaker A: There you go.
[00:00:32] Speaker B: Oh no, I figured it out in the end.
[00:00:34] Speaker A: Yeah, perfect. Hi Tom, how are you?
[00:00:36] Speaker B: I'm good, thanks.
[00:00:39] Speaker A: Yeah. So yeah, thanks for, for joining. So this is, it's the first time we've done the live Profit first session and it's really meant to be a kind of drop in session essentially. So we are, we are going to be running more structured workshops content which is actually going live in 26, but this is pretty much drop in. Ask me anything you want to do with Profit First. It's been the only thing to note, just let somebody else join. It's being recorded so just, yeah, bear in mind, you know how much personal information I guess you're comfortable with sharing. Just welcome Gary. Hi Gary.
[00:01:17] Speaker C: Sorry, I'm driving unfortunately.
[00:01:20] Speaker A: That's okay.
[00:01:21] Speaker C: I'm listening to you while I drive and I'll be home in 10 minutes and then join the call properly.
[00:01:25] Speaker A: Yeah, no problem at all. I think that looks like a Tesla from what I can see with that screen. Yeah, okay. Very tax efficient Teslas.
[00:01:34] Speaker C: Yes, tax efficient but they drop like a stone. I'm about 20 grand in the hole on this one when I have to give it.
Yeah, lots of losses for you to write off.
[00:01:48] Speaker A: That's, I mean it's a good point actually to, to be fair because everyone thinks about the tax side of buying something but we've got to think of the practicalities and, and the actual cost of running or buying something as well.
[00:02:02] Speaker C: Definitely the way to go. Now when I did it, my previous accountant said do it as, do it as a PCP because then we could write off the whole car. Which he was quite right, we wrote off the whole car but the problem was I paid 61000 pounds for the car and it's, by the time I give it back it's going to be worth about 15,000pounds and I'm going to owe probably £23,000. So yeah, it's not great.
[00:02:29] Speaker A: Yeah, you've got to do what's right for you. We could probably do a whole session on vehicles to be honest. But I was just saying to Tom, who's live with us because this has gone out to the whole client base and you two have joined live, but it's, it's being recorded and it's supposed to be a drop in session. Q and A. Ask me anything you want and I'll probably come back to your question in about 10 minutes, Gary, because I know you submitted some questions before, before the session because obviously you're driving and it might be a little bit easier to come back to you. But yeah, thanks for sharing those and we can definitely tick those off. The only thing to, to note is this is being recorded so we just need to be a bit careful how much information we obviously want to share because it's going to be accessed to other people.
Yep. It's completely up to you guys how much you share. You can be, you know, talking general terms if you want. It's completely, completely up to you when it comes to, to numbers. So yeah, Tom, obviously you've joined today. Do you just for, you know, for everyone who might be watching this back and people in the room, do you want to give us a little bit of context with your business, if that's okay?
[00:03:36] Speaker B: There's a fairly new business, heating and plumbing, just on my own at the moment. I think I set up with you guys back in August.
Yeah, just, I'm quite new to the whole profit first approach and I just wanted to sort of make sure I was doing it properly with my allocating into my pots and things like that. Yeah.
Just want to make sure I'm not making any sort of big mistakes.
I'm not gonna have any nasty surprises when it comes to January.
[00:04:03] Speaker A: Yeah, that makes sense. Yeah. I think when we talk about nasty surprises, the, the number, I mean, profit first is all about ultimately, you know, paying ourselves more as the owner in the business.
And, and I don't, you know, I, that's. There should be nothing greedy or selfish about that because even if we've got a team, if we, if there's more profit in the business, when we grow the business, there's more money for everyone essentially. So that's the priority. But, but, but at the end of the day, when most people get into profit first, the initial focus is making sure they got money to pay the tax, they got money to pay their vat.
So that's all perfectly valid and it's what we focus on actually when we help people to make sure no surprises, as you say, when it comes to January and VAT bills. Are you currently VAT registered, Tom?
[00:04:54] Speaker B: Not yet, no. I'm creeping closer and closer okay.
[00:04:58] Speaker A: Yeah, perfect. Okay. So. And just for context, have you, have you already read the book?
[00:05:04] Speaker B: Yeah, I listened to the audiobook. Last time I listened to it was probably back in April, so I need to, I need to listen to it again. Really?
[00:05:12] Speaker A: Yeah. And, and how did you find it? Because I. I often find in my experience and also speaking to other people is. It's almost a book of two halves. The, the first half is quite exciting and, you know, it hits us like, oh, that makes so much sense. I need to do this. We get to the second half of the book and it, it can get a little bit nitty gritty and a bit too much information for some people.
[00:05:36] Speaker B: Yeah, I did find the same, I think, almost a bit repetitive by the second half. So I was switching off a bit.
[00:05:42] Speaker A: Yeah, yeah, no, and that's a really good point. And, and actually, I'll just touch on that before we dive into. For your circumstances, is it. You know, books in general, to be honest, can sometimes be repetitive.
There's a lot of stats out there to say that 80 of people don't get beyond this page 60 when they read. When they read a book. And the truth is, a lot of books, unless they're really, really special, substantial books, kind of have a really big point, a big philosophy, you know, a big idea, and they, they hammer it home, essentially. And, and Profit first is not much different, I guess. You know, in many ways the book is selling us to be emotionally invested, to kind of understand why we should operate profit first. In our business, however, we work with lots of people one on one with profit first, and we have been doing so for quite a few years.
And there's a lot of nuance and there's a lot of kind of extra magic, kind of more advanced strategies that can come later on with Profit first, but it's all about starting on the basics, really.
And even Mike himself, he. He says when people are a little bit overwhelmed, they don't know where to start because some people get the whole paralysis with analysis thing where they, you know, there's just. They don't know where to start. There's just too much going on. So I guess my first question for you would be, have you kind of got started in any way or what does it look like you're set up with from a profit first perspective at the moment?
[00:07:14] Speaker B: Yeah, I'm very much sort of in the basic stage. I guess I haven't quite got into the nitty gritty stuff. So I've got my main business account, my money comes into, and Goes out of. But then when I do my monthly accounts, I send that to a metal account which is like it's got individual pots that I've set up for tax, opex, obviously profit and it chops it up into predetermined percentages for me.
[00:07:42] Speaker A: I say.
[00:07:43] Speaker B: So that is the extent to which I've got, I've done percentages, I. Based off the book basically. I've tweaked a few of them just, just here and there. Fine, fine tuned it. But so far so good.
[00:07:56] Speaker A: Yeah, yeah. So that's, that's interesting. And you're doing what a lot of people kind of do actually when they sort of dive in with profit first is they, you know, they use the percentages in the book and, and that's quite impressive if you manage to stick with it because for most people, because like, because you're obviously fair. Fairly new. How long you been going for now, Tom?
[00:08:16] Speaker B: Officially since August.
[00:08:18] Speaker A: Okay, so has there been any. Before I go leading on to what I was going to say, has there been any challenges trying to stick to those percentages?
[00:08:27] Speaker B: Not yet, no. I came from a partnership before and I learned we were, we were doing the, the profit first model there but my business partner was in charge of the accounts so I didn't get too involved. What I did learn from the previous business I've sort of implemented in the new one and yeah, I've not had too much trouble yet.
[00:08:46] Speaker A: Yeah, yeah. I remember when we first chat because I think you were listening to the podcast, weren't you? Yeah, yeah. So it's quite impressive firstly because a lot of people that dive straight into the, and I know Gary, we'll come back to it in a, in a bit. Gary got some questions around his own percentages and, and taps and how to benchmark it. But for a lot of people diving into the percentages in the book, it can be for many people too much too soon. So I was going to say if you did have any challenges, don't feel bad because for a lot of businesses they're generally quite ambitious. Ambitious.
However, it might be that for your style business because obviously you're a service based business and I imagine you're mainly, mainly labor driven, are you, in terms of your income?
[00:09:30] Speaker B: The biggest. So in terms of sales, like the biggest, it's about 50, 50, I'd say materials.
[00:09:36] Speaker A: Yeah. Okay. So it's, you know, just happens that it's worked out fine in your situation.
So what we normally, firstly, if it's working and it's not broken, don't you don't want to fix it. You know, cliches are cliches for a reason.
So I wouldn't try and completely scrap what you're doing. If it's kind of working, I would stick with it. But Gary's actually the first person who's going through our nine step profit first program.
And we're about to.
We're going to formalize it and structure it a little bit better in 26. And I can share that with you, Tom, where it will help you go through from the beginning how to create your benchmarks and your percentages. So it's in a very structured format. Literally, you know, nine steps, lots of tools and templates, and that might help you fine tune your numbers. But I'm always reluctant to do too many changes if something's working.
So if you know something's working in your business, then that's fine. And I think our business in general, if it's working, do more of it. If it's not working, we need to try something different, I think.
[00:10:41] Speaker C: Steven?
[00:10:42] Speaker A: Yeah, yeah. Hi, Gary.
[00:10:46] Speaker C: I have started going through your blueprint, as you said, and I think one of the problems Tom is going to have is to complete the first couple of spreadsheets P L and if he's only just started trading, he's not going to have a previous year's P L.
Great, great.
[00:11:01] Speaker A: Yeah, great feedback, actually. So that's why we've got Gary and there'll be some other people testing it. That's really good feedback. So I think in your situation, Tom, it's trying to. It comes back to a business plan and, and a lot of people have the wrong. And we're about to do a workshop. And if you're wondering, Gary, when's that going to be? I'm about to announce this week with early December, we're doing a business plan workshop, actually, and. And you're free, Tom, if you want to join that.
But essentially, a business plan can sometimes get a bad rep because we think of banks, we think of London, we think of new businesses. You know, 15 pages, we create it and it sits in the drawer. However, fundamentally, a business plan is kind of, you know, if you think of sport, you think of football. What's the strategy before the game happens, we need a little bit of a plan. And a big part of that is the numbers side of your business plan. And you've probably modeled this out roughly already. I know there's always uncertainty with a new business, but what you would do is do your best kind of guesstimate of what you expect a 12 month period to look like. And because you've been going for all since August, you could kind of extrapolate that time if that makes sense because you've got some real data to spread it out to 12 months.
[00:12:18] Speaker B: Yeah, yeah.
[00:12:20] Speaker A: And, and then that would give you. When you go through the nine steps and you, you don't necessarily need to go through the whole nine steps but I think particularly the first few steps will help you because it's a journey. But the first few steps will have you lock in your percentages. What would you say has been any, any of the biggest challenges with you doing profit first in your business?
[00:12:45] Speaker B: I think nothing stands out really yet. It's just, it's just the uncertainty of come January whether I've, I've set my percentages correctly like you say, because I've got nothing to go off.
[00:12:54] Speaker A: Yeah.
[00:12:55] Speaker B: No previous.
I've got corporate, I'm limited so I'm gonna have the whole in corporation tax and all that interesting stuff. I just the uncertainty of what happens in January just to confirm that I've doing everything correctly. So.
[00:13:11] Speaker A: Yeah, and, and, and to be honest, I mean how many years Gary, have you been in business now for?
[00:13:16] Speaker C: 10.
[00:13:16] Speaker A: 10.
So we, we, some of it is kind of, we, we learn as we go along to some extent and I know that doesn't sound very scientific but we can kind of bombard people.
Firstly, you're ahead of the game because you're setting money aside, you're starting profit first, you're a new business. There's a lot of people that come into profit first five years down the line, you know, so many years down the line and they're learning from a lot of pain and a lot of kind of failures and, and mistakes and that's part of the, you know, the, the entrance fee really in business. And I know you've had a previous business, Tom, so I'm sure you've had your own kind of learnings, but when you've been going for a year or two, you, you get into a little bit more of a rhythm. Particularly because I guess you're new. Are you new to having a limited company? Was it a partnership previously?
[00:14:04] Speaker B: Yeah, it was a. So called a partnership before.
[00:14:06] Speaker A: Yeah, yeah. So. So I've got a friend who we do as accounts for and he's a limited company. We've been doing it for five years and the penny's only just dropped with certain things when it comes to being a limited company and we, I'm not saying that's you know, what we should aim for. But there's an element of you'll fall into a nice rhythm and you'll get an idea, but you're putting money aside so you're kind of ahead of the game. And if you're using the benchmarks. So I'm guessing it is around 15% tax.
[00:14:34] Speaker B: I think I'm doing about 19 at the moment, so hopefully. That sounds good.
Yeah, I've got my rainy day fund pot as well, which.
[00:14:43] Speaker A: Okay, brilliant.
[00:14:44] Speaker B: I mean my head, I'm just got. That's my contingency if, if it all does go pear shaped.
[00:14:50] Speaker A: Yeah, brilliant. And, and you know, there's an expression they use in the guys in America. So there's two people who run Profit first globally. There's Mike McCall, the author of the book, and, and there's, and there's Ron and that's his business partner. One of his expressions is if in doubt, open an account.
So we can never have too many kind of pots and account. So that, but that rainy day fund is what is a big one really. It just gives you that, that peace of mind. Yeah, I guess, yeah. Is there any, any.
Yeah, anything you want specifically want to pick my brains on from a profit first context. Anything else?
[00:15:29] Speaker B: No, to be honest, I was hoping to just sort of listen in and pick up what I did. Yeah, I'm honest. I haven't got anything juicy to give you.
[00:15:35] Speaker A: Yeah, no, that's completely fine. And what we're going to do, what I'm going to do because this is the first time we've gone live is I'm. Although it's meant to be fairly unstructured, I'm going to come with an agenda just in case, you know, people don't. Haven't got questions and I can run through and do a little bit of an educational style session. So that's all good. No, thanks for sharing. Tomorrow I can see Gary's just settling at his desk, so that looks like good timing.
Yep.
[00:16:01] Speaker C: I will be with you in one second. Okay, cool.
[00:16:06] Speaker A: Yeah, I'm just going to read, I'm just going to read out your questions, Gary, if that's okay.
[00:16:11] Speaker C: Yeah, sure.
[00:16:12] Speaker A: Give context for Tom and anyone else who ends up listening to this. I'm just going to load them up. So Tom is wondering about benchmarking his taps. So his target allocated percentages against companies in a similar industry. So he's just wondering how does that fit into profit first and also how to kind of tweak your taps or to set your taps if you're if there's a seasonality in your business.
So for example, I'm a, I'll be buying my Christmas tree pretty soon. We jump on the Christmas bandwagon quite early in my house. And the guys in the local forestry, they only sell Christmas trees in December.
So if that was their whole business, then they need to do something to, to align with, you know, seasonality in, in, in the business. So if, if you're ready, Gary, can you just add a little bit of context with what you do? And you've already shared how long you've been going for.
[00:17:05] Speaker C: So we sell promotional merchandise. So it is a, it's not seasonal, but it is up and down. There's no rhyme or reason to it, especially when it comes to invoicing and money coming in. I've been doing profit first for.
[00:17:19] Speaker A: I.
[00:17:19] Speaker C: Think I'm in my fourth year now and you know, I think it's the best thing ever. It's, it's, it's, it's the reason I chose you guys when I was looking for a new accountant because I wanted an accountant that understood profit first of my previous accountant didn't agree with it.
But it's, it's what I tell every single person I know in my network when they start a business is you've got to do profit first. It's, it's. So it's really, really helped me a lot. What I will say is I read the book and the audiobook right in the beginning and I kind of tweaked it to make it work for me. And then as I've moved forward, I've continually tweaked it but going back in the direction of where it was supposed to be. But I still have a few tweaks in there that I think are quite.
I, I think you have to look at your industry and I think every industry is different and I don't think it's a one size fits all solution. So I think you have to find ways to work for you. So for example, in my case, I, I started off with a lot more accounts than I really needed and then I slowly sort of whittled them down a little bit and, and then especially since that I did it. So my spreadsheet that I created for myself originally had. I've got a chair in front of me one second.
Originally had income, profits, owners, comp, operating expenses, suppliers, marketing salaries, emergency fund, tax VAT and Tax Corp. Yeah. And then I realized, well, to Richard. So, and then I started because. So I use NatWest and NatWest is pretty good because you can have sub accounts, the pro. The problem and limited sub accounts. The problem with the sub accounts with NatWest is you can't actually pay money out of them.
So you have to. Every time you want to do anything with those accounts, you have to move it back into operating expenses and send them out again, which is, which it was. So it's a double step, which.
Okay, it's not the end of the world. And I've got into a system where I can, I've got, I've built my spreadsheet. I put in the one figure, it tells me all the allocations. I transfer everything across to all the relevant accounts. Then I record everything because I like to record things so I can see, so I can track. So then I record. So I then have another column. Let's say today was the. Was profit first day. I would then put all the balances in so I can see my overall wealth, if you will. And I have other things like that. I have my, my retirement fund and my crypto account and all of that can see my, my, my total net worth in the sense that I can track it. But.
And my idea was to set up. Because I never really got the, the whole concept of the direct expenses. Above the line expenses.
[00:19:54] Speaker A: Yeah.
[00:19:54] Speaker C: So I, I just treated income as above the line and everything else below the line. And what I would do is I would, I would have it. And I knew how much money I wanted to take out every month and I knew how much money I needed for salaries. So I, I had a formula in there that would say, say, say income was 100 grand, God willing, 100 grand. Just to get the math simple. It would take out enough of a percentage of that to let's say the salaries were five grand a month. It would split that into two. So we'd say take off two and a half grand for salary, take off whatever for the director's thing. And then the rest of it is what's left for income that could then go through the tips. Yeah. I've since switched it around when Richard advised me to your way, which is I've got income less my vat, less my cost of goods sold.
[00:20:40] Speaker A: Yeah.
[00:20:40] Speaker C: And then the rest is. And, and, and I must admit I've had a bit of an adjustment period to that because for the first, because our money is so irregular, we can have 10 grand one week, 20 grand the next, nothing the following. You end up in a situation where I don't always know how much money I'm going to make or getting to the end of the month and I actually haven't got enough money to pay salaries because this month we haven't invoiced a lot and but next month we might be invoicing some of my clients on 60 days, some of my clients.
So I've got WhatsApp call coming through.
Okay, cool. So, yeah, so that. But I'm kind of sort of working my way along. But, but what I did was. And also because I like to take out a regular amount per month rather than different amounts. So what I've done is I've created, I've got a sub account for owners comp and if I've got more allocation than I actually need, I leave it in the owners component. So for when I have weeks, when I don't have enough, I've got. And the same thing for salaries.
[00:21:53] Speaker A: Yeah.
[00:21:53] Speaker C: But then as. And they might difficult and so obviously now I've had to readjust all my taps because I think I put my taps right because I was tracking it every week and adjusting and adjusting, adjusting and I think I had it pretty right. And now all of a sudden that I'm losing obviously the VAT and the cost of goods sold before the money then gets divided up. Now I, I'm adjusting those taps. So at the moment I can't quite work out how much I need to have for owners comp and how much. The split between owner's comp and operating expenses seems to be a different one because some weeks it's that way around and some weeks later on.
[00:22:27] Speaker A: Yeah. So it does link into a little bit with, you know what Tom was saying that it's an interesting one because to a large extent, Gary, it was obviously working. You've been doing it for a few years, you're getting traction, you're building the habit and it's obviously working.
So as you said, it's kind of a readjustment really. And I think it's going to take you a little bit of time probably just to tweak it and refine it and to grow into our suggestion as a percentage, what would you say? You know, if you've got 100k, how much of that would typically be cost of goods sold in terms of direct costs?
[00:23:04] Speaker C: So if I go back over, let me just open and hide all these columns.
So I've stopped Richard, switched me over to your system on the 10th of October. So I haven't got a, a lot of history on that one.
But I started off with owners comp on 20% and, and, and operating expenses at 67. Yeah, because the idea was that I want to do some of my, all my suppliers on 30, most of my suppliers on 30 days. Some of them are pro forma, but the majority are 30 days. And the majority of my clients are 30 days, but some of them are 60 days. So you can end up in the situation where I'm doing an order for a client where I'm on pro forma with my supplier and they on 60 days with me. So effectively I could have 80 days between 80, 90 days between me laying out the money and, and so I wanted to build up a little bit of operating expenses. So I started it off on where we. 67% in 20. Is that what I said? Yeah. And then I've slowly, as I built money up in my operating, in my operating expenses potential, I reduced that. But then I realized that I was going the wrong direction because a lot of my operating expenses is actually the cost of goods sold. So now that that's above the line, I've now I've started reducing that. So my operating expenses now as we speak. So for Friday's profit first coming up, it's going to be 35. It's going to be 5% profits, 35% owners comp, 57 operating expenses, 2% emergency fund and 1% corporation tax.
[00:24:47] Speaker A: Yeah, I see.
Yeah. And, and to be honest, I've. There's not enough in the book about what happens before we get to real revenue. So in, in the language of profit first, it's after the direct expenses and there's a little bit of nuance to that. But when we take off those direct expenses, as long as direct expenses and subcontractors, irregular subcontractors, is more than 10% of our revenue, then we, we want to treat as a separate thing. And then we, we take that off, we take the vat off and what's left is really 100 of the pie from a profit first perspective. And we call that real revenue, you know, just to reinforce that. But there's not enough in the book.
Mike doesn't talk enough about how do we figure that out? Because it gets quite complicated. I've worked with, you know, lots of different industries, and there's one where actually there's some similarities to yours, Gary. They're, they're more, even more ad hoc, I imagine, in terms of the rhythm of their income. But they could literally have no revenue for two months and then 80 grand can just hit their account and I guess a big order comes in or something, you know, or.
[00:25:55] Speaker C: Exactly, yes.
[00:25:56] Speaker A: Yeah.
[00:25:56] Speaker C: So it's the same with us. You know, we've got, I've got like at the moment I'm sort of occasionally having to borrow from one of my other pots. It's just, just because we, we, we, we're doing a big job at the moment with a client who is on 60 days and it's, and, and, and we happen to be working with suppliers where we are having to pay up front. So yes, January ended by the end of January I'm flush my, my Profit first on 25th January is going to be a fun one because I'm going to have plenty of money to distribute and go crazy with. But coming up to there in December. I mean my one on Friday. Yeah. I, I, I've got a situation where I don't know if I have got enough money in my PO to pay my bills. I, and that's not because my business isn't being run properly. It's just because of the nature of the beast. But I think what will happen is once I get the big one again, again in January, then I can allocate to building I'll be able to put enough into my pots that then they will cover me through the lean months, which is where I was before. So I've still got a lot of money in my accounts, my overall account. So it's not. Yeah, it's just at the moment I'm having to do a loan, borrow something from my, my vet account of it just to knowing that I can then do it right. But I, I think that'll all settle down. It was pretty good and I wasn't having to do that ever. Where I have the emergency fund, the 2% emergency fund. That's the only one I ever borrow from when I need to borrow from and that, that'll build up to a couple of grand and then I'll, I'll maybe have to borrow some to do something one month and then I would. But I always put it back. But that's always been my borrowing fund.
[00:27:30] Speaker A: Yeah.
[00:27:31] Speaker C: When I needed it.
[00:27:34] Speaker B: Your profit first, is it monthly or bi weekly?
[00:27:37] Speaker C: I do it every second Friday.
[00:27:39] Speaker B: Okay, cool.
[00:27:40] Speaker C: Yeah. Because just because I know you're supposed to do on the 10th and the 25th, but quite often that's either on a weekend, but also Friday. Friday is my quiet day. It's the day when I, I like to do accounts that will never.
[00:27:52] Speaker A: Like we do Fridays. We do Fridays in my business.
[00:27:55] Speaker C: So it's, it's just, it works quite well. Every second Friday seems to, to Seems to work for me. My assistant knows that I block off Friday until 11 o'clock in the morning and it, it doesn't take me that long, actually. It normally takes me, depending obviously, how many invoices I have to pay, but it usually takes me two hours, two to three hours to go through, allocate all the money, move it in, pay all my invoices and then.
[00:28:21] Speaker A: Do you enjoy doing it, Gary?
[00:28:24] Speaker C: I enjoy it on days when I go into my income account and there's lots to work with. I don't enjoy it on the days when I, you know, what invoice can I pay? Which one it's called? Yeah, I do, in all honesty, I really do, because what it is, is I have my current, my wealth, as I call it, my retirement fund.
[00:28:40] Speaker A: Yeah.
[00:28:41] Speaker C: Where I've got all my accounts and then I've got a total for those and then I've got a table underneath there which has got my current account, my crypto account, my ISIS and my pension, and I update those as well. And it's really interesting to me because even though obviously on months, when that goes out, it's always looking a little bit miserable, but it's, it's interesting to see, as you can see, the trend in, in the direction it's going and when, you know, hopefully on the, and sometimes on the months when we paid out a lot of money, I happen to have done quite well that month on crypto. My pension has gone up and that sort of balances it out a little bit, but you can see it going in the right direction. So, yeah, I always feel a little bit better when I see it because I can see a snapshot of where my business, I think it's the most accurate snapshot of where my business is or where, where I am personally, financially.
I, I, I do get, yeah, I do kind of enjoy it, unless it's bad news, of course, but it's, it's usually like you, it's easy to think, Jesus, we've got a lot of money going out, a lot of money going, a lot of money going. But when you look at it there, it doesn't seem so bad and, and it balances out. So. Yeah. But I think every, every second Friday, block off a couple hours and, and I mean, obviously I have invoices to pay, which Tom might not have.
[00:29:56] Speaker A: Yeah. And we always say, do you know what? I've, I've worked with someone where we were doing the allocations daily, which might seem crazy to a lot of people, but it worked for him. And it worked for his business. And going back into how to tweak it for your business in your industry.
I always say that we. 80% of it is the fundamentals of profit first, 20% of it is fine tuning it, tailoring it to you and your business and your industry, and that we can only get to that place with experience of doing our allocations. And I do think you're going in the right path by separating the direct costs, but I just think it's obviously going to be a little bit of disruption for you, isn't it? Because you're used to, you got into.
[00:30:41] Speaker C: A habit, essentially, direct cost and your operation. Because the way I look at it is operating expenses are ones that I can adjust and I can, I can do something with direct cost of direct costs, you know, they are what they are. I can't do anything about those. So it makes sense to keep them up there.
So, yeah, I'm kind of happy. I think it's a better system.
Now, Ahmed, you were talking earlier on about the latter half of the book that no one reads.
I did, I did read it and, and I got a lot out of that because I'm now at the stage, I can't remember which chapter it is, where you, you go through your list of operating expenses and you try and reduce it by 1% at a time overall. And I've sort of, I'm doing that now going through like, I could get rid of that subscription, I could get rid of it. So I am trying to bring down my operating expenses with the aim of every time I bring my operating expenses down by 1%, I add another 1% onto, onto profit and my profit all goes to my pension.
So as long as I, you know, if I can max out my pension every year, then it means I don't have to pay a hell of a lot of tax, which means I can reduce that, which is why I've got that one right down. So it's.
Yeah, it kind of works for me from that point of view. I mean, that bit I've tweaked, I suppose, which is I know you're supposed to draw the money out every quarter and go and spend it, but for me, I build that up all through the year and at the end of the year I pump it all into my pension accounts.
[00:32:11] Speaker A: Well, I think actually there's a few things that link here.
So you, you know, you took the words out my mouth earlier when you said, when you have the nice kind of periods, you can start building a buffer. And that's the ideal way of handling a little bit of seasonality in our business.
And, and you know, and even without profit first. You know, you've probably heard people say in an ideal world, we can get to the point where we've got a month's worth of funds to cover operating expenses at any given point. And actually with profit first, with the profit part, Ideally, we put 50% of it towards building a buffer long term, depending what people's plan is, where we've, we've got this kind of Warchester funds, this rainy day account if we need it, however we go about it, whether you build up your owner's pay pot, your profit pot, your tax pot, it's just trying to get to the point where, like I said, it's working, there's no problems. But in a nice ideal world, we'd all have this nice kind kind of reserve in the pot to draw down. And, and you mentioned earlier, Gary, that you know, you like a fixed amount to pay yourself. And, and, and that's probably quite common with a lot of people because they want to take out a usual kind of wage, for want of a better word. And what a lot some people do is they take that fixed amount in and as you mentioned, just leave the rest in the pot. You know, if there's nice little buffer and I've got someone I work with, he, he, he enjoys seeing his owner's pay build up. He enjoys the fact he can look at his owner's pay pot and say, if business, you know, took a downturn, I've got that nice pot of money just sat there waiting for me. So to be honest, I think you're heading in the right direction, Gary. I think if you change to, you probably don't need to change too much. I would just make these small tweaks and changes with everything you're doing. But to go back to your question of seasonality, ideally, if we can build up that, that pot over time, that's, that's really the ideal situation. If you've just got buffers in your pot, you've got a buffer in the owner's pay part, you've got, you know, a buffer or a second, a secondary operating expenses part. But ultimately all of this comes from excess, excess profits. So if you build up that profit part, you can, you can call it seasonal part, you could, you could rename it literally slow, slow season part or whatever you want to call it. That's probably the, the aim where we want to get to over time.
[00:34:38] Speaker C: Yeah, well, the, the aim I want to get to is each of the pots has more money than I need every month. And then, and then you build. Yeah and then you build up a buffer on all of them. Expect especially I mean the big one really is cost of goods sold. And I mean the one tweak I might still make is I might take salaries back out of operating expenses again. And I know it needs to be and I understand the of why it needs to be in operating expenses. But as I say operating expenses I think of as stuff that I could. Those are choices. Yeah. I choose to pay rent or I choose to, you know, drive a car.
I don't choose to pay a salary. And then that's a, that's a fixed cost that has to be paid every month. So I take that one out just so that I know I've always got enough money in that pot to pay my salaries.
[00:35:24] Speaker A: It's a really interesting topic. Firstly got again if it makes sense for you to split it, no problem at all. We always start with less is more accounts normally and as a podiatrist I work with and she, she wants, she separates the good sized business, she separates the, the payroll, the salaries from operating expenses. So she likes to do that.
However, it's little bit more the advanced side of profit first.
And, and we, you know, and it, it might land with your business, it might not. It depends on everybody's business. But I wouldn't rule out the mindset of salaries can be, can be changed or we can do something differently because I've probably saved I reckon 50, 60 grand a year in salaries because I've, I applied profit first to my salaries in my business.
So we, we've innovated operating expenses. Yeah. So we keep as part of operating expenses. But I do get why you'd, why people split it because it's such a big chunk most of the time it's a big chunk of the cost.
However, by having the mindset that it's not fixed and generally don't get me wrong, it is fixed for most people. I'm not suggesting people cut off team members.
However, sometimes when your business is growing or your percentages are going in a certain direction, we look at it and say if I hire that new team member it's going to ruin my percentage, it's going to ruin my operating expenses.
So the question I've often asked myself and I've done it a couple of times in the last five years is I've literally sat down with a pen and paper and I call it thinking time and I'm like, how could I go about this without hiring, without spending X on salaries? I'm normally talking new recruits, not letting people go, by the way. So if our revenue's going up and with. It could be AI, it could be subcontracting, it could be changing the structure. And, and, and I know this, you know, feedback's not for everyone, but it's later on. Profit first does sometimes force us to kind of innovate, if you see what I mean.
[00:37:32] Speaker C: Yeah, I understand the logic behind it for sure.
Yeah, I mean, I could see, keep trying it. I mean I need to build up. Like I say, it'll all make a big difference next year. Once we've been paid for everything this year and we've, and we've got a buffer in the pots, then I can see, I know I'm safe for a few months and then I can see if that starts going down then, then I can adjust accordingly. But yeah, that makes sense in terms.
[00:37:56] Speaker A: Of, and I think it's relevant for both of you guys. And I know you asked the question, Gary, anybody else who's going to end up listening or watching this is about benchmarking against your industry or similar industries. I think two again, our podiatrist client really focused on benchmarking against her industry at the beginning. And I get it because in the accounting industry there's all different benchmarks thrown out there. You know, going back to 30 years ago, people used to talk about a third, a third and a third. And we've all got our own benchmarks and it was 33% staff costs, 33 overheads, 33% profit was, was the, the number years ago. And there's different numbers thrown around now. There's different targets for your gross profit. And I think where industries is really interesting is it, it often focuses a lot on your gross profit percentage, which is what profit first doesn't focus on. So we've got a target gross profit percentage in our business driven from best practice in our industry.
And, and if I didn't pay attention to that, Profit first is not giving me any guidance, any insight on what to aim for. So, so I do think, sure, We've got it, we've got it. Yeah, we track, we track it.
[00:39:31] Speaker C: So I don't look at the industry, I look at my, over the last few years, what my direct costs are.
[00:39:37] Speaker A: Yeah, I guess what I'm saying is, you know, it's, it's not. The book doesn't really talk about gross profit percentage. They talk about what happens after because gross. Your, your Margin is pretty much the same as real revenue for a lot of people in Profit First. So for example, let's say someone's a million pound business, they've got 500k's worth of direct costs.
So that the marge, the gross profit would be 500k. Okay, that's left. 500k would be left because 50 would be direct costs in profit first. They work with the 500k that's left. They call that profit first.
Sorry, they call that real revenue.
However, one of the downsides with Profit first is they don't really guide you to say should that be, should the real revenue be higher? What if the. A better benchmark was to, was to have 40 cost of goods sold and actually got 600ks worth of real revenue. And I feel the book overlooks this and where you can get these insights from is, is your industry. So I think it's quite healthy to benchmark some of those numbers in your industry. So for me, the moonshot where Tom is aiming for straight in a new business because he's got a clean slate, the moonshot is Profit First HQ benchmarks. You know, in the book they are definitely the long term but for a lot of people, including us, it's hard to go straight there into those numbers. We need to work towards them.
So to help us get there, I think it's healthy to do a little bit of comparison and a little bit modeling with similar businesses.
However, obviously we're both in the ec. Gary, have you heard of Entrepreneur Circle Tom by any chance?
[00:41:17] Speaker B: It rings a bell for some reason.
[00:41:19] Speaker A: Yeah, I won't be preachy, but it's a quite a good group, isn't it Gary? With lots of business owners inside and over a couple of thousand business owners, lots of resources and they're big fans of Profit first actually. But the entrepreneur circle, Gary, particularly in their master plan.
Talk about the blue ocean strategy. Is that something you've come across? Blue ocean strategy?
[00:41:43] Speaker C: I did master plans.
[00:41:45] Speaker A: So yeah, oh yeah, sorry, yeah. So. So really why we don't want to get too obsessed with our industry is we're gonna. It's a red ocean, isn't it? Most of the time, if you see what I mean. And, and just for anyone who's listening, watching, and for you Tom, what they say is if you do everything your competitors are already doing, if you copy, not copy, but if we use the model, the same model everybody else is doing, we, we can become a little bit of a commodity and, and they call it a red ocean because it's. If you look, in Cham, where we're based, there's so many coffee shops, you know, all the sharks are after the same, you know, you know, the same reward essentially. So we want to create a pivot and create a blue ocean where what we're doing is very different, very unique. And you might be thinking, you know, Tom, in your business sort of is it, it's plumbing, isn't it?
[00:42:33] Speaker B: You do Tom heating. Yeah.
[00:42:35] Speaker A: So you might, you know, for some people we might be thinking, well, is what it is, you know, same with accounting. But it could be how we go about our business if we can be so unique and so different. And, and the reason this is important is it links into our. Prof. Our profit first long term targets because we don't want to be limited by our competition. We, we want to use it to benchmark areas, Gary, of our business, which maybe people are doing better than us.
I don't know how we'd get this information but for example, if you've got competitors that are charging 20 more, we probably want to figure out, you know, what can we do to emulate that.
But we want to take a balanced approach with not paying too much to the competition.
Is that kind of helpful and makes a bit of sense, Gary?
[00:43:22] Speaker C: Yeah, it's, yeah, I mean it's obviously we try. Our margins are good. Like compared to our industry, our gross margins are 11% above the industry. I mean I track everything. I'm obsessed with spreadsheets and we track every order, every margin, everything. And yeah, we do track against industry.
The information that we have, we track against. And also when we lose orders, we work out what. And yes, if it's because we were too expensive, we go back to the supply and see how we can, you know, do things. So I'm fairly comfortable with that. I mean, I think where we can, where we can help our taps for my businesses is reducing our operating expenses. That's, I find you take it all, you know, every percentage I save on choosable costs is probably not the right word that I could add on to profit. It's good. I mean we have had, we used to have our profit at 10% which we had to really struggle to do it, but we made it work. And, and that was the one where sometimes you'd have to borrow. But yeah, but I believe in setting it high and making the money work for you, which is really good.
I mean we have brought, I have brought it down now to some things. I'm trying to, as I say, pump up all the pots a little bit and build a buffer. But once we built that buffer, that will start going back up again because I've worked out at 10%, I can max my, my pension every year, which, which is kind of my goal where I want to be there.
But yeah, that all makes sense.
I do have to jump up another call in 11 minutes. But I have one more question about the book. Was in the book he says that we should be paying our purse because my company tax is very low, my corporation tax is very low because we managed to write off a lot. My personal tax can be quite high, he says. Mike says that we should be paying our personal tax from our pitch, from our tax pot.
[00:45:20] Speaker A: Yeah.
So the idea is because it's all kind of funded through the business ultimately, isn't it really? You know, because that's where we get our living from. So the idea is if we can work towards 15 tax, and for some people that might be 5%, it might be 7%, but if we could work closer towards that 15. And, and because obviously you've been in business a few years, Gary, this is what I was saying to Tom earlier. Knowing your numbers and what your tax bill usually is does help looking at real average numbers. But the idea is, yeah, you're just setting enough aside in that part to always cover the business tax and the personal tax because ultimately it's all coming from the funds of the business.
[00:46:04] Speaker C: And then, and then does that get treated as a director's loan?
[00:46:07] Speaker A: Yeah, so there is this kind of chicken and egg thing to this because. And it's an interesting point because whether we call it owners pay, whether we call it profit in profit versus terms, and just for everyone watching or listening later on, that's extra money above and beyond paying yourself.
Whether we call it tax, those three things all come from accounting profit in the business because if there's not profit, we can't split it.
So this tuck, when you, when you take it out to pay your personal tax bill is effectively part of your drawings from the business. And then as you say, yeah, director's loan. And you know, so it, it will probably end up being a dividend because obviously most people have got their salary already, you know, about 12K per annum. And it's essentially it's going to be a dividend. But you know, we do extra tax planning and often with people in conjunction with profit first just to make sure that coming at it from different angles that they've got the whole picture. But obviously you're on top of your numbers because, yeah, I think I don't think everybody has a dashboard like you have in terms of the wealth and everything, so you're probably ahead of a lot of people on that side.
[00:47:13] Speaker C: I've built it up over the years, and I give blank versions to people when they want to do it, and they start doing it and then they just tweak it for themselves. I think it works really well.
[00:47:27] Speaker A: That's okay. No, we're about to wrap up. We're about to wrap up anyway, so I appreciate you. Yeah, Coming and I'll see you soon.
[00:47:34] Speaker C: Gary, I've got your spreadsheet. Yes, sir. So I'm going to work through that this weekend.
[00:47:37] Speaker A: Yeah, perfect.
Tom, before we wrap up, have you got any final questions or anything?
[00:47:45] Speaker B: I think it's just inspired me to get back and listen to the book again. I think I might even buy a hard copy and read it as well. I think that'd be useful.
[00:47:53] Speaker A: I think that's a good idea, actually, because I. I listen to a lot of books and Audible, but I also read. And what I've noticed is Audible is good for digesting things on the first listen. But sometimes we kind of want. It's almost like a manual, isn't it, when you got the book so you can physically pick up a page and just kind of zoom in on that page and analyze it for 20 minutes. It's quite hard to do that when you're listening to something.
[00:48:17] Speaker B: Yeah, yeah. I think just looking at my pots now I've got allocated, and listening to you guys talking just now, it's made me realize I might need to add a couple of extra pots, I think.
[00:48:29] Speaker A: Yeah, no, perfect. And there is a little bit of trial and error. You know, Gary's been at it for four years. We've been at it for a number of years. So you will kind of modify and tweak it over time.
But, yeah, thanks for bringing up the book suggestion because I was gonna, you know, recommend anybody listening or watching if you did give up on the first half of the book. It's probably worth going straight in and starting from the second half, because the first half is easy. So if someone's already read it, I'd probably almost start backwards next time because we kind of lose the wheel because most people running a business don't enjoy spending hours looking at the numbers. So we've probably got more energy to start that way around the second time through.
[00:49:10] Speaker B: Yeah, that's why I asked earlier, does he. Does Gary do his work, his accounts monthly or bi weekly? And I'm currently doing them monthly Just because I just don't want to look at the numbers. I'm sort of head in the sand at the minute. So I think I'll have to get it down to two weeks.
[00:49:25] Speaker A: I think that's what I probably suggest if I. If we were like, you know, we obviously work with a lot of people one to one, and the people we work to one to one with, we generally have quarterly sessions and I'd probably be nudging you towards every two weeks and. Yeah, and yeah, like I said, some people I've known do it daily, but they don't stick with it for data. They probably end up doing weekly. Some people do weekly, two weekly.
But. But at the end of the day it is working. So I try and, you know, not force it. Do in a way that works for you.
[00:49:58] Speaker B: The main reason to go down, just do it every other week would just be just so you're on top of everything, I guess. Is that the main.
[00:50:07] Speaker A: Well, I think most people can't afford to wait a month to kind of split the money into pots.
[00:50:13] Speaker B: Yeah.
[00:50:13] Speaker A: So most people, because it means you go in a month with the money in your main account not being allocated, if you see what I mean.
[00:50:21] Speaker B: Yeah, yeah.
[00:50:22] Speaker A: So if you do it weekly or two weekly, you. You've got a clearer picture kind of where you are with all your pots, really. It's like a dashboard, essentially, in your pots.
[00:50:30] Speaker B: Sure.
Cool.
[00:50:32] Speaker A: Yeah. Okay. Brilliant. Thanks, Tom. We're good to catch up anyway. And thanks everybody else who's watched it or listened to it back. Yeah. But reach out to me or the team, Tom, if you've got any other questions later on.
[00:50:44] Speaker B: Lovely. Cheers, Stephen.
[00:50:46] Speaker A: Cheers.
See ya.
Excuses.
So.
