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05 July 2024

Mastering Profit First: A Journey to Financial Freedom for Your Business

Hello lovely readers!

Welcome back to my blog where this week I’m diving deeper into the Profit First system. Last week, we discussed the idea of using several bank accounts to trick ourselves into spending less—much like using smaller plates when on a diet to control portions. This week, we’ll talk about CAPS and TAPS, and how to allocate funds to different accounts effectively.

When you have smaller accounts to work with, it might feel like there isn’t quite enough for what you need or want, but that’s the whole point. It’s normal, and it pushes you to get creative in cutting expenses or increasing revenue.

Let me share a story of a client who’s been with us for three years. When we first started working together, her business model and staffing weren’t serving her well. She was taking money out of the business, but it wasn’t enough to support her lifestyle or her family. She was working long hours, managing a team, and dealing with high overhead costs. She got serious about cutting overheads, streamlining admin processes, and reducing spending. She reviewed her marketing spend and cut anything that wasn’t generating leads. She streamlined admin processes to reduce costs. She noticed she was spending too much on CPD (continuing professional development) without it impacting her business positively. Additionally, she adjusted contractual agreements to protect herself financially if team members left after receiving training. By focusing on her bottom line, she slashed her budget in a few short months. She got clear on her financial targets, both for her pay and the business’s profit. This clarity allowed her to adjust her allocations—those different pots we talked about last week.

If you’re feeling overwhelmed by the idea of numbers and finances, remember that just reading about what I’m sharing with you isn’t enough. You need to implement these strategies. If you don’t want to figure it all out yourself, consider hiring a Profit First accountant. You may have tuned into my podcast in May where I had the lovely Annette from Annette Co. on to share her expertise. She answered common questions about Profit First and provided expert insights, if you haven’t tuned in already then listen in now here.

So, how do you decide how much money to transfer into each of your accounts? This depends on your practice size and tax allocation. Every business owner will need different allocations based on personal and business circumstances. To give you a rough idea rough idea, for solopreneurs, operating expenses should be between 10-40%, and your payroll (owner’s pay) should be 30-60%. Tax should be 5-15%, and profit 5-15%. Small, medium and large group practices will vary.

Your operating expenses cover rent, utilities, software, subscriptions, education, professional fees, advertising, and office supplies. Payroll for therapists includes wages, payroll tax, and benefits for clinicians, employees, and contractors. Admin payroll covers wages, payroll tax, and benefits for administrative employees or contractors. Leadership payroll covers wages, payroll tax, and benefits for leadership roles, such as clinical directors or supervisors.

Owner’s pay covers your personal living expenses and regular owner’s drawings. Tax allocation depends on your business and personal financial situation, so it’s essential to confirm this with your accountant. Profit allocation ensures that a portion of revenue is set aside for profit, benefiting you directly or indirectly.

Implementing the Profit First model can feel overwhelming but start where you are and slowly work up. Determine your current allocation percentages and set your destination. Then, tweak, refine, cut costs, scale, and automate. Setting your SATNAV is crucial. For those of you starting up or thinking about starting a practice, remember to have an initial investment. You can implement the Profit First model from the first pound you make, but your investment stake is separate—it’s not for profit, salary, or tax.

I understand the scepticism, but I assure you, this works! I’ve implemented it in both Thrive and my physio and wellness clinic. It’s transformational. If you would like to understand more about how me and my team can help you and your business to flourish and implement all that I have talked about then book a call with me here.

Until next week, have a great weekend

Katie X



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