S6E11: Breaking the Pay Yourself Last Myth: Profit First Strategies Explained

Disclaimer: The information in this video should not be viewed and is not intended as tax/financial advice. Consult with an expert before making any decisions regarding your finances. 

Still skipping your paycheck? Learn how to flip the script, ditch burnout, and finally pay yourself first—without guilt. Today we're diving into Profit First method strategies. 

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Transcript

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The only thing is that line that we're calling profit, it's not actually profit. It's money that rolls into being able to do more next year. So that's just a little bit of a twist. But for not for profits as well. If you are putting your blood, sweat, tears money in that business, you should be paying yourself. Okay, so that's kind of one thing. It just put the not for profit as hey, welcome back to the Cash Flow podcast. I am glad to see you again this week. Do me a favor. If you've liked anything in our series this season, click on a Like or subscribe. Let us know that you're getting value out of the podcast today. I know you're going to get value out of it because we're going to talk about paying yourself as a business owner and we're going to get rid of the profit last lie and what we all kind of walk into so often when we're doing our own bookkeeping. So here's what we're going to talk about. A lot of it has to do with if you read Michael Malowitz's book Profit first, really good book that a lot of entrepreneurs read and I highly recommend it. We're going to kind of break it down here today into bite sized steps for you. So here's the thing. There are two very important things in your business finances. The two most important things in your business finances, you and you. And that speaks to two lines that should be on your budget no matter what. And the first one is profit for your business. And the second one is paying yourself. Now, if you're like me, you're guilty of not doing that. And here's the thing, a lot of you are working in not for profits. And I will argue that you want to do the same thing. The only thing is that line that we're calling profit, it's not actually profit. It's money that rolls into being able to do more next year. So that's just a little bit of a twist. But for not for profits as well. If you are putting your blood, sweat, tears money in that business, you should be paying yourself. Okay? So that's kind of one thing. It just put the not for profit aside. And here's the thing, the fact of the matter is, and this is a hard truth because I've had to face it myself at times, if the business pays everyone else but you, your business isn't working. Okay? Now that doesn't mean your business doesn't work. That just means the way you've got it currently structured, it isn't working. And so we need to really burn down this myth that you should pay yourself last, that it's heroic to do that, that doing this is just, you know, what it takes to be a business owner. It's the grind. I put every dollar back in the business. The bottom line is you can do that, but you're going to lead to burnout. You're going to be to burnout, you're going to be to lead to worries. You're going to lead to the gray cloud hanging over your head that we often talk about. And you're going to have profit and paying yourself be the leftovers. Okay, so heart whole idea is that profit is not leftovers. Paying yourself is not leftovers. It's an actual line item, not a miracle, but a line item. In fact, paying yourself and paying your business with profit are the first two lines in your profit. P and L, let's call it, they're the first two lines, paying your business and paying yourself. So we've got a really simple worksheet that we put together. You can link to it here in the comments. Comments. It's a Google sheet. You can make a copy of it and do this for yourself, but I'm going to dive into it and show you exactly how to use it in like three minutes. It's very straightforward. And what it says, what it, what it does is put for you in clear English how you're going to get to move yourself from the bottom of the list to the top of the list. So let's hop in. And here we are going over this allocation template, something every owner should do on the regular. And I credit Michael Michalowicz with this. It is basically straight out of his profit first theory. But what you want to do, because you are the most important thing in your business and all the reasons that we've talked about that you need to be paid is let's take a look at how to allocate the money you make in your business. And if you do it this way, then you'll make sure to pay yourself. So let's just say that you bring in, let's call it right now,$5,000 a month. Okay. And you know right off the bat that you want to allocate, let's say 10%, let's just say 5% of this to your profit. You want to pay yourself at least, let's say 20, let's say 30% of it. Because this is the whole point is to pay ourselves. You need to set aside Some money for taxes. It should be somewhere between 15 and 30%. So let's set that right here at 20%. And then the rest would be operating expenses. So let's just. I'm going to show you a wrong thing to do here. Let's put 50 there. Here's what you can see. This number here has to equal 100%. So clearly we've done too much. We can only make that 45%. So once you've made sure that that equals 100, this right here now tells you, hey, this is what I have. I'm going to put 250 away for profit. I'm going to pay myself 1500. I'm going to set aside an account for taxes, $1,000. I have 2,250 left to spend on my business. And this is where I think we all go backwards, right? Normally we spend all the money in the business, and whatever's left we'll put aside for the owner for profit and for taxes. This is looking at it in totally the opposite direction. Now, first time you do this, what might be interesting is to look at what actually happened last month. Say so now I'm going to look at last month. Then you just pull up your bank account and do this and say, well, I didn't put any in the profit account. I paid myself $1,000 and taxes were. I put aside 10% for taxes, so I put aside 500 for taxes, and I spent 3,500 in the business. So now what you can see is that you. This tells you what your actual percentages were, and this tells you how much it varies from the plan that you had. So you plan to put 5% of every. Every revenue dollar away. You put zero away, so you missed by 5. You plan to put 30 away for owner's pay. You put 20 away, so you missed by 10. You plan to put thousand away for taxes. You put 500 away, so you missed by 10 percentage points. So this just gives you a feel for where you are versus where you might want to be. Not to judge yourself or kick yourself or anything, but just so you can see how far off you are and you can see that, oh, those are my targets now. So maybe next month, maybe you don't put all of it in there. Maybe next month you go, okay, I'm just going to put 50 in profit. I'm going to pay myself a little bit more, and I'm going to put a little bit more away for taxes and spend a little bit less on the business. So right now you can See, you're over allocated by this 400 bucks. So you would need to bring this down to 3100. And that's what setting these first three in stone does for you is it lets you then say, okay, I only have 3,100 to pay on expenses. So since I only have 3,100 to spend, what am I going to spend it on? What am I going to cut, what am I going to keep? And take it from there. And then you can just make some notes every time you do this to say, okay, I need to add X to my paycheck and just make it a little bit. It doesn't have to be a lot. You can go ahead and make very small changes here getting towards your goal of these percentages. I hope that makes sense. On this sheet, you want to input numbers into each of the yellow squares. Everything else is all calculated for you so you don't have to worry about any of the others. All right, enjoy. Let's see how you're doing towards your goals. Okay, cool. So now you see how to use it, and it's pretty straightforward. What I really suggest is if you haven't been paying yourself or if it's been inconsistent, put a small number in there. Start with anything, start with $5, start with $50, but route some money to yourself every single month, no matter what. Leave some money in profit every single month, no matter what. Don't worry if you can't get to those big percentages now. Set lower ones for yourself right now. But then make a point of every single month, making a little bit of progress on each one, and you will be surprised how quickly that accrues. And I'll tell you this because I've done it myself. I don't know that there's an entrepreneur out there entrepreneur out there who hasn't been in that situation. And what I'm suggesting to you works. Just put a single number in there. You're going to feel guilty. It's going to come. Here's the deal. Guilt is real, but it's misplaced. Okay? Feeling guilty about compensating yourself for your work is misplaced. You're going to get resistance is the second thing you're going to find. Because every piece of money trash you've built up in yourself, in your mind, money, mind trash, is going to come in there and tell you, this is wrong, this is wrong, this is wrong. You're going to get that devil on your shoulder. You need to talk back to that devil on your shoulder because you're going to be dealing with years of that. Plus you're going to have some fear about it. Plus you're going to have. You're going to feel that it's going to be an unpopular decision because you may have to make some tough decisions. All that stuff's going to come in the form of resistance. Talk right back to it. And the way you talk right back to it is with the CEO oath that I'm going to share with you in a minute. You really need a mindset shift. That's the third thing we need to have happen. You need to pay yourself in order to think like a leader. If you're a leftover over in your p. L, you're going to act like a survivor and your team doesn't need to see this. You need to act and think like a leader. So look, I got a little oath for you that I'm going to read here that you're going to. I'm going to ask you to challenge you to say to yourself every day, write it down, even post it on Instagram or post it on Facebook or wherever you play. Here it goes. You ready? Starting today, I pledge to pay myself on. Hang on, we have to pause on that. Oh, there we go. Here we go. Starting today, I pledge to pay myself on purpose, not by accident. I will no longer be the last in line. I'm the cfo. Oops. I'm the CEO and the CEO gets paid. Okay, repeat that in your head. Whenever the resistance pops up, whenever the mindset issues pop up, come back with that oath. Type it, put it in front of you, tape it in front of you. But remember, if your business is going to survive, if your business is a business, it has to pay you. Again, like and subscribe. If this has been useful to you. If you find this tool useful, share. It with your friends. Tell them about the podcast. We have all sorts of tips like this coming to you on a regular basis. Thanks so much. Take care. Have a great week.