61. How do I become more profitable? | Planning for Profit |Budgeting for Profit
November 8, 2019
Hey, are you wondering how well you’re doing with your bookkeeping and knowing your numbers? Maybe you’re at a total loss of where to begin. Maybe you’re not sure how well you’re actually doing. You just need to know the next steps to take.
During a bookkeeping strength assessment, I work with business owners one on one for about 30 minutes and identify what their next step needs to be. I’ll lead the conversation by asking some open-ended questions and then ask ten laser focused questions so I can pinpoint exactly what you should do next and how strong you are with your bookkeeping. Business owners find this to be the boost of confidence they need to tackle their bookkeeping head on.
To get on my calendar for a free session, you can email me at email@example.com or message me on Instagram @lydia.miller.mba. Now on with the show.
Welcome back to the podcast!
We are in the middle of our series on profit. Last week I talked about what is profit and how you can know if you are profitable.
This week, we are looking at how you can become more profitable in your business.
First, the most basic way is to increase your revenue and decrease your expenses. That will give you more profit if you have more revenue than expenses.
So, you can do that by looking at your sales strategy and narrowing it down to the efforts that work really effectively. You can increase your prices, you can do more work, you can create new streams of revenue, you can add on a new service that compliments what you’re doing and brings high value to your customers while not costing you much more time or resources.
To decrease your expense you can look through your bank statement and see what you’re spending money on. Ask yourself, is that necessary for my business to run? Even if it’s something small. I had a $10 a month magazine subscription that I cancelled, not because it was expensive because it wasn’t, but because I wasn’t using the resource and I have no intention of doing it now. More profit! Is there a free version of the program you’re paying for that does the same job? Where can you cut back on expenses to make more room for profit in your business.
That’s the basics of how to become more profitable. You want to also decide how much profit you want to be making in your business to give yourself a benchmark of what to aim for. This can be a percentage or an actual number. So, let’s say you want to take home $1,000 to your family each month. Well, you need to start at $1,000 and add in all of the expenses of your business to get to a total revenue number that you need to aim for. So, if it costs you $400 a month to run your business, you need to be bringing in at least $1,400 a month to pay your expenses and pay yourself. That’s if you’re not investing in your business!
The wonderful thing about owning your own business is that you get to decide how much you want to bring home, how much profit you want and so on.
You can do the same thing with percentages. If you want to take home 50% of every dollar of revenue, then you have to make sure you’re making enough to cover your expenses.
So, if your costs of running your business is $400, you have to make at least $800 a month to bring home 50% of that and still have money to pay for the operations of your business.
Either way, you can decide how you want to plan.
Now, I know that I just talked about paying yourself as profit. That is not true profit, and I know that. If you’re just starting out and that is how you view profit, then that is ok. I’d like you to get to a place where you can view profit as true profit. Money that you retain in your business beyond what it costs to operate the business and pay yourself.
So, how can you plan for profit?
Planning for profit is a vital step in being intentional about actually being profitable.
Budgeting and setting up a separate bank account are the two best ways to do this.
So, for budgeting, you’ll want to do this in either excel or your accounting program. I prefer excel because it’s easier to modify than it is in Quickbooks, which is what I use for my bookkeeping.
To create a basic business budget, you’ll have two columns to start, one on the right and one on the left. On the left, start by listing out all the ways that you make money in your business one by one going down.
So, for me I would put Clients then Strategy Sessions then so on down the list.
Once you have all of your revenues listed, you can skip two lines and list out all of the things you spend money on in your business. Be as detailed as you want to be. I would list things like bank fees, adobe subscription, libsyn podcast subscription, parking fees and so on all the way down.
Then in the right hand column, you start to put in your numbers. Remember, this is all looking to the future. Also, I would start by doing this on a monthly basis, because all you have to do is multiply the numbers by 12 and then you’ll get your annual budget.
Fill in the revenue first. Figure out how much you make per month in each revenue stream, or what your goal is to make in each category. Fill that in all the way down through your income and expenses.
At the end, you can total up your revenue, then total up your expenses, and subtract the revenue from expenses. That tells you if you’re planning for profit or not. If you have a negative number, you know that you have to make decisions now to cut back on expense or increase your sales efforts to raise your revenue.
The important part is that at the end of each month, you look and see what you actually brought in and actually spent to see how close you were to your budget and how you can improve for the next month.
This process will take a few months to get used to.
One thing that might be helpful if you’re struggling with excel is to use an app like EveryDollar. If my bank connected, I would so use this. It’s a budgeting app that I use for my personal finances, but you can use it for your business no problem. Just add in your categories, set how much you want to make and spend and then track your transactions right in the app. I think for $100 a year, you can connect it to your business bank account and they will drop in all of the transactions for you, so all you have to do is drag and drop the transactions. This doesn’t replace your bookkeeping each month, just fyi 😉
Are you struggling with budgeting your profit? Are you trying to figure out how to set up those reports to help you along the way? I would love to help you create that system and know what to do each month to stay consistently profitable.
I’d be honored to work with you. To get started, email me at firstname.lastname@example.org with the problem you’re having and we can discuss the best way to get to a solution in a bookkeeping strength assessment call.
If you are ready to use your numbers to help your business, please subscribe so you will be notified when the next episode drops.
I would love to connect with you. You can find me on Instagram @lydia.miller.mba and always by email email@example.com.
So until next time, go, make it happen.