You’re halfway there. We’ve helped many clients successfully implement Profit First and it’s exciting that you have decided to join the elite, cash saving small businesses. By now you should have all your bank accounts set up and your books cleaned up and organized. The system works best when you go in order. That way you avoid extra work.
Read the first two blogs in the series if you missed them or haven’t finished the work yet.
How to Implement Profit First [Meeting #1]
How to Implement Profit First [Meeting #2]
The big thing for meeting 3 is to analyze your expenses. Having a handle on your expenses is a key part of managing your cash. In our actual meetings, the pro would have done their own analysis before the meeting to make the process smoother. It’s always a good idea to have multiple sets of eyes when doing an extensive analysis, so nothing gets overlooked. So, however you’re doing it, you got this. Get your favorite pen and highlighter and let’s jump right in.
10 Step Expense Analysis
The original Profit First book by Mike Michalowicz includes a 10-step process for analyzing your expenses. To put it simply, they work. Be detailed and thorough now so you don’t have problems later. I’ve summarized the steps for you.
- Gather all your bank and credit card statements from the last 12 months. Do what you need to so you can mark them up.
- Draw a box around any team member expenses. Payroll, commissions, even payments to yourself for specific work you did in your business.
- Highlight all productive expenses. Refer to the next section with 9 questions to ask about each expense. Be brutally honest with yourself.
- Circle any repeating expenses that you plan to have in the future. Monthly, quarterly, annually, any expense that will repeat at some point. (By the way, it’s just fine to have some expenses that are squared, circled and highlighted.)
- Add up all those expenses that have been marked in some way, then divide by 12 to get an average monthly expense total.
- Consider reducing or eliminating commissions or bonuses. It’s fine if it’s a team members normal pay structure. I’m talking about the “nice to have” bonuses or commissions. Even temporarily.
- Stop all automatic withdrawals from your bank account for expenses that are not highlighted.
- Request a new card from your credit card company with a new number and tell them to not accept any charges on the old card. This is a way to get vendors to reach out to you and then you can either renegotiate your pricing and terms or drop them all together.
- Go through all your marked expenses and see if you can’t get rid of some, if even temporarily, or perhaps at least renegotiate it.
- The last thing is to cut all the unmarked expenses. All of them! If later you think you cut too much, you can always add it back in.
9 Questions for Analyzing Your Expenses
You’ve probably been told to separate your expenses into variable or fixed. Many business coaches, mentors and even accountants work that way.
What does knowing if an expense is variable or fixed tell you about how that expense is affecting your business. A big fat nothing!
A better way to think about your expenses is in terms of are they PRODUCTIVE or UNPRODUCTIVE. With this new mindset we created a list of 9 questions to ask about each expense to determine if they are in fact productive.
- Will this expense help generate immediate income?
- Does this expense serve our clients?
- Does this expense support systems that serve our clients?
- Does this expense save you time?
- Is this expense absolutely necessary to keep the business open?
- Can you identify the actual benefit you get from spending that money?
- Can you get the same outcome by not spending money?
- Can you get the same outcome by spending less money?
- Does the expense serve your top clients or your top money-making services and programs?
Some questions might seem like they overlap with others, but they are all important for looking at each expense from different angles to get a full picture. These are also great questions to ask yourself before spending your money.
This may seem like a lot of work, but remember, this is to help implement Profit First, not a weekly thing. You’ll still periodically go through your expenses, but because you are way on top of things now, it will be quick and painless, nothing at this level.
You will see immediate savings, if you follow all these steps and do the work.
All of this can be overwhelming and sometimes a little technical. We are glad to help you implement Profit First if that’s all you need or we can totally take the stress away from you by doing it all – implementation, monthly bookkeeping, and all your monthly allocations.
Schedule a chat with one of our professionals.
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