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Coaches Go Social: Learn How to Pay Yourself First With Profit First

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“Pay yourself first!”

Since April is Financial Literacy month, this week, I’m talking about business finances with my guest, Janet Redford. 

We are going to talk about Profit First, which is a cash management approach that will allow us to pay ourselves first before we use money for any other business finances. 

A Colorado native, Janet became a Profit First professional in the fall of 2014. She was inspired to follow the Profit First path from a client who pointed her to the book Profit First: Transform Your Business from a Cash-Eating Monster to a Money-Making Machine.

Janet had a “eureka!” moment after she read it. She was basically using the same methods in her coaching already! She reached out to the Profit First company to see how she could be a part of their mission to eradicate entrepreneurial poverty. She then took the steps to become a Profit First professional. Although, she likes the terms Profit or Prosperity Strategist the most. 

Not only does Janet teach clients the Profit First methods, but also she’s used it personally from the very beginning of her time as a Profit First professional. Shortly, after becoming a Profit First professional, her and her husband were faced with a huge tax bill. Luckily, since Janet practiced Profit First from the very beginning of her training, she had some money set aside to start carving away at that tax bill. 

Since then she has committed to living a Profit First lifestyle. She believes that Profit First really does eradicate entrepreneurial poverty. She’s taught this many times over, and she has seen it transform lives. Janet helps people get out of their own way so that entrepreneurs can do what they do best. After all, if an entrepreneur is constantly worrying about money, they can’t show up to do what they love. 

For those of you who might not know,  Profit First is a cash management system. You are basically implementing a system to help you manage your cash when it comes in and to know what to do with it. 

For example, an exercise Janet would start out with would be having a client think about whatever money that is coming in (it could be $100, $1000, $10,000 or $100,000), and ask: how do you direct it? 

We’ve been taught to take any money that comes in and pay it for this or that so the money is going right back out again. What Profit First does is to teach people what to allocate and what to allocate to. Think of your income like a platter. You want to allocate it correctly and “serve” yourself first. Janet shares some basic foundational principles from Profit First with us, but she says you can definitely customize it for whatever industry you’re in and make it what you need it to be.

The whole reason this approach is called Profit First, is first, how do you determine what is profit in your business? Usually, we look at profit as an afterthought, an event. Some businesses might know by December if they are in the black or in the red, essentially if they’ve been profitable or not. A lot of business owners don’t know their numbers nor do they know if they are profitable. A lot of times, they don’t figure it out until they receive their tax return. 

Profit First reverse engineers this process. Generally speaking, we’ve been taught the Generally Accepted Accounting Principles (GAAP) is the only way to run a business. That means income minus expenses equal profit. Profit First turns that around and changes the equation to income minus profit equals…then they allocate the rest. When using this equation, it makes business owners navigate finances differently. 

Think of it in terms of a full tube of toothpaste. When you have a full tube of toothpaste, you squeeze on a generous amount without thinking much about it since there’s so much in the tube. But then when the tube becomes almost empty, and you do everything you can to squeeze even the smallest amount onto your brush, you have to get frugal.

This follows C. Northcote Parkinson’s law of supply and demand.  When the tube is full, we tend to get mindless and use a lot of toothpaste. But when we get low on supply, we get very innovative and frugal. That’s what we have to look at as we serve our clients. 

The best thing entrepreneurs can do is be financially healthy. When we are financially healthy the more people we can serve. Isn’t that why we are entrepreneurs? To serve people? 

If we have a healthy relationship with money, and we keep ourselves financially healthy and sustain ourselves, the more people we can serve and we can keep going. 

So taking the profits out first from income is like squeezing out a large portion of toothpaste and allocating the rest. At this point, the question remains, am I getting a return on every business expense? 

Janet would have a client print off their bank statements, highlight their recurring monthly expenses and take a look at variable spending. Can you trim any “fat” in variable spending? So you are as lean and frugal as possible. That’s when you can start getting innovative with what’s left. 

You want to learn to be frugal, lean and innovative because when it does come time for growth, you want to be in the mindset of qualifying your expenses. 

Now, you’re going to make your toothpaste last a lot longer, aren’t you???!!! 

Janet’s next question is, how do you determine the financial health of your life and your business? How do you connect to your numbers? 

We can tell ourselves a story that we want to believe about our financial situation, but numbers don’t lie. 

Janet’s seen a number of businesses where they have huge amounts of revenue coming in, but there’s just as much going out. They might be a $500,000 in revenue company, but overall they might only be a $50,000 company since so much of it goes out the door. 

It’s not the size of the business. It’s how healthy your business is. The health of your business is what’s going to sustain you. 

When the pandemic hit, within the first month, so many people closed their businesses. This was an indication to Janet that they didn’t have a safety net. This made Janet very sad because we all love small businesses. It’s free enterprise. It’s the fabric of our country and it’s how we have healthy business communities. Janet saw just how poor of a relationship with money we all have. People don’t have safety nets or we don’t think we should pay ourselves first. 

When you are an entrepreneur, you have to have grit. You have to have a heart to serve people. The part that gets overlooked is money. Money has to come first. Money is the foundation of your business. You have to pay yourself. If you don’t pay yourself, how will you survive in your personal life? You have to be able to pay your bills. You have to be able to take care of you. This is your ‘put on your oxygen mask first’ moment. Put on your oxygen mask first so you can go and serve others. 

For Janet and because she practices Profit First, during the pandemic, if clients dropped off, she didn’t have to worry because she had a strong safety net. That’s what it is all about: Having peace of mind. You need peace of mind around your finances so you can do what you do best. If you’re an entrepreneur, people need your services. 

Janet wants to see a shift in how people relate to money. It’s okay to get paid for what you do. It’s okay for you to build wealth. It’s okay for you to say you want to make 6 or 7 figures. If that’s what you want, then how do you need to show up in your life to serve the people you serve to generate that income? That’s where your planning and strategy need to come into play. 

If you want to make that amount of money, Janet says go for it! You have every right to want what you want. Just think about how do you need to show up? How do you need to perform to reach that goal? 

To really practice paying yourself first and allocating money appropriately, Janet says, it’s really important to keep financial appointments with yourself. Look at what’s coming in and what’s going out every week, if possible. It will help you build a healthier relationship with money. 

Janet has met so many people who believe money is a bad thing. They hate money. That mindset has caused them to struggle. Money is an energy exchange. People sometimes get lost in generosity. If you pay yourself first, you can do reciprocity. You take and you give. 

If you want to learn more, Janet has an upcoming webinar offering. She’s collaborating with two other experts and it’s going to be a monthly webinar. It will be the second Wednesday of every month from noon to 1 pm Mountain Time. Janet does an overview of Profit First. One expert goes over tax incentives and tax savings and the other expert helps you reduce your vendor costs so you can increase your profits. It’s free! You can register here!

May is mental health awareness month so next month on Coaches Go Social it is all about mindset!

And if you are really considering live video in 2021, you can check out my self guided course to create your own Live Video Show https://capitalizesocialmedia.com/cwl/ 

Also, if you are a coach looking for a little more marketing support come join my private Facebook group, the Consistent Content Club! I also have another group that goes even deeper. If you’re interested in the new Tidepool group, set up a time to chat with me directly! 

If you want to talk more about manifestation or if you just need some positivity right now, let’s set up a time to chat

 

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