92: Stress-free financial management for small businesses with Profit First, featuring April Stroink
Are you procrastinating financial tasks in your business?
You’re not alone! In this episode of ill communication, I sat down with my Money Coach, April Stroink, to talk about some stress-free financial management tips from the Profit First system.
The thing I love about April is she has zero judgment about the financial skeletons you may be hiding in your closet.
She has seen everything, and she herself has experienced everything in her former retail business.
And I'm talking about the good, the bad, and the ugly.
In this episode, April shares how this system works and how you can get started implementing it into your business so you can increase your profit and stay on top of your business finances.
Topics We Cover in This Episode:
Why the Profit First system is the perfect system for small businesses and entrepreneurs
How the Profit First system works in your business
Wins from other business owners who have implemented this system
I hope you enjoyed this episode with April! If you are interested in working with her, you can visit her website and check out her resources there. You can also follow her on Instagram here.
Curious about Profit First? Get Mike Michalowicz's book on Amazon.
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[00:00:03] Welcome to ill communication, copywriting tips and sales strategies for small business. I'm your host, Kim Keel. I'm a copy coach, sales strategist, and direct response copywriter. It's my mission to help women leaders and change makers amplify their voices through copy. It's why I'm dishing out all the juicy tips, writing prompts, and sales formulas to help you generate more leads, book more calls, and get more high value clients on repeat. Sounds pretty good. It's time to ditch the overwhelm you might be feeling and find confidence in your copywriting so you can get your message out there and attract more soulmate clients. Let's get started. So here I am recording my podcast for the week, and while I need to get this done, it's not critical for my business. If I missed a week, nothing would fall apart. But there is something I should be doing in my business that I'm procrastinating and it is critical for my business. Any guesses what I'm procrastinating? If you guessed doing my taxes, you'd be correct. I put off doing my taxes every year because I think it's going to be this big, arduous task of finding all the home office expenses, charitable receipts, and all the government docs. And yet, when I actually get around to it, it isn't that hard, and I get through it faster than I expected to. But this year, there's another reason why I'm procrastinating doing my taxes. It's because despite some of the wins I've shared here already, like crossing the million dollar mark in lifetime revenue, 2023 was hard.
[00:01:54] It was rough. My revenue dropped pretty significantly, and I honestly don't want to look at those numbers. And while I try not to make them mean something about myself and my worth, my declined revenue has hurt our household cash flow. Money has become a source of stress because we also have the additional costs of a second mortgage on a vacation property that we bought before interest rates went up, up, up at the same time as my revenue went down, down, down. So if I'm being totally honest with you, I've been keeping my head in the sand so I don't have to face the facts. And honestly, because I'm afraid of what the data will tell me. And even though I've been procrastinating doing my taxes or really getting all the files together so my amazing content can do the taxes for me, I'm actually not stressed about paying my taxes. It's because in 2023, even when my revenue was down, I continued to squirrel away around 30% of my revenue into a dedicated tax savings account, and I've been prepaying my federal taxes quarterly. So even if my accountant does all the accounting and comes back and says you owe $55,672 in taxes, I know I will have already paid a substantial amount toward this amount already. And I have a nice, tidy little sum sitting in my account in case I owe any extra beyond what I've already paid.
[00:03:28] Knowing that I have prepaid my taxes and I have some extra money set aside for any tax bill is so satisfying and freeing and super distressing. And I am not naturally a financial planner like this. The only reason I have been setting aside a percentage of my revenue into my tax account is because several years ago, I implemented the profit first system into my business. Profit first is a method of managing your revenue expenses, owners pay taxes and profit. Created by entrepreneur and author Mike Michalowicz. It's all about making sure you get paid first out of the revenues and not last. It's like this simple switch where you take a slice of profit from every single dollar you earn before you even think about paying bills or expenses. It ensures you see real cash benefits from day one rather than at the end of the year. Now, Mike created this approach to help small business owners break free from that constant struggle of seeing immediate financial gain. He uses an analogy of the dinner plate that I really love, and you know, me and my love of food and recipes. So he compares your business finances to a meal. Kind of suggests that just as you would use smaller plates to control portion sizes and reduce overeating, you could use smaller accounts to manage your money better. And by allocating funds into these smaller accounts for expenses, taxes, and profit, you naturally limit spending and prioritize your financial health, much like choosing healthier portions for your meals.
[00:05:12] He studied different businesses and created average percentages of amounts you should allocate to each area. The percentages you allocate depend on the size and complexity of your business and of course, which country you live in, because tax laws are very different all over the place. But I'll give you a very simplified version of what I do. So if, for example, I have $100 coming into my business, I'd put $5 into my profit account that I will let accumulate over time to act as a buffer for emergencies. And every quarter I can take a portion of that profit out of this account and give myself like a little quarterly profit gift. So $5 goes into my profit account $25 or sometimes 30 goes into my tax account. And this will seem very high, but it's because of the country and province I live in and how my business is set up. As the sole proprietorship, I pay a lot of taxes. $30 goes into my expense account and this is how I pay my credit card, my bookkeeper, my VA, my courses and coaches. And the remaining $40 becomes my owner's pay. Now, this is just a very simple example of the allocations, and each business is different. You should read the book for yourself to understand how to implement profit first. But to be honest with you, I could have implemented the profit first system into my business without the help of my money coach April Stroink, who is a certified profit first professional and she works in Canada where I live, so she understands our tax laws.
[00:06:51] Before she became certified in profit first, she was a financial advisor for many years and she owned a brick and mortar retail business as well. Now, in the beginning of working together, April and I met quite a bit so she could understand my household needs and help me understand how my business could help me meet our financial goals. She helped me understand the right percentages for me and my business over the years, and she helped me evolve them as I needed to change things with the economy, tax laws, or my own needs. So having her help me on a monthly basis kept me accountable and helped me create a habit of using the profit first system to manage my business revenue. And I'm such a believer in the peace of mind this system has given me in my business, and the incredible coaching April has provided to me over these years, that I actually reached out to her to ask her a few questions about why she chooses to use profit first in her business, and why she chooses to help other business owners implement it in theirs. So here's a little snapshot of our conversation. Hey April, can you tell me what first attracted you to the profit first system?
[00:08:08] I was first introduced to the Profit First book at Harvard Business School. It was on the required reading list. And when I read the first two chapters where Mike tells his story, I really felt seen. I felt that he was in my living room and knew my story because the story of our business, our retail business, was very much the same. And so as soon as I read that, I knew I really needed to be part of his movement. And so I called up first professionals. I was actually at a center for Women in Business meeting when I stepped aside and called, knew that I needed to be part of it. The rest is history. So I started being a part of the Profit First professionals group. So it's one thing to read the book, but you need to really take it to the next level and work with a profit first professional. And so from there, what I really loved about the system is that you have to run it in your business, and you have to prove that you're running it in your business. So you have to show your bank accounts and everything to Ron and Mike and the other guides to show that you're running it in your business. And then you have three case studies clients that you work on as betas, and they coach you through it. So I really love that Walk the Talk. And I really love that Mike was very authentic and telling his story, and that he was able to turn it around and make a system out of it that he shares with others.
[00:09:41] I actually didn't even know that. Profit first, professionals must use the system in their own businesses in order to qualify for certification. So that makes a ton of sense to me. My next question why do you, given that you have a previous career in traditional financial advising, think profit First is a good system for small business owners to use.
[00:10:02] Profit first is a good system for small businesses to use because it works with your behaviors. Very few entrepreneurs take a look at their financial statements on a regular basis to make decisions about their business. Even fewer know how to read their financial statements in order to make decisions about their business. And so what they do instead is they take a look at their bank accounts and do what's called bank balance accounting, i.e. if you see you have money in the bank, then you spend it. And we don't do the mental math to say, wait a minute, some of that money is for HST, some of it's for income tax. And oh yeah, I have an annual expense coming up. And so therefore we just get into this continuously thin. So with the profit first system, it's like the old envelope system except that use bank accounts you where you give your money jobs inside of your business. So opening up multiple bank accounts for those multiple jobs like profit, paying the owner taxes and operating expenses. It works with the way that the entrepreneurial brain works, and that you see that you only have X amount in your operating expense account for this allocation period, and therefore you realize that's all that you can spend as well. Most entrepreneurs don't take a look at their finances on a regular basis. They may take a look at every quarter maybe, but usually it's at year end. And so this way you can see you have a cash flow challenge in between your allocation periods, which again helps you to see what's happening upstream in your business. Because remember, cash flow challenges are a symptom of something else that's happening inside your business, whether it's your pricing, your expense management, or perhaps you don't have a viable product at all. And so the profit first system helps you see what's happening inside of your business more quickly.
[00:11:57] Okay, so here April is showing how Profit first can help you become. Very strategic and responsive to your business financials. And honestly this is an area I could really improve. I have a hard time looking ahead at lower revenue months and then reducing my expenses accordingly. I mean, I do my best, but this is where you can see how the system would help you rightsize your expenses to make sure you always have consistent owners pay profit and those tax allocations. And while I'm not a perfect profit first student, I've paid myself consistently throughout the course of my business, generally between 3500 to $6500 a month, which is a pretty darn good salary. And that doesn't include the profit distributions I take quarterly. Most importantly, I have that sanity saving tax account filled and ready to use. But I know how transformative this system can be for many business owners. So I asked April to share a story of another client who implemented Profit first into her business, and what happened as a result.
[00:13:06] Absolutely. This was actually a win from this week. So we'll call her Doctor Elizabeth. She and I started working together two years ago. At that time, she was drowning in credit card debt. She also had taken the CPA loan. She was paying herself around 80,000. She was behind on her taxes. And this year she paid back her civil loan. She paid back all of her back taxes and was completely on track to pay all of her taxes this year inside her tax account. Except that instead of making 80 K, she gave herself 140 K by working the system. So a $60,000 raise and she only owes 4000 in taxes, and she already has that inside of her account. So huge win for Doctor Elizabeth with paying herself a $60,000 raise, all while eradicating debt and saving for her taxes.
[00:14:17] So clearly I could do a little bit more to reduce costs and possibly give myself a $60,000 raise. But I know that with April's help, I can and I will get there. But April, are there any final words of inspiration or advice you have for anyone considering profit? First, if.
[00:14:34] You're looking to implement profit first in your business, the first thing that I suggest that you do is open up a savings account, label it profit, and start putting 1% of all your revenue into that profit account. Get into the habit of profit becoming first, not an eventual. The second thing is that I do highly recommend reading Mike's book, of course, and also know that it is a American system. It is American book. So tax laws in your country that you're running your business may be different. So just take heed to that and also recognize that Mike studied the top 17% or 17% of profitable companies. And the target allocations are based on his research, which are all industry sizes and as well all industry. So all business sizes and industry. So, um, start the system, but understand that it probably won't be able to hit those target allocations in the first quarter that you want to do a 6 to 8 quarter rollout plan. And my best advice is to work with a profit first professional who has been trained in this system, from Mike and other guides at Profit First professionals, and also choose a guide that is licensed in your country so they know, especially the tax rules around in your country where you're operating your small business. And if you can find a profit first professional who specializes in your industry as well, so that they would know allocations that you really should be looking at for your industry.
[00:16:14] And April, where can people connect with you?
[00:16:17] You can find me on the regular socials. So over on the gram under April strike and LinkedIn under April strike. And as well you can check out my website at April Stranka. And for all the small business owners out there, I do have a handy dandy, uh, free tool that you can download on my website called the Profit Assessment. And this will get you started on the road of putting your profit first.
[00:16:45] So the thing I love about April is she has zero judgment about the financial skeletons you may be hiding in your closet. She has seen everything, and she herself has experienced everything in her former retail business. And I'm talking about the good, the bad and the. An ugly. Her specialty currently is working with health and wellness professionals like naturopaths and chiropractors, and she also has a few other service based business owners like me as her clients. I'll drop the links into the show notes so you can follow and connect with April and download her handy business tool, and I'll include a Amazon link to get Mike's Profit First book, because I highly recommend it. He's a great writer and it's a surprisingly fun read. Like, I mean, seriously, the fact that I'm even recording a podcast episode about a financial system is a testament to how accessible Mike's system and content is. Well, I guess that's it for me. And now that I'm done recording, I'm going to have to put my mind to completing those taxes. Unless, of course, I can find something else to do instead. Come to think of it, my fridge is looking a little dirty and maybe I should go clean it. Anyway, I'll be back here next week, hopefully with my taxes done. I'll see you then. Hey, thanks for joining me for today's episode. But before you go, I want to make sure you've grabbed a new tool to help you assess the effectiveness of your sales copy. It's an easy to use tool that will help you identify what's working well and what could we improved among all of the copy assets you have in your business? Grab the Sales Copy scorecard right now to find quick and easy ways to improve your sales copy and boost sales. Get your free scorecard over at Kim Kilcommon Scorecard. I'll be back next week with another quick tip writing prompt or sales hack for you.
[00:18:44] See you then.
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