← Mondays with Matt
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- [00:02]
A
You're listening to the Build you'd business podcast powered by Turnkey Coach, where we help business owners find freedom over fear. I'm Matt Reynolds and I'm his brother Chris Reynolds.
- [00:12]
B
Join us as we help build your business and move from fear to freedom. You're listening to the Build you'd business podcast where we take you from fear to freedom. I'm your co host Matt Reynolds, here with my brother Chris Reynolds. Hey, what's up, man?
- [00:35]
A
What is up?
- [00:36]
B
So we just got back from Mexico. I think in the podcast last week I was talking about I would be in Mexico when the podcast came out. And it was fun to come back in mid December because we love Christmas and our house is all decorated for Christmas. We have Christmas coming up this next week and so kind of excited to do that. So it wasn't like you're coming back and thinking like, oh, I don't want to come home or if you need a vacation from your vacation, you're vacationing. Wrong.
- [00:57]
A
That's right.
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B
And so we came back and I feel great. So we're going to continue our discussion. It's really kind of a part two. Last week we talked about bootstrapping. So really like starting, starting lean. And this is really a continuation which is getting lean. And so in times when we really need to consider how to get lean, this is a great time to think about it. At the end of 2024, going into 2025, as you start to set budgeting for 2025 and what the business is going to look like this next year. And so I'll just, I'll intro it like this. First off, you have to have a great handle on your finances of the business. As an owner, this is a complete non negotiable. In the early years, you control the checkbook, you control the expenses, you control the payroll. You have to know where the money's coming in or how much money's coming in and where and how much is going out. So the non negotiable is you've got to have a great handle on this as an owner now, as the business grows. We actually just crossed this line this past year. We hired a VP of finance that will most likely be a CFO for us. And it takes a long time to train that. I mean, he's fantastic, he's super smart, he's a wizard with spreadsheets and whatnot. But to help them really understand the foundation of the business and the intricacies of the business take some time. But now we're getting unbelievably detailed financials on a weekly basis. And really I've. There's a running, daily, automated, updated spreadsheet for us that I can just look at. And I can still have a great handle on the finances. But I'm not the one that has to calculate them in the early days. You do, because you're the owner and you can't afford a CFO in the early days. And you also just need a good handle on your finances. And so that's where I would start. Is there, I don't know any, any notes there before we go into.
- [02:44]
A
I mean, one thing I would definitely say is having a centralized dashboard that has all of your financial stuff as up to date as physically possible is so important for every business. Like every business needs to have this. And the idea is you should be looking at those numbers on a regular basis. I mean, like literally all the time. It should drive a lot about the way that you make decisions. We'll go into all kinds of details around this when we start talking about some of the profit first stuff and just the way that you monitor your finances over time. But you change your behavior based on what you are measuring. And we've seen this in a thousand ways. So many of these things that we talk about tie back to workouts or being healthy, you know, if you're taking your weight every so often, you know, whatever. Like those things, if you're measuring them, you're keeping an eye on them. The exact same thing is true with your finances. If you can keep an eye on where your expenses are at and you know how much revenue you're bringing in if something changes on the revenue side, because that can happen in any business, your revenue changes. There is a very easy and straightforward way to trim up your expenses very quickly in response so that you don't find yourself losing money on a monthly basis.
- [04:01]
B
Yeah, absolutely. So caveat. And by the way, I know our accountant listens to this because he posted the other day. He is a wonderful accountant. I'm not crazy about using a third party accountant as your daily bookkeeper because it's not really daily. Accountants really only get the numbers at the end of the month. They do your books and then they get it to you by two weeks of following the next month. So end of November, you end up getting your finances for November on December 15th. That is way too far behind.
- [04:29]
A
Yep.
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B
And so you've got to, you've got to keep the books for a while until you can get a bookkeeper. And that's probably the first thing you would hire before you'd hire a VP of finance or a CFO or anything. And then you can walk a bookkeeper through this. But traditional accounting works this way. For every business, you have your top line revenue at the top. Total revenue that comes in for the business, right? Minus your cost of goods, which if you're a service business like us, that is often like the expense for coaching, like coaching payroll as a coaching company. For a product company, it's the widgets, it's whatever the supplies, it's the cost of goods to make, the product to put out. Or it could be software, it could be like whatever that thing is to help. It's the cost of goods. So you take your top line revenue minus your cost of goods, the cost of producing that revenue, and you get your gross margin number, not net margin, gross margin number. And that's an important number, right? But then you take your gross margin number and you subtract your expenses from it. And your expenses primarily are payroll and operating expenses, right? Or sometimes operating expenses are called sgna, which is like sales, general administrative, it could be payroll for executives. But it's, it's mostly thinking about just general like operating expenses, like what it takes to keep, you know, it's the rent and the utilities and the Internet and the, all that sort of stuff, supplies, mail, postage, things like that. And that gives you, when you subtract all those things, you get what's called earnings or ebitda, E, B, I, T, D, A. And if you haven't heard this term before, it's okay because EBITDA's sort of bullshit. So it's earnings before interest, taxes, depreciation and amortization. So if you're paying interest on a loan, which you shouldn't do, as we talked about in bootstrapping or depreciation on a car or property or something like that, attorney fees for anything special that they have to do, like capital expenses that you have that goes below the earnings line. And so then you subtract that earnings line, the itda, the interest, taxes, depreciation, amortization, and you end up with net profit. And an easy way to think about this, I can kind of condense all that is you just take revenue minus expenses, equal profit, right? That's how we condense it. So that is that net profit number is really the only number that matters. And I'll give you an example. If your business does $10 million in revenue, but makes $100,000 in profit, or if your business does $1 million in revenue but makes $200,000 in profit. I want number two.
- [07:03]
A
Yep.
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Because it's a simpler business and there's more profit. That is the goal. So however, while all financial statements look like this, revenue minus cost of goods equals gross margin minus payroll, minus operating expenses, equal net, equal earnings, net profit. There is a serious issue, a problem, a challenge with this way of looking at traditional accounting as a business owner. And so why don't you go into what those issues are?
- [07:38]
A
Yeah, I mean, so one of the primary problems is you always want to avoid, not avoid, you want to not use lagging indicators as much as possible. And so we should just take a second to describe what that means. Lagging indicators are things that you measure after the fact. So your behavior made some set of changes in the business and you find out about it later. Because you measure later.
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B
Yeah, we weren't profitable necessarily in November, but we didn't find out till December 15. So we tried to make the changes. And, and it's just there's the, it's these lagging indicators.
- [08:16]
A
That's right. And there's a bunch of these in business. And they're not bad things necessarily. It's just that you want to focus on leading indicators, which are the things that you can do, things that you can have, you know, put action in today and it changes the long term outcome of the business. And so anytime you're looking at these traditional accounting numbers, it is. The traditional accounting numbers can tell you some interesting things. They're useful in certain ways. And I think one of those ways is to determine whether or not your business model is profitable. So as you're looking at your gross margin, that gross margin number matters because as you start thinking about, you can take down some other costs that aren't related to the cost to deliver your goods or services, but you need to make sure that your goods or services are not outpacing the revenue that comes in. The idea there is, that is generally the measure of your business model. The rest of that stuff.
- [09:11]
B
By the way, for us, gross margin dollar amount is far less important to us than gross margin percentage.
- [09:19]
A
It's almost all we look at. That's right.
- [09:21]
B
Of top line revenue. Because if the business 10x's but the gross margin percentage comes down, that gross margin dollar number could still go up. But let's say your top line revenue 10 x's but your gross margin only 5 x's.
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A
Yeah.
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B
Well now your cost of goods doubled in price per widget or whatever the thing is you're selling. And so Barbalogic was started around 35%, 40%. Now it's a relatively low gross margin business because we're paying professional coaches. That's the cost of goods. But over time, the cost of wages have gone up so much that we had a couple months in a row in Q2 and early Q3 that were like 17% gross margin. Now, here's the advantage of having someone who's keeping our metrics, our financial metrics on a daily or weekly basis is that immediately that red flag popped up. We're like, oh, we've got to fix the margin in Block. Block has a margin problem. It doesn't have a revenue problem. It doesn't have a service problem, it doesn't have a churn problem. And all of those things could pop up as red flags. But for us, the red flag was we've got to get back to that 30, 35, 40% margin in block. That alone will make the difference for Block. And then we look at other parts of the company and it's maybe something different. The margin is great, but we just need more revenue or we need more seats or, or we need to cut operating expenses or whatever the thing is.
- [10:39]
A
So, yeah, just tells a lot of that story. And the thing that you can do, and I'm sure this is what your guy did, for sure, is those numbers are comparable. So it's always nice to be able to look within your industry or in. In the industry in general that you're in, and you can do things like say, what is our gross margin percentage? What is. What should it be in our business? In this kind of business, what does the market see? Maybe more importantly, you could say what drives the highest multiple. So, you know, so many times your ARR or your revenue or whatever on an exit multiple.
- [11:15]
B
Right.
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So what you could do is you could say, my business is worth the most to someone who would potentially acquire it if my gross margin is 65% and my net margin is 45%. Something like that.
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B
Right, exactly right.
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A
So you know this because you can find these statistics literally on the Internet. Like, it's not hard to figure out what your business should be, should be doing. That helps you figure out and sort of locks in where you ought to be spending money, like how much you should be spending in different spaces. It's also a great place to look at things like, am I not spending enough in marketing? Like, this is a pretty common place for people that accidentally, at the beginning of a company, especially to. To underinvest. And so if you do that and the number that you need to drive up is revenue. Then you can tell that you're having revenue problems because you need to invest more in marketing.
- [12:03]
B
That's right.
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A
So those are all useful tools, but they don't change behavior right now usually. So what we like to look at is, you know, what is a framework that we can use to handle day to day finances for most companies that are bootstrapped companies trying to figure out, just trying to, you know, trying to go from where they are today to a future state that is better.
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B
Sure.
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A
And I don't think there is a better book on the market for this than the book Profit First. Yep. I've recommended this book to a lot of people. I think when you're bootstrapping, I think it's a really, really great way to keep track of your finances on a, on a regular basis. The big concept of profit first is first. I think one of the underlying bits is that a lot of people that get into business in general, and we talked about this I think a few weeks ago, maybe aren't particularly business savvy in the first place. Right. So in many cases they are great technicians in their job, but they are not particularly business savvy. And so one of the things that this does is it makes the whole concept of dealing with finances really, really simple. And I think that's huge. In general, I think all of these principles and all of the things that you use to drive your business should be as simple as possible. If you can make it simpler, make it simpler because it's just, it needs to be easy for people to understand, needs to be quick to get into your head. It shouldn't be some big, complicated Excel formula or anything like that. It should just be super easy to go. This is the thing that we're measuring against and this is where we're at. And so the concept is that while traditional accounting uses accrual based accounting usually, which is we're not going to get into the difference between accrual and cash based accounting. But what I want to describe in this case is most business owners, what they care the most about is how much money is in my bank account. That's what they care about. Right, sure. So if you're a regular, normal business, you look at your bank account with some amount of regularity, sometimes the bank account is low, probably every day and you feel bad, and sometimes it's high and you might go on a spending spree. And what this book presupposes is that maybe that is not the best way to handle your bank accounts. So it poses this concept that first, you should essentially constantly be focused from day one on how do we get cash flow positive starting at the very beginning of the company's history, and how do we stay there? How do we generate a profit from day one and grow that profit over time, even if the profit is really, really small to begin with, you never.
- [14:44]
B
Go into a burn, you never go into a cash burn, which means you're spending more money than you make. So whereas traditional accounting says revenue or sales minus expenses equal profit, so you've got your revenue, then you've got your expenses. What's left over at the end of the month is the profit.
- [14:59]
A
That's right.
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B
This is a complete paradigm shift.
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A
Yes.
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Where profit first says your revenue or your sales minus your profit, which you assign right early on, like this is how much profit we have to make equal the budget that you have for your expenses. That's correct. That's a massive paradigm shift.
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A
That's exactly right.
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And just quickly, because I know you'll dive in a little deeper. One of the things I love. A big friend of the podcast is Jesse Mecham, who wrote a book called Ynab or you need a budget. It's a bestselling book. And this is kind of a profit first mentality for individuals, which. This works really, really well in your individual finances as well.
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Yeah.
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And what he does is rather than traditional budgeting like Larry Burkett, Dave Ramsey, guys like that, which I think work great. And that's, it's a great first step in that direction. What YNAB does, it teaches zero based accounting, which is that you, from the very beginning, you assign every dollar that comes in a job and profit first takes that to the next step and says the first job you're going to assign your first dollars is to profit.
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A
That's right.
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And then everything else gets assigned to, to the rest of the expenses, to the payroll, to the cogs. And it's really probably to cogs first to payroll second, and operating expenses third. Because it's hard to cut a lot of cost out of cogs. There is a cost of goods, both fixed and variable, that it's just cost. You have to pay for certain things to put out. The product or service you're going to put out payroll is you've got to really keep a tight handle on. And as the business gets older and more mature, those payrolls can become very bloated. You can continue to give, you know, nice raises every year and the next thing, you know, like everybody's making six figures in your business plus. And you're like, well, we got a bloated payroll that's way too high. But the thing that you can actually make the biggest change on right away is probably just daily and monthly operating expenses.
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A
Yeah, that's right.
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Yeah. So that's how YNAB works. And then Profit first really does the same thing, but primarily focused on business.
- [16:58]
A
Yeah, I mean, so what the recommendation is like there's a couple of just really simple tactical things that I think are really important about this concept and I'll give you those and then we can kind of, you know, see where that takes us. The first one that I, I really, really liked and this was. I did this, did this very early in certain's history. I opened a bank account that allowed me to open as many sub accounts as I wanted.
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B
Yeah, like sub checking accounts that you could.
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A
Yeah.
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Allocate money into.
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A
Now a really good one for this for startups is there's a bank slash banking system is probably the way that I would describe this, called Mercury. Mercury is backed by some of the Silicon Valley guys. It stood up actually extremely well. I think it's actually backed by a bunch of regional banks across the country. Even during some of the banking crisis stuff a few years ago, like it had no trouble at all. I was actually a little nervous. I didn't know exactly how it was backed, but I also had a Chase account so I knew I'd be okay. But in both of those circumstances, the idea was you want to create physically separate checking accounts for these different roles. And what are they? Well, they start with revenue. You have a revenue account, that's where the money comes in. You have a profit account, that's where the money goes first. And we'll talk about how you assign the dollars to that in a second. After that, you have a owner's compensation account. And the owner's compensation account. You have to remember that most companies are sole proprietorships. These are people that are working for themselves, but they are not necessarily. Yeah, they're not like empire builders that have a bunch of staff or anything like that. Maybe they've got some contractors that work for them. But in general, the payroll is just a payroll of one. It's like I need to pay myself, Right, Sure. And you definitely want to be the first one that gets paid. So owner's compensation, then opex, which is your operating expenses. And in the case of the operating expenses, it really simplifies it. It's not trying to get into a cogs Account separate. But you can do this later as it grows, Cogs versus SG and A or anything like that. What this is doing is just saying, look, once you've assigned profit, once you've made sure that you are making enough money to pay your bills, right, pay the groceries or whatever, the amount of money that you have left over at that point in time is there to cover two things. And so the next thing is taxes. You gotta look at your taxes and go, like, how much? How much do I have to pay in taxes? You allocate dollars into your tax account.
- [19:27]
B
And if you're gonna be profitable from day one, you're going to pay taxes.
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A
You're gonna pay taxes from day one. So you have to allocate dollars into that tax account so you don't get shocked to your core and go like, oh, my God. You know how many businesses find out at the end of the year that they were underpaying on taxes? They just didn't, you know, hadn't planned for it appropriately.
- [19:45]
B
When you're a sole proprietorship and the federal government just sees your income, your personal income, as the business income, Right. So the year we exploded, which was 2017, I ended up owing at the end of the year, $67,000 in income tax. Well, just a few years before, I didn't make $67,000 as a teacher total, and now I had to write a $67,000 check. And it was a big shock. And so that also let us know, like, hey, it's time to move away, to actually become a corporation. We became an S corp and then eventually a C corp. What you do is you'll come in and you'll say, I assume all of your money comes into sort of a top line master account. So all the money is immediately deposited into kind of like a parent account.
- [20:26]
A
Yeah, mine is actually just literally the revenue account. Like a. Different accounts are equal. And so it goes straight into the revenue account. I set up stripe to go into the revenue account. All checks that come in, I deposit directly into the revenue account.
- [20:37]
B
And then you allocate. First you decide how much profit do you want to make and that you need to make? And it needs to be realistic. Let's say it's $1,000 a month in the beginning.
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A
Well, usually. So the recommendation in this case is by percentage that you literally say something like, we are going to start with 1%.
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B
Right? Right. Okay.
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A
Super low number.
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B
Like a.
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A
This is an example of a place where some of the habit books that, you know, I'm sure we might Talk about some of those at some point where they, I think, get it right, which is set. Something achievable. Just like, what happens if you accumulate 1% and it's like, almost not. It's like a really small, negligible $10,000.
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B
You're only putting 100 bu in the account.
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A
Fine. But. But get used to the practice.
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B
And then the second thing is, you go, how much money do I need to survive as an owner? Not how much money do I need to, like, have extra spending money, but I need $5,000 a month to pay my mortgage and all my bills and my utilities and groceries and all the basic. And you should be. This is where Ynab, I think, works really well in conjunction with this. And then you put the $5,000 in. And now, again, if you're making $10,000, you have $4,900 left to allocate to the rest of the expenses for the business, payroll and opex, like, whatever those expenses are, all that stuff. And if you budget well at the end of the month, the goal would be to actually not necessarily spend all that money and take that additional money and put it back into profit or.
- [21:59]
A
Let it build up in the OPEX side so that you have more to spend on operating expenses if you need them. Right. Because one of the things that happens is that number fluctuates.
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Correct.
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A
So you do profit, owner's comp. You do taxes, and then you do expenses, your OpEx. And in the case of OpEx, this is one of the most, I think, pivotal and most important concepts in this entire book. It is. You know, there'll be people that say, like, well, it's not enough. It's not enough in the OPEX side and go, that's what you have on the taxes.
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B
Do you. Do you. Is there a percentage where I would assume you would take the owner pay and the profit?
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A
Yeah.
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B
So 50, $100 a month and allocate like 25%, probably somewhere in that ballpark, to taxes.
- [22:44]
A
If you want to be extra safe, it kind of depends on how safe you want to be. But if you want to do. You could do 20% of top line, or you could do 15% of top line, or you do something in between.
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B
Yeah.
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A
But most of the time, the recommendation is that you just measure it right off the top line. That essentially everything measures off of top line.
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B
Right.
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A
So you're not even, you know, you don't have to recalculate percentages. You just, all the percentages should equal 100, and it's 100% of revenue. That's what it is.
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B
Right. So now you get to the expense amount.
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A
Yeah.
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B
And it's now 25%, 30% of top line. And you're like, oh, that not very many expenses.
- [23:16]
A
Yeah, not a lot.
- [23:18]
B
Now we got to learn how to be lean.
- [23:19]
A
Right. So that becomes a really important factor because what it does is it limits your ability to. It limits the ups and downs, it changes the dynamic. From when I look at my bank account, it happens to be high this month and oh, I. I'm euphoric and I'm going to go out and buy, you know, a brand new computer and I'm going to do a bunch of other things, you know, that I can classify as business expenses. You won't do that because. Because you did this by percentage. If you have a particularly good month when it comes to revenue, you have all of these. Those percentages are already being spread out across the other things, across the profit, across the, you know, so you've got this very solid framework for the way that you distribute those funds into those different accounts. And the advantage of this is that especially for these sole proprietors, when you're at the beginning of your business and for almost businesses, you start this way no matter what. This gives you the ability to do the thing that you want to do, which is I want to look at my bank account and know how much money I have available and all of these things. Y. That's really all it's trying to do, right? Y. It's trying to say, here's how much profit you've accumulated and you don't have to go to an accountant and ask about it. This is how much I have that I know my payroll is going to automatically come out of and pay me for, you know, my living expenses. This is how much I have sitting inside of my tax account. This is, you know, a good account for us to have, you know, an interest bearing account for or you know, multiple ways you can sort of solve that, right.
- [24:42]
B
CD or something so that you know when the taxes are due and you're not prepaying the government to take your money. Right. You're setting it aside so that if you don't owe that much taxes, you can then reallocate that. What's left over in tax money again, could leave it in taxes for next year, could put it in profit, could put it in expenses, could pay out a dividend to the right. Like all of those are options at that point. But you know, you're not going to get hit with a tax bill that's going to crush you.
- [25:06]
A
That's right. And remember that most business types in the US require these quarterly estimated tax payments anyway. So the longest period of time you're probably going to sit on that cash sitting inside of that tax account is going to be a quarter and then you're going to end up accumulating more that you're going to send on. So that's the gist of this. You are constraining on purpose and you are allocating percentages to profit early and over time. The idea is that you purposefully, and I think this is a really good practice, you purposefully really every month is my recommendation, you increase the percentage profit. So you go at it and you say, maybe for a couple months, we're just going to do one. We're going to try to get to 1%. We're 1% profitable. Because a lot of companies when they first start, find out that they are not profitable.
- [25:57]
B
Sure.
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A
Which means you're not going to exist at some point in the future. You got to fix that real soon. But if you can do a 1% profit regularly for a bit, then you are in a pretty good position to go. Okay, how much of a stretch is it for me to go to? 2%?
- [26:13]
B
Sure.
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A
Not that much of a stretch. Okay. And so you slowly start eking that profit up by percentage. And that is what drives the company over time to become a very effective profit making machine.
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B
Sure.
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A
Yep.
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B
Yeah. I love this. And again, you've done it both ways. You've bootstrapped, I think, in your first major business and did not do profit first.
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A
Correct.
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B
But you were bootstrapped and then you raised money. And when you raise money, you almost always go into a cash burn because that's, you know, you're raising money because you think you can accelerate the speed of the growth of the business. But it's an absolute gamble. We've done the same thing. We bootstrap strapped, didn't do profit first and then we raised money. And now we're at a point where we raise money. We finished our Series A in April of this year. April of this year. So about whatever that is seven or eight months ago, went into a cash burn for two quarters. Then as quickly as possible, we've tried to right the ship, which I'll get into here in a minute. So we're really addressing right now those who are starting a business early. You're under a million dollars in revenue for sure. You may be under $10,000 or under a hundred thousand Dollars in revenue per year. And so there's a way to do this from the beginning, correctly, that will save you a ton of headaches in the end.
- [27:31]
A
Yep.
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B
Then here in a few minutes, I want to talk about, for those of you who didn't do this and you've already owned a business for a while, you haven't done it. How to write the ship, because we've had to do that in the last six months. And I wouldn't say it's a painful process, but it would have been a lot easier had we done it this, had we done profit first. First.
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A
Yeah.
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B
And so you've got the additional piece of. Some of the key benefits that you talked about are like, it ensures profitability from day one. You're never in a cash burn. You don't have the financial stress of, can I make payroll? Can I, can I, you know, am I making profit? Can I pay my own mortgage? You paying yourself, like everything is allocated correctly. The thing that is sort of the unspoken, maybe elephant in the room is that the thing that doesn't change is we're always trying to drive top line revenue up.
- [28:18]
A
Yep.
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B
As top line revenue goes up, it builds the opportunity to, especially if you're able to control expenses with cost of goods now your gross margin goes up. That gives you more money to play with from a paying out owner, paying out operating expenses, payroll, things like that. You take care of the profit and you take care of that first. And you make sure the gross margins are where they need to be. And that opens up more and more freedom to allocate this money correctly into the correct accounts.
- [28:44]
A
There's two other aspects of this that I think are important. One, you get to start thinking like an owner sooner than just being an employee of your customers. You know, like that's not a place that you want to stay. So what happens is every. You can do this any, you know, any way you want. My recommendation is once a month is, I think once a month is actually the right, roughly the right cadence. Maybe at the beginning it's once a quarter. But you go look at that profit number and you decide what you want to do with it. So inside that profit, you can say, I'm going to take this profit and I'm going to issue a dividend to myself and I'm just going to take all the cash. That's fine, you can do that. Or you're going to take that profit and you're going to reinvest it in the business in a very particular place. That's also okay. But at least now, and this is the second benefit, at least now you are constrained to reality.
- [29:33]
B
Yep.
- [29:33]
A
So if you're going to go invest in research and development, some sort of R and D task that you're going to do, rather than that be some ballooning enormous amount of money that you find yourself spending and you're like way out over your skis or just a.
- [29:47]
B
Guess on like how much you can spend or should spend, or you're just kind of putting your finger up and you know, licking your index finger and putting it up in the air.
- [29:53]
A
Yeah.
- [29:54]
B
Now you know exactly how much you have to spend.
- [29:56]
A
I can spend this much money. Okay. That's going to constrain all the other things. And it also, it does that same thing all along the way for things like how much can I pay for help? You know, we've had these conversations in the last couple of podcast episodes where we're talking about as you bring on, you need to bring on sort of like contracted help early, you start pulling in employees over time as you do that, like, how much should you pay them? Well, you know how much you should pay them because you only have so much that's sitting in that OPEX account. That's how much you can pay them. That's it. Right. You build the business around this idea that you are having these regular confrontations, mental confrontations with reality. You are dealing with reality not at the end of the year when taxes come due, not when you look at the bank account and oh shit, I'm.
- [30:44]
B
Out of money, can't make payroll, or six weeks in arrears from the accountant or all those issues.
- [30:50]
A
That's right. You are confronting reality regularly and that's what you want because that keeps the surprises at bay.
- [30:55]
B
So nothing changes about the confronting reality on a day to day or week to week basis, as often as possible in a change in scenario for those that have started a business, have been running a business for a while, did not do this. You've done the same thing. A business, mentored a ton of people, is just to get a good handle on the finances. It's going to take you a month and then a second month probably to kind of hone in. But to get a really good handle on all those numbers. What is my top line revenue? What's my gross margin percentage? Again, in the legacy episode we have, there's an episode called I think Metrics that Matter. And it's the metrics that any business owner should be calculating and what the net profit is and what the operating Expenses are what percentage of your top line revenue is gross margin, what percentage is payroll, what percentage of operating expenses, things like that, that'll change a little bit from industry to industry and the type of thing that you're in. But if you started a business and it's not in a great spot financially, your expenses are too high, you have too much fat, maybe you have too much payroll, not enough profit, you're maybe in a cash burn, maybe you've taken on some debt. Some of these things again, that maybe you did before you started listening to the podcast in the last couple weeks, as we talked about these things, there are things that you can do that will make a change in a very short period of time. And I think I want to get into the practical. So let's start first with kind of like what are the big picture top line things? Then I actually want to dive in practically to things that I've done and things that you've done to do this. And so if that's an issue, you have got to aggressively cut expenses to get lean. When we say get lean, it literally is. Again, it's like talking. It's like getting lean in your body. You've got to cut the fat where you're spending money, but it's not contributing to business growth or profit or the health of the business. These gross margin numbers and net margin numbers, profit numbers, those are health metrics. Yep, those are health metrics. And if the health metrics aren't healthy, in the same way that if you go and get your blood drawn and your cholesterol and triglycerides and blood pressure are all out of whack, you've got to make some changes as quickly as possible to right the ship. So we can improve profit. We'll just say profit and we're really talking about net profit bottom line, like how much, how much are we profiting in the business? In several different ways way. One is to increase revenue. And this is always a good thing and always something you should be pushing. You obviously should always be pushing to grow. But the downside is that dramatically increasing revenue overnight is not usually possible. It's usually just a slow and it's not even just an up and to the right. It's up and down, up and down, up and down. But the trend line should be up and to the right. So obviously any business owner that could just do a thing and tomorrow increase their revenue by 10 or 15% would do that. So you should do that. It's just that that opportunity doesn't come Very often. Right. Those are the big wins for us. Landing a government contract. For you landing a big business contract. Yeah, like, okay, now we have a guaranteed contract for guaranteed revenue increases. But you can't plan and budget based on something that is hopeful to land. Now, we don't know that we're going to land the government contracts until we land the government contracts. You don't know that you're going to land the business contract until the contract is signed. Increasing revenue is wildly important, but it doesn't tend to change the financial outcome of the business in a short period of time, in a quarter or less. Right. Where we can make changes, we can reduce cost of goods, which is difficult. But we'll go into some details. We can aggressively reduce payroll, which is the most painful part, I think. And that often means laying people off. And you saw Elon Musk do this when he bought X and he slashed 80% of the payroll. Well, that was. That made a massive difference overnight in the profitability of the company. Right. And you can, I think the easiest thing and the first place to start is you can aggressively reduce operating expenses.
- [34:53]
A
Yep, that's it.
- [34:54]
B
Because that's the easiest place to reduce. And I would say as a side note, if you understood the discussion on, on ebitda, don't play the EBITDA game right now. This is coming from a guy who, once you're a C corp. EBITDA is a thing that has to be tracked and it is an important metric. But Charlie Munger basically called it bullshit. I mean, he was just like, look, E bet is earnings. And then you put numbers below the earnings and you end up with your net profit. So again, capital expenditures, interest, attorney fees, you know, things like that. Professional costs, accountants, attorneys, especially when they're doing special work and not retainer type work. That stuff goes below the EBITDA line. But that's just kind of a, that's a milestone, but it's not a real number. Because if your EBITDA is positive, you're positive in earnings, but your net profit is negative, the cash balance continues to go down in the bank account.
- [35:51]
A
That's right.
- [35:51]
B
And by the way, that should be your first concern. Can I pay the bills? Can I make the payroll? You and I have both been in the situations where we've laid in bed at night being like, I got payroll in two days and there is not enough money in the account. I'm going to have to go like, I'm going to have to pull money out of my own personal account to pay payroll. I'm going to have to go get a loan to whatever. And those are terrible places to be. When you approach us from a profit first standpoint, you don't have to do that. And so we want to put ourselves in a position where we can aggressively and dramatically cut the fat. Where we can, where there is no loss in service, no loss in production value. Right. Or quality. And it's just places that we're spending money that we don't have to. So simple place. So first off, reducing cogs, let's talk about cost of goods because that's often something that's people don't really fully understand. So cost of goods for us is again, is primarily coaching expenses for Turnkey Coach. The software, it's a lot of the software we pay for. It's AWS hosting, It's all the things that we have to, to buy in order to make Turnkey Coach run. And so one of the things that we do is we look at Grossmart for the service business. We looked at gross margin and we looked at things like we had clients that had been grandfathered in for 10 years who had been paying insanely discounted rates. As a matter of fact, discounted rates so low that their coaches were being paid more than their client was paying. Well, that's a time to raise prices. So we worked with Block to improve the gross margin and we made several steps there to try to improve the gross margin. We didn't cut the coach pay, we didn't go to all our coaches. And sometimes you have to do that. And sometimes, and I would just argue if you cut people's pay but leave them on staff, and you may disagree, for me, morally I have to be willing to do the same thing. I'm going to ask all my other employees to do.
- [37:45]
A
Oh, for sure, absolutely.
- [37:47]
B
So if Everybody gets a 10% pay cut, I'm getting a 10% pay cut. Now often you'll see that there are two or three or four or whatever, just say 10% of the people on your staff that you could remove from the staff. And the business is not going to reduce inefficiency at all. And that's probably the easier place to do it. It's still painful. And you still like firing people is still my least favorite part of my job. But you can reduce, you can reduce cogs, you can negotiate as part of cogs. If you're paying monthly fees for certain cogs, you can buy in bulk, you can pay a year up front, you can negotiate. If I pay for the next year, how much. A lot of times you get a 15 to 20% discount because those owners of those businesses want the cash. And so these are all things we've done to reduce cogs. You have other examples of how you've reduced cost of goods.
- [38:41]
A
Here's the one that I feel like most people just don't realize that it's a thing like you can negotiate almost any price.
- [38:46]
B
That's right.
- [38:47]
A
So try to remember, like for most people, that's an uncomfortable thing if it's the first time you've ever done it. But try to create a Persona in your own mind that is like, I'm going to wear my CFO hat now or whatever. Right? And you don't really care how they're looking at you personally or whatever. You just need to, you need to send an email, you need to reach out and you need to say, listen, we're going to have to cancel this service because it's just too expensive for us. Unless you know you've got some cost savings opportunities for us. It will blow your mind how frequently.
- [39:20]
B
People will, 90% of the time it's wild.
- [39:23]
A
And then the second one that I would say is if you've been on a subscription for too long and it's by accident, that happens if you don't look over your expenses on a regular basis. I have asked for, I cannot tell you how many times I have asked for, look, I thought I canceled this. I'm pretty sure I did cancel it. Not really sure how it got renewed, but I need to cancel this and I would like it to be effective four months ago, five months ago, six months ago. And people are like, okay, yeah, I've.
- [39:54]
B
Done the same thing. And often they'll come back with like a 50%. So we had our, we got fiber Internet in here and it was way cheaper than what I was paying for the cable Internet, which was all that was available at the time and thought I canceled the cable Internet. The cable Internet continued to charge. And then they were like, oh, you've got a two year contract. And so I ended up buying out the contract, but I bought it out at 50% instead of having it because at first they came back and said, you're going to have to buy out the rest of your contract. I was like, no, that's not going to work for me. And again, be super kind, but firm. There is a human on the other side. And so you can be professional and clear while still being warm and empathetic because this person may get in some trouble for doing this. And so you want to have some empathy there for them helping you out. But yes, negotiate.
- [40:41]
A
So beyond that, I would also say be careful on this when it comes to like you need to be very clear on who your strategic business partners are here in your business for your strategic business partners. And these are people that you, maybe they're other small businesses that are just like, just like you just trying to get by do the things that they're doing. If you hard negotiate with those people, it is a very easy way to put that relationship in a bad spot. And so that's different, completely different in my mind than there's a commodity service or practice that's out there, commodity product, whatever, where I could go get another one for something else. Right. And it's maybe a big company or whatever. And negotiating with those folks is the right.
- [41:28]
B
Let me give an example. So when we added which was a major undertaking, CRM, you know, we were looking at HubSpot and Salesforce and we ended up going with HubSpot. But like there's no human interaction with HubSpot. Right. And that's just a commodity CRM service. So we negotiated a better price for HubSpot. Your company certain is a partner with us where there is, there are daily meetings with your developers and my team and you and my COO or chief product officer. I've never asked for a discount from your company and I won't. And I will take this even further. And without going down too much of a rabbit hole, I am a big fan of supporting the people in your community. This is more for personal stuff, home stuff. We have guys like in my church, in my community that do construction stuff, that clean gutters, that mow lawns and I am always going to try to use them because I want to support my friends in my community. And I'm never going to ask for the brother in law discount or the church discount or the friend is ever there. Yep. But negotiating a discount for a software service or for a commodity piece or I'm buying widgets because I make product and I want to negotiate. Well, if we buy it in this level of bulk, what happens if we double the size of the order but instead of ordering once a month or once a quarter, we're ordering, you know, half as often, but double as much you can often get us or a year up front. Again we did this back in September and September had a big cash burn for us. Now we did this because what we were trying to do is get all the cash burn off at the end of Q3 this year. So we called every single vendor and we negotiated a one or two year upfront payment because we had cash in the bank from, from the Series A, we ended up cutting about $750,000 out of the budget from 24 to 25 just by making those calls. And also reducing fat in places where we were spending money where we were not seeing a return on investment. So there were places where we were spending money on advertising that gave us a great roi, and there were other places we were spending money on advertising that were giving us a terrible roi. So we cut those and we took that money, some of that money and allocated it to the places where it was making us money. So these are all places where we can cut. So number one, cogs negotiate those things. You want to make sure the margins are correct for your product and that also may mean increasing the price. If you can't reduce the cost of goods and the gross margin percentage is too low, that means your price is too low.
- [44:03]
A
Yes.
- [44:03]
B
For the product you're selling or the service you're selling. So you've got to make sure you hit those gross margin numbers. So that's how we improve cogs. And then two, payroll. You just want to be very careful knowing if you have the money in the expense expense account, you know, how much money you can spend on payroll, you know, when it's time to hire the next person. You know, I would say I tend to on payroll, I tend to go till there's some significant pain points. I don't say we're gonna have pain points in six months. Let's hire now. Now, again, this would be different if we had $10 million in the bank. But you wanna steward this well, so what happens in an early business is you end up with one employee or then, you know, two or five or 10. And they might be doing the job of two or three employees each. And at some point the pain point is going to get enough for them and the workload is going to get enough that you're going to have to hire another person to. You're going to split that job into two jobs and then you can hire the payroll. But there are lots of ways to negotiate the payroll. You can negotiate for us, we sometimes negotiate equity and so we, you know, give a base salary pay, that is make sure it pays the bills of the employee. We add a bonus structure for performance and then we often will add stock options because most all I hope of my employees believe that the business is going to continue to grow and have a strong exit at some point down the road. And so you can structure those things so that it also saves you cash for payroll. The number one place that you can save money is in operating expenses. And this is where when there's too much money in the bank account, we talked about this last week, you start to do things like stay in a little bit too nice hotels. You start booking the first class tickets, you get the nice car, the rental car. You spend too much on supplies. You don't really need a brand new computer, you don't really need a brand new printer that works fine but there's a new one on the market, whatever the thing is, and you spend the money that you didn't really have, which you would know you would have had if all that money was sitting in that expense account and you were operating under a profit first paradigm shift mentality.
- [46:09]
A
Yeah, that's right. You will have never gone through your credit card statement. By the way. This is another little, little tactic that I like to use. All businesses should be putting their expenses on a business credit card if you possibly can. Here's the reason why. It's easier to negotiate with the credit card company on charges that you shouldn't have been charged. There's a bunch of value to that. But it's great to have all of your OPEX happening against in one place. One account I can look over and you know, each month I'm going over that thing with a fine tooth comb. You've never done that to the level that you will do it when you've implemented profit first because you know that you can drive that profit percentage higher. And that is money in your pocket.
- [46:53]
B
That's right.
- [46:54]
A
You can drive it higher if you just don't spend as much money on those regular things. So. And that's a balance for some people. I suspect there are personality traits that are out there, I'm not one of them. But that would actually maybe not purchase something that they need as a company to be better as a company. Don't do that. Like that's too far. Like if you need a chat GPT account because it's going to save you an ungodly amount of time and Energy for $20 a month.
- [47:21]
B
20 bucks a month.
- [47:22]
A
Please do that. That's an obvious. But in general, this is a great way for you to look over those expenses and say do I really need this? Like do I really need this service?
- [47:31]
B
You have to have some amount of discipline. Like we've moved that. Everything basically goes on our AMEX Platinum card which has zero limit on it. So zero limit for people who don't have good control of finances. Go. Well, I could just rent a private jet on the. On the Amex. You can't do that. So the idea there is you pay the card off. We actually pay our card off every 10 days, not even every month. So we paid every 10 days. What will happen? As well as the good cards have some great rewards, you get cashback rewards, you get all the points for airlines. So when you fly, you can fly for free everywhere. So we absolutely do that as well. That wasn't in my notes, but I think that's excellent. Let's talk a little bit about the home piece, because I think this is something that I wish I had mentioned last week, but I think it carries over well. So one is that you should separate your business and personal expenses immediately.
- [48:18]
A
Yeah.
- [48:19]
B
So in the. You're talking about the different bank accounts. You also then have a personal account and all business. Even if you're a sole proprietor. Right. All business expenses get spent from the business account or from the credit card and then paid off from the business credit card and paid off in the business account. Then if you want your own personal credit card again, don't run up debt, pay it every month. There's tremendous tax advantages there because you would be amazed at how often. I'll give an example. So I'm up in my library, my lighting, when we record at this time of morning, the sun is coming directly in my office. My office looks a lot like your office. And so I spent, I don't know, five or six hundred bucks last week on blackout shades, professional lighting. I've got the nice camera, the nice mic, but I can't get the lighting right in my library, and I can't get it right in the office because the sun is shining in my face. And so all of that stuff was for the podcast. And in the office, that's a business expense. And so I was just able to put it on the business card. $600 business expense, I don't have to pay for it. And it's a tax deductible expense. Right. And so that's really important. So separating finances as quickly as possible and then just pay yourself out of the business account and I would write a check to yourself or actually set up an automated deposit payroll to yourself from the business account on some routine basis to your personal account. So that, that is completely separate. So that's. That's number one. Number two. And there are a lot of things you gotta check. I'm gonna Be careful. I'm sure my staff would say. And you would as well. Always check with your accountant and your business attorneys or tax attorneys to make sure that you're not taking things that are in fact not business expenses. And you know, like, I can't. I just got back from Mexico. That was an entire personal trip. If I met once or twice for dinner with a staff member or a client, I can't take the whole trip as a business expense. I can take the dinner as a business expense. Expense.
- [50:11]
A
That's right.
- [50:12]
B
But I can't be like, that's a business trip because I went on, or I can't go to Mexico, record three podcasts with you and count it as a business. Like, the IRS would kill me. So that's a personal expense I had to pay for out of my pocket. So make sure you're allocating the right things to business expenses. But some of the things that people don't know about is that in the beginning, and something I wish I had said last week, is that if you have the opportunity to work from home, you should work from home. Rent is expensive, real estate is expensive, property is expensive. And there is a double benefit in working from home. It's not that just that you don't have to pay rent or a mortgage for the business. It's that you get a tax write off for the percentage of your home that you use as a business. So for me, I can take my two offices, the library up here where all I do is work, the office where all I do is work, and the gym, which all they do is coach. And so I can take all of that square footage, that percentage, whatever that is, 20% of my home, and it comes off as a tax credit. It's tax deductible at the end of the year. And so that is a big advantage to working from home. It also just allows you to bootstrap. Now, here's how that works, because I think it's always important and I'm not always good at doing this in every episode. As a guy who comes out of a strength coaching background, I think 99% of strength coaches should coach out of their garage or out of their home or out of a bedroom out of a basement. And make it as nice as you can for as long as possible until you have growing pain so much that you have to go get a place to rent. For a computer developer, that's an even easier no brainer.
- [51:49]
A
It's so easy. You know, the only thing that I've done as we've Grown is I have one of those global wework accounts that allows me to pick an office that I want to jump into in a city. But that's because I live in Boston and can do that here. I can host people here. But the account is super cheap. Like it's crazy cheap these days to do that. Otherwise, you know, work out of your home. Like it is it like most of the time you should just work out of your home.
- [52:16]
B
Well, 90%, 95% of the time you working out of your home. So you still get to take the tax deductions from the home while still occasionally having professional meetings where somebody doesn't have to come into your home.
- [52:29]
A
It's really just a conference room. Right. Like most of. Most of the time when I go in there, I'm. I'm renting a conference room to get a group of people in there. It is three to five days a year that I need it for. And it makes sense in that, in that context. But you can always do that kind of thing. You can always. And there are cheaper like day rentals for different kinds of office locations that you need. If you ever need to do that. It's a great way to solve that problem. You still have that corporate. You'll look more professional if you can bring somebody into a space like that. But on your day to day you're just working from your house.
- [53:02]
B
Sure. Again, want to be careful with this because the laws of especially like in California have changed. But as you start to hire people on. Actually I won't even use the word hire because that would be illegal. You want to bring on as 1099 contractors before you bring on employees. 1099 contractors are much cheaper. You don't have to pay the taxes for them now you have to make sure they qualify as a 1099 contractor. Please consult your accountant or tax attorney for this. But you guys are certain is a third party contractor for us. I don't have to pay taxes on the money we pay you. You guys are third party. I could hire an entire developer team. I could actually come to you and say hey, what if I hired all of your developers and you to be employees immediately? The cost jumps about 20 to 25% per person when they move from 1099 to employee because you've got to pay half of their taxes. Social Security, workman's comp. It's different state to state. And the states are a pain if you own an online business like me and like you I've got. We do have employees that are. I don't know, we probably have 12 or 13 different states that we have employees in right now. And so when you can keep someone at 1099 legally and truly and not bend the rules because the last thing you want to do is get in trouble and then have a giant tax bill, 1099s are great. Now here is a place after talking about where I don't really love third party accountants to do my bookkeeping, a good accountant to do your taxes is invaluable. Agreed. Because they know where to take things like the R and D tax credit, other tax credits, where to save you money on taxes. Often when you are profitable, even if it's not a ton of profit or even if it's a moderate amount of profit, an accountant can in a totally legal way show allocation of expenses, R and D tax credits, things like that that make you not show profit and basically break even in completely legal tax ways where you don't have to pay corporate tax in those first several years. The goal would actually be to be as profitable as possible in the bank account, but to not show profit again totally legally, not doing anything shady so that you don't have to pay corporate taxes. And so an accountant is worth their weight in gold. A good one get accountant who doesn't just do, you know, Uncle John's, you know, personal taxes, but is actually very well versed in business taxes. So they know where to take those tax credits for the business. It's a massive help.
- [55:42]
A
That's totally right. And there's a bunch of good reasons for this. I will tell you a little tiny horror story where for a little while I decided that I was going to like, ah, you know, like I, I can do this, I've done this enough. And taxes.
- [55:55]
B
For you personally or for the business?
- [55:57]
A
For the business.
- [55:57]
B
Oh, you're nuts.
- [55:58]
A
Because I was like, I know how to do this. Like I, I've done this before. Like I. And, and part of this was early in our businesses history.
- [56:04]
B
This is certain or for.
- [56:06]
A
This was for certain.
- [56:07]
B
Yeah, okay.
- [56:07]
A
But it's more complicated than that because I have a consolidated return on the holding company. So I was like, yeah, yeah, this is no problem. Yeah, it was a problem. Like it was super, super hard to do filing. The forms have all changed these days to where a hundred percent of these have to be filed electronically. But any kind of weird form that is not just like completely obvious. Some of the software doesn't even do. Do yourself a favor and don't do that. Just don't make my mistake. Like I'd done this with accountants for years, for, for, for decades, for, and it was great. And I don't know why I just made this random decision, but I just, I did and then decided like, oh, this, this is stupid. Don't do this.
- [56:45]
B
So one of the things that's not on the notes but that will, I think, give some practical advice here, is that like we use QuickBooks online, there's other options to use. And QBO is very cheap and it basically takes everything, it attaches to your bank account. It takes everything that comes into the bank account and then all the expenses that go out, it allocates them to specific categories. And so when I was using an accountant for bookkeeping, which again would come too late. Now my VP of finance, he allocates all the expenses and then sends me the general ledger every week on Saturday after Friday is over. On Saturday. I get it. I work just like you. I work for a few hours on the weekend on Saturday and Sunday, and I work through the general ledger and I make sure everything's allocated to the right expense category. Right. But the other thing it allows me to do is look very deeply and it doesn't take very long when I do it every week as opposed to every month at the expenses for the week and make sure that we're not paying for expenses that we shouldn't be paying for or places that I can trim the fat. And so one of the best things you can do is, I don't know what qbo cost, like $19 a month or 29. I don't know. It's cheap.
- [57:52]
A
Yeah, I think the smallest one is like 20 bucks.
- [57:54]
B
I think that allows you to have a really good handle on not just all of the expenses, but the expenses broken down by category so that you can then comb over them and make sure they're in the right spot. Spot. Make sure that that's something you should be paying for. Sometimes we see something say, hey, this is something we should negotiate. I mean, we're paying a monthly rate for it now let's call them and see if we can pay a yearly rate up front, like those sorts of things you can do. That's a tremendous benefit because it gives you a real time metric rather than a four week, six week quarterly lagging metric, which means it allows you to pivot as quickly as you can. So when you automate those numbers and you collect them often, so you're constantly looking at, maybe it's daily. For me, it's kind of at the end of the week because it gives me a weekly report. It allows me to course correct as quickly as possible. I don't want to course correct six weeks too late. I want to course correct right now. Like if something pops up. And so we've done this with trying post series A, going into the cash burn, hiring some new employees that we knew we needed to hire. They've done a great job. We were like, okay, we got to trim the fat here. We were able to trim the fat because $750,000 off the budget. That's 20% reduction in our 20, 25% reduction in our budget, which is a massive reduction in budget. Yeah. Yes, we're trying to grow revenue, but I can't. I was able to cut 25%, mean the finance guy, 25% from the budget in about two weeks of working together. I can't grow the revenue. Two weeks. In two weeks, you can't do it. So, yes, we're trying to grow the revenue. If you can grow the revenue, if you can reduce your cost of goods, that improves your gross margin percentage tremendously. And then if you can really comb through your expenses, payroll and operating expenses, and cut those, then what you're going to end up with is much more net profit at the end of the month. Now, again, we're not going to do it in that order. We're going to set the net profit first, and then we're going to figure out how to allocate the expenses. That's the profit first mentality that will make a major difference in your business. So whether you're in the beginning and you're doing this for the first time, start and do it right. Get profit first. Get that book again, no relationship there. We don't get any kickbacks off that book. That's an excellent book. And if you didn't, then you're going to have to make some painful choices, right? You're going to have to cut some expenses where maybe it hurts a little bit or maybe it feels like, you know, you're really tightening the belt. What you'll find is if you do this well and you do it aggressively, it's like ripping a band aid off. And it's painful for a few weeks, and then very quickly, the finances change. Like within a month, two months, and definitely within the first quarter of doing this, the finances will look tremendously different. Already, that was the goal for us. We knew we were gonna have a burn in Q3. We spent as much money, not as much money as we could in Q3, but paying all those yearly vendors up front and all those sorts of things. We took care of all those expenses, got everything off of the expense line. They came off of it in Q4 and now we're positive in Q4. So we went from a pretty big cash burn in Q3 to positivity in Q4. So that when I go and sit down with the board and the investors and go, look, we finished raising our money in April, we burned through September and then October, we turned everything around and now we have a positive Q4 and we are set for positivity for profit, for time, moving forward, starting in January. Yeah, that's a great story to tell.
- [61:27]
A
Yeah. We've said before that one of the things that really is important, not just, not just as a business owner, founder, but I just also think as a human, everybody wants to make progress. You want tomorrow to be a little better than you were today. And I think this style of financial management inside of your company creates a certain level of calm because, you know, you're dealing with the hard stuff as it's coming up.
- [61:55]
B
Right.
- [61:55]
A
It really does. Trust me when I say this. Even if you start with a 1% profit margin and that's, that's where you're going to begin, you're going to say, I'm put 1% of top line revenue into my profit line. As the months go by and that number starts creeping up to 5%, 7%, 10%, and you start accumulating some cash in there, it makes you feel fantastic about your business. You're like, I'm moving the right direction in this business. This is great.
- [62:22]
B
So if there were an opportunity, and again, cash is king, man. Having cash, especially in times that are bad. You look at again, Warren Buffett and Charlie, they were buying when the market was terrible. Right now Warren's offloaded a lot of, a lot of stuff this year because I think he thinks it's going to be a rough few years. And I think he thinks he doesn't have another few years. I would be interested if he weren't. Is he 90, 92, whatever he is now, so maybe 95. He's old. I think some of those things have changed for him. If he knew he could still play the long game, I think he might be doing it different. I think you're probably starting to see a little bit of a change, paradigm shift for him that he's now moving into the. I can do this for another two or three years and I could die at any day. And I want to make sure I'm putting myself in a Good position moving forward. And so you have an opportunity as you build up that profit and you build up cash reserves, to not just dramatically decrease stress, but to dramatically increase opportunity. There are times when you have an opportunity to buy a thing, to buy a service, buy a product, buy a small business that is synergistic with your business. You're paying a third party. Like, man, I could buy this business for $100,000. The vast majority of businesses don't have $100,000. When you do, you have an opportunity to, quote, unquote, steal a business, to get a business at a great price because you have the cash when no one else does. So when everyone else is cash poor and you've got cash and everyone needs cash, you have this thing that you'd be like, I can buy a thing at a deeply discounted value to my business. That's the other opportunity it gives you. So first, stress reduction. Two, it gives you an opportunity to have the freedom to allocate that profit where you want it to go. And three, one of the places you may want it to go is to make a big strategic purchase for the business.
- [64:18]
A
Yeah, you can buy a competitor. You can. I mean, there's a lot of opportunity there for sure. So, I mean, I think this is a pretty good spot for us to say, like, all right, now your job is to go back, look at your business and do the thing and implement this thing immediately.
- [64:31]
B
Yeah, that's right. That's right. Which means getting a really good handle in a really short period of time on your finances. You should be able to have a 90% handle on your finances in two days. If you can allocate two legit days to working through that, then you're gonna test your hypothesis, you're gonna make those changes and you're gonna see how it works over that first month. And then you're gonna tweak in month two. But what you don't wanna do is plan for this and go like, okay, in the beginning of Q2 next year, we're gonna start to make these changes. No, make the changes today. Make the changes in, like, this week. Make the changes before the end of the year.
- [65:06]
A
This is one of the challenges he put in the Prophet first book. There's a one chapter where once they break, broken down the different accounts. He said, when you get to a computer next time, wherever you are listening to this, but I was listening to audible book wherever you are, immediately go open an account. Like, don't go to bed until you've opened an account where you have the sub accounts that you need to do and start allocating your funds immediately. Like there's nothing that keeps you from doing that. And that is definitely what we're saying to you, listener. It is time. There is no better time than right now to get on top of your finances.
- [65:38]
B
You can do this online from your home today. And a theme of the podcast is that we have to be people of action. The great separator between. We've talked about focus and all those sort of things. But the reality is the great separator between great founders and people who are just like visionaries is that visionaries don't put things in action. Once you understand what you have to do, just do it. Just do it right. And for me, and we talked about this a couple podcasts ago, the anxiety that you feel is from the work that isn't done that you know you need to do.
- [66:13]
A
That's right.
- [66:13]
B
So do it. You got week and a half left. By the time this comes out in 2024, you can get a ton done in the next 10 days, especially if you utilize some of those strategies that Chris and I have talked about. There are you're going to have days off of work because of holidays. And I'm not telling you to get up super early Christmas morning and work on Christmas morning, but you probably got Christmas Eve off. You probably got the day after Christmas off. You might have New Year's Eve off. You've got an opportunity to make some major changes where there's. And there is because so many people take vacation and kind of shut down at the end of the year. This is one of my favorite times to ramp up the last 10 days. Yeah, in the year on a high note. Yeah, in the year on a high note. So that you're going into 2025 in a much healthier space than you were today.
- [66:55]
A
As things quiet down, use that time to do the ramp up.
- [66:58]
B
That's exactly right.
- [66:59]
A
Absolutely.
- [67:00]
B
All right. That's another episode of the build your business podcast. Thanks for listening as always. We would love a five star review, an honest review. We would love an honest review on Apple podcasts, Spotify, wherever you get your podcast again, this is on YouTube. Stephen, our producer is doing a great job in the radcast that we're working with. The YouTube is excellent. I think it's much better experience to watch all the podcasts now that I listen to that are on YouTube or have video on Spotify. I always watch those. So videos there you can search build your business podcast, maybe build your business. Reynolds should pop up. And, yeah, I hope you got a lot of value out of this podcast. And we'll see you guys guys next week for Christmas week. Right? So I hope you guys have a great Christmas. I think this is the last one that'll come out before Christmas, but we'll continue to. To come out with new podcasts every Friday. So we'll see you the Friday after Christmas.