Taming the Cash-Eating Monster: Taking Control of Your Business Finances

Introduction 

Hello and welcome wherever you are in the world. I’m Kim Macdonald, a Profit First professional and Quality Mind mentor. Today, I want to have a chat about understanding your finances in business. For over 15 years, I’ve been working with business owners and their teams, and I’m passionate about making the complex simple and putting an end to entrepreneurial poverty. 

Understanding your finances is crucial for the success of your business. Without a clear grasp of your financial situation, you might find yourself constantly struggling, making decisions based on incomplete or incorrect information. My goal is to help you simplify this aspect of your business and equip you with practical tools to gain financial clarity and stability. 

The Financial Struggle in Business 

Most business owners find that money and cash flow are the main things that trip them up. It stops them from achieving their dreams, trapping them in a cycle of pouring money into the business, chasing sales, paying bills, and thinking they need to grow endlessly. This often leads to creating a bigger cash-eating monster, where money flows out faster than it comes in. 

When money challenges consume us, it’s difficult to focus on the truly important aspects of business and life. Here’s a little secret: chasing sales for the sake of increasing income isn’t always the answer to creating a profitable business. The first step to understanding your finances is getting your money sorted with a simple process you can rinse and repeat every week. This allows you to focus on the other important things in your business and life. 

By addressing cash flow issues and implementing a systematic approach to managing finances, you can break free from the cycle of financial stress. This section will help you understand the common pitfalls and how to avoid them, giving you a solid foundation to build upon. 

The Reality of Business Failure 

Did you know that in Australia, over 50% of businesses don’t make it to the five-year mark? Most of these failures are due to a lack of profitability. Many business owners feel like they should know how to manage their money and understand their financials but are often scared to have conversations about it. They may have no idea what’s happening in their business because traditional methods, like Generally Accepted Accounting Principles (GAAP accounting), haven’t worked for them. 

GAAP accounting is designed to help accountants and tax agencies, but it often leaves business owners in the dark about their real financial situation. This section will explore why traditional accounting methods fail many business owners and how a lack of financial understanding can lead to business failure. 

Recognizing the limitations of traditional accounting and the fear many entrepreneurs have about discussing finances can be the first step toward changing your approach. By understanding these issues, you can begin to take proactive steps to gain control over your financial destiny. 

The Profit First Method 

In my program, we use a process called Profit First. This method leverages our human behavior, thoughts, and habits to take ownership of how we work with money. It puts a system in place that you can repeat weekly, fortnightly, or even daily, giving you a complete understanding of your money in real-time. You’ll know where you spend your money, looking at actual money in the bank, and you’ll never face uncertainty at tax time or surprise tax bills. 

Profit First focuses on prioritizing profit by allocating funds to different accounts for specific purposes. This method ensures that profit is taken first, rather than hoping for leftovers after expenses. By doing this, you can ensure that your business remains profitable and sustainable. 

This section will dive into the specifics of the Profit First method, explaining how to set up your accounts, allocate your income, and maintain a clear and accurate picture of your financial health. Implementing this system can transform your business, giving you confidence and control over your finances. 

Empowering Your Financial Future 

How would you feel if in 12 short weeks, you could be 100% in control of your money in real-time? You’d know exactly what’s happening every day and what you need to focus on to take control of your finances and your business. 

If this resonates with you, you can jump on my website and download the first two chapters of Profit First for free. You can also download Profit First on Audible and give it a try yourself. Or, you can book a call with me and we can chat further. I’m here to be your financial cheerleader and help you tame that business cash-eating monster. Let’s put an end to entrepreneurial poverty together. 

This section offers a call to action, encouraging you to take the next step toward financial empowerment. By providing resources and support, I aim to make the journey toward financial control as accessible and straightforward as possible. 

Activity Worksheet: Understanding and Implementing Profit First 

Step 1: Assess Your Current Financial Situation 

Income Sources: List all your business income sources. 

• Identify and list all the ways your business generates income. This could include sales, services, investments, or other revenue streams. 

Expenses: List all your business expenses. 

• Make a comprehensive list of all your business expenses, including fixed and variable costs, to get a clear picture of your outflows. 

Cash Flow Calculation: Calculate your current cash flow (Income – Expenses). 

• Subtract your total expenses from your total income to determine your current cash flow. This will help you understand if you are currently operating at a profit or loss. 

Step 2: Set Up Your Profit First Accounts 

Open separate bank accounts for: 

• Income: The account where all your business income is deposited. 

• Profit: An account specifically for profit, ensuring you prioritize profitability. 

• Owner’s Pay: An account for paying yourself, recognizing the importance of compensating yourself adequately. 

• Taxes: An account to set aside funds for tax obligations, preventing tax-time stress. 

• Operating Expenses: An account for all business expenses, keeping your spending in check. 

Step 3: Allocate Your Income 

Using the Profit First formula, allocate percentages of your income to each account: 

Listed below are the Target Allocation Percentages for a business revenue model $0-$250K. This may not be where you initially start with your allocations – there is where you aim to get to. 

• Income: 100% of deposits. 

• Profit: 5% (adjust as needed based on your business goals). 

• Owner’s Pay: 50% (ensure you are paying yourself a sustainable wage). 

• Taxes: 15% (set aside funds for tax obligations). 

• Operating Expenses: 30% (keep your operating expenses under control). 

Target Allocation Percentages– TAP’s (recommended Profit First Percentages) 

Step 4: Weekly Money Review 

Regular Review: Set a regular weekly time to review and transfer your money according to your allocations. 

• Establish a consistent routine for reviewing your finances and making necessary transfers. 

Progress Tracking: Track your progress and adjust percentages if needed. 

• Regularly evaluate your financial progress and adjust your allocations as needed to ensure you stay on track.  

Reflection Questions 

1. What surprised you about your current financial situation? 
2. How do you feel about separating your money into different accounts? 
3. What challenges do you anticipate in sticking to the Profit First system? 
4. How will you celebrate your financial wins? 

By engaging with these activities and reflections, you’ll start to gain control over your business finances and set yourself up for sustainable success. Remember, taking small, consistent steps is key to taming the cash-eating monster and achieving your financial goals. 

Conclusion 

Taking control of your business finances doesn’t have to be a daunting task. With the right approach and tools, you can transform your financial situation and build a profitable, sustainable business. Profit First is designed to make managing your money simple and effective. By following the steps outlined in this eBook, you’ll be well on your way to financial clarity and success. 

If you need further assistance, please reach out. I’m here to support you on this journey. Let’s end entrepreneurial poverty together and create a brighter financial future for your business. 

Resources 

• Download the first two chapters of Profit First for free 

• Profit First on Audible 

• Book a call with Kim Macdonald 

• Profit First website