Business Advisory Services & Profit FirstBusiness advice is all about helping you fulfill a need or solve a problem. We will work with you to identify an area of improvement and then come up with step by step instructions on how to get there.
Business Advisory Services & Profit First in Surrey, Langley & Abbotsford
You have questions and together we can come up with a solution.
Whether you want to start your business on the right foot, create a business plan to get a loan to grow your business, or have some other pressing problem to solve, we are here to help. We can review your current processes, identify problem areas and growth opportunities and then provide you with options to achieve your goals. For business advisory services in Surrey, Langley & Abbotsford, book an appointment with the professionals at Royer Accounting today.Book Appointment
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What is Profit First Business Consulting?
First of all, let’s establish what profit is. Profit is simply the money left over after you take away your expenses from your revenue. While this seems pretty straightforward, so many businesses find themselves short on profit at the end of the year. This is due to a focus on revenue rather than profit.
The basic formula of Sales – Expenses = Profit does not guarantee that a business will make a profit. Companies often lose sight of their expenses, encounter unprecedented costs, and end up with a lot less profit than predicted.
The Profit First Formula focuses on profit. Sales – Profit = Expenses. You may look at this formula and think it makes no difference. But, the point to this formula is more psychological than it is logical. It shifts your focus from sales and expenses to profit.
What is the Profit First method?
The Profit First method is all about business sustainability designed to create long-term success. You must first account for the profit, taxes, and owner’s draws. The money you have left is your budget for expenses.
Expenses are often seen in a negative light. The unavoidable costs that dig into our profits but are vital to operations. Rent, salaries, utilities, and costs of materials are all integral to your business, so it’s natural that we consider these as a priority.
But expenses are flexible. They can be eliminated, avoided, and delayed to help save money or streamline the business. By focusing on a percentage of your revenue for profit, you leave yourself with money for expenses. This helps force you to spend that budget more wisely throughout the year. Otherwise, you risk losing profit.
All this may feel slightly uncomfortable as a business owner. You may be concerned that delaying spending may stunt growth in the short term when you want to keep expanding the business forward.
But, the profit-first method allows you to grow your revenue and profits more efficiently. This will leave you with more money to invest back into the company in the long-term without endangering your business.
If you currently put every spare dollar back into the business as and when you can, you might not be planting the seeds of success you think you are. You’re putting your business at risk. Instead, having a large sum at the end of a year for investment is much safer and effective for growth.
Implementing the Profit First model for your small business is much easier than you think.
Develop Smaller Spending Bank Accounts
The first thing to consider is to develop smaller spending bank accounts to gain more control over where the money is being allocated. We suggest these five bank accounts to get you started:
- Income/revenue account
- Profit account
- Owner’s pay account
- Tax account
- Operating expenses account
This will help you to see your money more clearly and organize your spending. Depending on your business, you may want to open additional spending accounts that are unique to your business.
The more controlled and organized your spending, the easier it is to plan for profit.
Establish your CAPS and TAPS
CAPS is your Current Allocation Percentages. This shows you where your real revenue is being spent at any given time. This will provide you with insight into your day-to-day spending as a business and identify any money leaks.
The results of your CAPS will likely surprise you. Most business owners are not aware of their daily spend as a business. Likely, you will instantly discover ways to reduce spend.
Next, you want to establish your Target Allocation Percentages (TAPS). This gives us detail on where we want our real revenue to go. Once your business is running efficiently and is profitable, your TAPS are integral to your success.
The goals you set will not be achieved in the short-term. They are long-term goals that are important for business sustainability and long-term success.
The figures produced will vary depending on the type and size of business you own. Typically, you will find that increased revenue increases profit and operating expenses, while the business owner’s pay decreases.
Establish Rhythm for Transferring of Cash
Once you have your smaller spending accounts set up, it’s time to create a rhythm for how your funds transfer from your income account to your other accounts.
The rhythm of your cash flow and transfers is entirely up to you. It can be weekly, bi-weekly, or even monthly. It’s essential to find the right rhythm that works best for your business and the set up you have.
Once you have that rhythm and it works for everyone involved, stick to it, and be consistent.
Make Payments Using Your Profit First Accounts
You should now make payments using your Profit First accounts. Each account should only be used for it’s designated purpose.
Your profit account should be used to accumulate a very small amount of cash that can be used to reduce debts, fix emergencies, and pay yourself any bonuses. This account is the most important one as it generates profit. And profit comes first with this method.
Your owner’s pay account is used to pay your salary after-tax. You should not use this money to reinvest in the company. It’s your salary, and you need to be paid.
The tax account is designed to meet all your tax needs and superannuation obligations. Finally, your operating expenses account is the money available to your business for operating expenses. Use this money wisely and get creative in how you spend it.
Review and Reflect
At the end of each quarter, you should review your profit first management system and reflect on the numbers. Adjust anything you feel is needed for better management.
Over time, the profit first system will instill a profit first mindset. This will challenge you to reassess every aspect of our business and your own personal financial situation. By focusing on profit and being strict with expenses, you will increase profits in the long-run and create a more sustainable business.
How We Can Help You
Using our business advisory services, we can help you get your business off on the right foot, create a business plan, and map out your profit first method. Working closely with you and taking your business goals into account, we can formulate the right profit first strategy just for you.
Part of our business consulting is to review your current processes, identify any problems, and suggest the best action plan. The goal is to help you grow your business in the best way possible while improving efficiency and profitability.
For business advisory services in Surrey, Langley & Abbotsford, book an appointment with the professionals at Royer Accounting today.