Episode 35 – Putting Profits First

“Are you stuck on the cashflow rollercoaster, worrying each week how you will pay the bills and cover payroll? That’s about to change!”

 

[notice]If you like sleepless nights and constant cashflow struggles – do not listen to this Coachcast[/notice]

Putting Profits First is about making profits a priority in your business.  The #1 rule for Elite Contractors is Profit is the Reason.  So, to become an Elite Contractor we need to make sure the we make profits the #1 priority of our business.  We are not in business to make our suppliers money, if you want to do that become a sales rep for them.

If you want to end the cycle of cashflow struggles and running your business from check to check you need to start putting profits first.  By following a few simple rules we start to build a backstop and manage our spending properly.  In the traditional approach, profit is what is leftover.  That is like going out to a restaurant and telling the waitress “I’ll have whatever you have leftover in the kitchen”.  You wouldn’t spend your hard earned money buying leftovers from the restaurant so why do you spend your time running a business and accepting the leftovers as profits?

When I ran my civil business I did not follow these principals and it ultimately put me between a rock and a hard place.  I spent every dime that came in on trying to build the business bigger and bigger.  I didn’t save for a rainy day and I didn’t spend within my income means.  Then when the rainy day occurred I was stuck with too much cost burden and not enough income.  Had I followed these principals, I would have had the financial strength to weather the storm.  Don’t let that be your story too.

So, let’s start eliminating the cashflow problems, excessive debt and sleepless nights!

There is a great book by Mike Michalowicz called:

Profit First: A Simple System to Transform Any Business from a Cash-Eating Monster to a Money-Making Machine. 

Buy it on Amazon

To put profits first you need to move them to the top of your budgets and income statements.  Traditional accounting puts the profits at the end, I want you to turn that philosphy upside down and put profits at the top.  The second line item on your income statement should be your profit line item.  That should be calculated based on a percentage of revenue.  After the profits have been deducted you will get your gross revenue sub-total and that is what you need to run your business on.

I also want you to adopt what I call the Gross Receipts Profit Plan.  There are some states that operate with what they call a Gross Receipts Tax and when you work for them they will deduct that tax directly from your payment.  So you will get paid your invoice amount minus the GRT.  With the Gross Receipts Profit Plan (GRPP) we are going to do the same thing.  Each time a check comes in you will deduct your profit percentage off the top and put it into a separate account.  When you set this up you can start small with the percentage and work each month to increase it.  Eventually you will get to the point where you are taking the project percentage of profits and putting them away.

[tweetthis]Stop the madness, start building profits not stress![/tweetthis]

Now that we have a plan on how we will be sure to save our profits we need to make sure we earn them.  Earning profits on each project is the key to success, as Elite Contractors we need to strive for zero hits on our profits.  I want you to set the bar high here and consider any deduct greater than 10% of the projected profits as a hit to our profit on that project.  This will keep us focused on maximizing our profits.  Now to make sure that we always keep this front and center we need to incorporate it into our project planning and reporting processes.  When developing you project risk plan the first question you need to ask is what can happen that will reduce our profits?  Put the mitigation plan together to protect against these things happening.  After the projects get started we need to put profit as the first thing in all of our project reporting.

 

Take-Action Items

  1. Put your Profit Line Items at the top of your budgets and income statements

  2. Start the Gross Receipts Profit Plan

 

Outline:

Putting Profits First

  • What?
    • Make profits the #1 priority for your business
  • Why?
    • Allows you to properly prepare for and manage cashflow
    • Helps control and manage spending the right way
    • Builds a war chest
    • Builds the proper foundation for your business to grow and prosper
  • How?
    • Put profits at the top of the budgets
      • Profits should be the 2nd line on your income statement
      • Profits should be the 2nd line on all your budgets
      • Deduct profits from revenue and run you business on the rest
    • Gross Receipts Profit Plan
      • Some states have a Gross Receipts Tax where they deduct a certain % off of what they pay you.
      • Do the same thing with your profits – deduct a % from every check
      • Put the money in a separate account in a different bank
    • Project Planning and Reporting
      • During your project planning process ask “What can happen that will hurt profits?”
      • Create a plan to mitigate those risks
      • Put profit as the first part of all project reports

 

Some resources:

Profits First Book

Entrepreneur Article

 

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1 comment

    • Sean Morris on October 4, 2014 at 10:22 am
    • Reply

    Great episode. I can really use that information now. Thanks for all you do and the information. I will start pulling profits out first from now on.

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