Sponsored by Fit for Profit
By Shannon Simmons, Special FBA Contributor
Fitness studio owners and wellness professionals have been on a roller coaster for the last 12 months, like most of the rest of the world.
With the focus being on surviving, there’s been little time for thriving. And for many, surviving means trying to figure out how to pay the bills when doors have been closed (and then open again, but at reduced capacity), cleaning expenses have increased and there’s still payroll to meet.
Chances are you’ve felt the pressure too. The tightness of the purse strings matches the tightness in your chest as you dare to peek at your bank balance. All of this just in time for tax season.
Back in 2014, I felt the same way in my business--not because of a global pandemic or reduced client load but because I didn’t have a clear system to ensure I had what I needed to see a profit, save for taxes, pay myself or hold onto what I needed for other expenses in my business. And as a bookkeeper and trained accountant, you’d think the story would be different.
When I prepared my own taxes in the spring of 2014, I realized I hadn’t saved enough to cover the tax bill. I had been advising clients to save 10 to 25 percent of gross revenue in order to cover upcoming taxes but I was not doing the same.
And while business was going well, there was rarely anything left over. I started to wonder what I was doing all this work for.
Enter Profit First, a proven system that not only helps business owners save for taxes but helps manage and predict cash flow. Even better, when implemented properly, it virtually guarantees a profit at the end of the month, quarter and year.
How so? Profit First reduces our human psychological and spending tendencies. And it provides immediate feedback on the health of a business.
The Psychology Behind Profit First
Mike Michalowicz, the creator of Profit First, designed the system to take human behavior into account. Bank balance accounting leverages our human behavior to believe the balance in our account is our available balance to spend on our business.
Your bank balance provides a false sense of security--if it’s providing security at all right now. You might have money in the account, but do you know where your next payroll run is? Or next quarter’s taxes?
Instead, Profit First uses Parkinson’s Law, the theory that we’ll spend every penny we have in our bank account (or use all the time we’re given before a deadline). Our spending (of time, of money) will expand to use all the available resources or time available.
This is no way to build a profitable business.
Instead, Profit First uses Parkinson’s Law, the theory that we’ll spend every penny we have in our bank account (or use all the time we’re given before a deadline). Our spending (of time, of money) will expand to use all the available resources or time available.
In Profit First, we create bank accounts that serve specific needs, thereby limiting the amount in each one. It’s like putting your dinner on a smaller plate so you’re “tricked” into eating less but not feeling deprived. These additional bank accounts limit the human behavior of spending everything we have.
And when the money is tucked away in a different account, you’re less likely to dip into it to spend on something it’s not earmarked for.
It also allows you to fix your cash flow problem over time. This quarter, you start saving 1% of your revenue as profit. Next quarter, it’s 2%. Slowly but surely you start seeing the fruits of your labor as you steadily increase your profit distribution to something you can be proud of.
At the same time, you’re also setting aside that 10 to 25 percent for taxes. And a percentage for operating expenses and your own salary. It’s about starting off with baby steps to help make it a little easier and a lot less scary to get your business profitable and healthy.
Just like helping your clients train for a marathon: They’re not going to do it tomorrow, but with a realistic plan in place, they’ll be able to comfortably run that marathon in a few months.
The system works for fitness studios. It works for solo fitness professionals. And it works for any other business out there.
It’s An “Accounting System” Written by an Entrepreneur
Most business owners seem to go into meetings with their accountants and bookkeepers, struggling to understand their profit and loss statement and balance sheet. Even looking at the numbers, they don’t recognize how to make good financial decisions between those meetings.
The reason? Most business owners didn’t go to business school. They’re not trained in accounting principles. That doesn’t mean they have to go to business school; it means they need a system that makes sense to their entrepreneurial brains.
Thankfully, Profit First doesn’t have any “accounting-ease” in it. Mike isn’t an accountant so the book and the system aren’t filled with terms, spreadsheets and practices that don’t make sense to non-accountants.
In his study of human behavior and hundreds of businesses, he’s been able to develop specific examples to go with every methodology, principle and practice that he shares.
Finally, an accounting system written by an entrepreneur for entrepreneurs that everyone can understand--even bookkeepers.
And since working with clients on the Profit First System and helping them implement it in their own businesses, they feel more fulfilled, less frustrated and have more confidence in both their personal and business finances.
Even in difficult times. Even when revenue is down. With Profit First, there is a way to still see profit.
Shannon Simmons is a Certified Profit First Professional and Certified QuickBooks Pro Advisor, specializing in working with fitness and wellness businesses. Her practice, Fit For Profit, helps small business owners grow financially healthy and personally fulfilling businesses.
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