Should You Pay Yourself First?

Old accounting methods don’t work for small business owners.

Your %’s might be different!

I used to skim whatever I could off the top once my expenses were paid.

I paid no mind to how much my expenses were. As long as they were paid and as long as I could personally scrape on by, I was doing fine, right?

Except come tax time, I had to scrape together money, often times out of my own savings account, and fork it over to the IRS. (Where you at Donald?)

Enter: the Profit First by @mikemichalowicz. That book changed my life forever.

When I started, I hated it. I also couldn’t believe all the expenses my business had. (Ever wonder why I don’t teach brick and mortar business building? Because profit margins suck in location-based business. Most brick and mortar overhead is lethal. Highly advise against it lol)

I had to audit where my money was going with the intention of taking it down to 35%, then 33%, and ultimately at or below 25% of my total revenue.

This is infinitely easier in location independent businesses- so long as you’re smart about it!

Then I had to set up multiple accounts. My business tax and business profit accounts are both high yield savings accounts.

It sucked at first because if I made $100, I wanted to keep $100! Instead of having to send $15 to my tax account, $10 to a profit account, $25 to my expense account, and “only” keeping $50.

But, let’s keep feelings out of it. Objectively, before I changed my accounting method, I absolutely never took home 50% of the revenue. Ever.

My expenses at one point (brick and mortar) were 78% of the gym’s revenue. HAHA! More on this in the future.

My expenses for my online business at one point were 56% of my revenue. No thank you.

The profit account is kept to either purchase things or investments for the biz: courses, coaches, mentors, equipment, software, technology. Any remaining amount in the profit account by year’s end will be paid out in a bonus to myself and to my assistant. (What’s up Mayra, love you the most).

More $$$ talk on this episode of The Confidence Project.