How Profit First Changed My Finances

This week on the podcast, we’re continuing our departure from talking about content to talk about money systems. If we don’t have a good handle on our finances, it’s impossible to focus on the things that matter in our business: our clients.

Last week we talked about implementing Profit First as a money system, and this week I’m talking about my own experience with Profit First…both in my business and in my personal finances.

We really shy away from talking about money because we’ve been taught from a young age that it’s a taboo subject. But if we don’t talk about it, our challenges and our successes, we can’t learn from one another.

So listen in. I share a bit of my money story, then dive into how I’ve leveraged the Profit First system for all kinds of wins I never thought I’d have.

Mentioned in This Episode Podcast

Transcript:

Welcome to episode 226 of The Content Experiment Podcast, a podcast for service-driven business owners who know that content is important but there’s so much more to marketing and business growth.

Here we talk about showing up for your audience that they want to hear, in a way that’s sustainable for you. This might mean publishing a weekly podcast or blog, but it also means paying attention to your email list, leveraging other people’s audiences, building relationships, and getting over the limiting mindsets that often hit when we’re reaching for the next level in our business.

I’m Abby Herman, content strategist and podcast manager for business owners who want to make their marketing feel easier and more streamlined so they can get back to serving their clients and making those sales. I’ll show you how OR do it for you, while you do business in a way that works for you–I can help by supporting you through building a content and marketing strategy, taking care of the podcast management for you, or giving you the tools and resources to take this on yourself.

This episode is a bit of a personal one for me. And one that talks about a big taboo subject, money. I’m sharing a little of my own money story and how I’ve really changed a lot around the stress I experience around money. I haven’t resolved all my money issues, not by a long shot, but I’ve definitely found something that’s helped. Profit First. And it hasn’t just helped in my business. It’s also changed my financial status in my personal life too. In a really big way. I’m sharing how that’s happened.

I’m not a Profit First expert, but I do have a few clients who are. Working the Profit First system and learning more about it through my work with these clients has been really helpful for me.

Here’s some of my story:
When I first started my business in 2007, it was a side hustle I was doing to make extra money alongside my teaching job. I made maybe five thousand dollars that year…maybe…and ended up with a small tax bill the following April. I knew it was coming but I wasn’t really prepared. I was able to scrape together the money for the bill using money I earned in the time between having my taxes prepared and tax day.

This is obviously not ideal, to use money you made one year to pay for the previous year’s taxes. But that’s where I was.

The same thing happened the next year and the year after that and the year after that. At one point, I think I changed my withholdings with my state and the IRS so more would be taken out of my regular day job paychecks so I’d end up owing less.

The problem was that I didn’t have any systems set up to pay myself the right way so every payment I got from clients I looked at as MY money, not my business’s money.

And to be honest, I cried every time my accountant told me how much I owed. It was incredibly stressful to be SO completely in the dark every year. I mean, I knew I’d owe a lot, especially as my business grew, but I tended to just ignore that fact until tax time came around.

I’d have my tax preparer file extensions, which by the way doesn’t mean that you don’t have to pay. But I’d still do it, thinking I was delaying reality.

One year I owed something like $8,000 and had nothing saved. Literally nothing.

I don’t know why I couldn’t wrap my head around actually setting aside money for taxes. It seems like a really simple thing, but I never did it.

On the personal side, I was strapped with student loan and credit card debt when I first left my day job in 2013. I never had money to fix my car or take a fun vacation. That all went on my credit card and that debt steadily grew. And it was even stressful going to the grocery store, wondering if I had enough in my account to cover it. There was never anything left over, even as my business grew.

I signed up for Dave Ramsey’s Financial Peace University in late 2013, I think, the year I left my teaching job, and learned how to at least project my upcoming revenue. But his principles around budgeting didn’t really work for me, especially since I never had money left over. Which also meant that paying off my debt was a challenge. I was barely making ends meet.

And yeah, I realize that I’m sharing a lot of personal information about money…things that are supposedly taboo to talk about. But if we don’t talk about them, how will other people know that they’re not alone and that there IS a solution?

Anyway, everything changed when I discovered Profit First. And yes, I’m going to gush on Profit First because it’s what worked for me. It’s a system that’s incredibly easy to use, for me. If it doesn’t work for you, for whatever reason, find a system that does work for you. Because we can’t take care of our businesses and our clients if we’re stressed about money all the time. And as business owners we CAN feel really comfortable with our money, in our business and our personal lives.

For me, the guardrails around PF work for me. You can listen to my episode last week with Profit First Coach Shannon Simmons of Fit For Profit for more. Here on this episode, I’m going to talk about my own experience and how I’ve implemented Profit First into my own personal finances.

I discovered Profit First in 2016 or 2017 and knew that it would work for me because it was a repeatable system that didn’t expect me to sock away big chunks of cash or to pay off a ton of debt all at once. I could set aside a little bit of money on a regular basis, and that money would add up over time. Just like saving money in a change jar.

I’ve always subscribed to this belief that I’m not good with money. It’s a story I’ve held onto my entire life, since childhood, and I’ve never been able to let go of that narrative. I still haven’t. But with a system like Profit First, I can at least control part of that story.

By the way, when I started using it, I brought it up to my then-accountant and bookkeeper. She wasn’t sure about it, but I started it anyway and sent her the book. She liked what she read and eventually became a certified PF professional herself.

I think I’m your typical North American. I want things now and I don’t have the patience to wait. (That’s why Amazon is so popular, right?) If there’s cash in my bank account, I figure it’s fine to spend it…not thinking about the bills that are due next week. And when I go out to eat, I tend to eat everything on my plate because it’s GOOD and it’s THERE. It’s hard to put the fork down.

This is called Parkinson’s Law. Shannon talked about this in episode 225, but essentially we’re using up resources to fill what we have. If the money is there, we’re going to spend it. If the food is in front of us, we’re going to eat it.

BUT if you get a to-go container when your meal is delivered to your table, you can hide some of that food and save it for later, saving yourself the calories and creating a meal for another day.

With Profit First, we can do that for our money too.

You transfer money into different accounts to make sure it’s there for the future. For Profit, Taxes, Owner’s Pay, and Operating Expenses. Based on a formula, you transfer a certain percentage of your revenue into each of these accounts. And then leave it there.

Twice a month or so (I vary this depending on when clients pay their invoices), I transfer a percentage of the money in my income account into a profit account, a taxes account, an owner’s pay account, and an operating expenses account. The percentage is customized to your own business, and if you buy the book it walks you through how to do this. (Or Shannon’s freebie from last episode is a shortened version of this – fitforprofit.com/content.)

The money in the taxes account stays there until it’s time to pay taxes. So it accumulates for a full year. The money in the profit account stays there until the end of the quarter, when you get to take half of it out as an owner’s draw. It’s like a bonus. And you get to do whatever you want with it. Twice a month, I transfer my own pay out of the owner’s pay account into my operating expenses account so I can run payroll. And everything else comes out of operating expenses.

It’s super simple and has completely changed my business. I rarely stress about money, and when I do, I just look at my accounts and reassure myself that the money is there.

I also have a special account I call “Buffer.” This is my backup. My buffer in case I have a slow month or two. It’s my true savings account where I save for a rainy day. And yes, I’ve had to dip into this here and there. But I also allocate a small percentage of my revenue to it every month.

But this is kind of where I realized that I could use PF for my personal finances too. Because again, I don’t do well at saving if everything is in my one checking and savings account. If it’s there, I’m going to spend it.

About a year and a half ago, I started thinking about this milestone birthday I have this year. Aside from a trip with my parents and daughter pre-Covid, I couldn’t remember the last true vacation I had taken where I didn’t completely stress and obsess about money. And I knew I wanted to take a big trip for my milestone birthday.

So I opened a savings account for that trip. Every payday, I transferred a small percentage of my paycheck to the account. At the end of each quarter, I put a portion of my Profit account into that savings account. And the account grew. In fact, I was able to max out what I wanted to save at the end of last year. Now that plans are underway and I’m buying airfare and putting down deposits on excursions for that trip, I have the cash to pay for it.

I’m doing the same thing with a trip I’m planning for my daughter’s college graduation next year. And I did the same with a car fund. I had a 15-year-old car that I knew I’d need to replace soon and I didn’t want a car payment. So I started Profit Firsting it, setting aside a little bit every paycheck.

I’m saving for some upgrades to my condo and I’m saving for future travel.

Transferring that money from my checking account to various savings accounts is the first thing I do on the 15th and 30th of every month. It’s a non-negotiable for me. I currently have three “PF” accounts I use personally based on what my personal goals and plans are.

And let me tell you. It feels sooo good to know that I have this freedom.

If you’re thinking that you’re not making enough money to do this or it sounds too complicated, ask yourself what would happen if your hot water heater leaked or your dog got sick or your car broke down. How good would it feel to have something set aside to help you with this?

You can start with just 1% of your paycheck and work your way up from there. 1% might not feel like a lot, but it helps you get in the habit of making those transfers. Then analyze your expenses and see where you can cut. Then up your transfers to 2% and so on.

And do the same in your business! Set aside a small percentage of your revenue for profit, taxes, and to pay yourself, and increase that percentage over time as your revenue grows. (Be sure to use the formula in the book or Shannon’s downloadable to help you figure out the percentage you should use.)

I do want to share that one of the places I struggled the most with all those bank accounts was the fees associated with the multiple bank accounts. I was with one of the big-name banks early on and I tried one of the supposedly free online banks and struck out. It was too difficult to transfer money back and forth and I was spending a lot of money on bank fees. I switched to a local credit union that’s been great. I can have unlimited savings accounts for both business and personal and I can see everything on one dashboard. It’s been great.

I will tell you that using this system has completely changed everything. I never thought I’d be able to take a big vacation and pay cash for it. I never thought I’d be able to save enough to buy a car…because there was no way I ever want a car payment again.

Eventually you’ll need a new computer for my business; a laptop is on my short list. But because this isn’t a regular expense that happens over and over again, you don’t want to use your operating expenses account for it. You might want to join a mastermind or hire a coach. Wouldn’t it be nice to have the cash set aside so you can just pay for it, instead of stressing over whether you can afford it or making enough in revenue each month to pay for that expense.

Anyway, systems with your content work. Systems with your finances work too. It’s really hard to create content and show up in your business if you’re not super comfortable with where you are financially. Because it’s distracting.

I hope that hearing a bit about my own story around money and using a system to feel a lot more secure is a good motivation for you to do something similar. You can do it on your own or you can do it with a bookkeeper who is a Profit First professional. I might know a few!

If you found value in what you learned here today, be sure to share it on social media. Take a screenshot of the episode on your phone and share it over on Instagram stories. Tag me at thecontentexperiment. Or head over to LinkedIn and connect with me. Be sure to tell me you found me on the podcast when you send the connection invite! The more you share this podcast with others, the more we can get it into the hands of more business owners, just like you, who need to hear the message that they are not alone.