Book a call

Managing Money to Maximize Growth and Long-Term Profit for My Small Business

brook castillo building your business dan kennedy money management for small businesses profit first self coaching scholars small business profit Oct 12, 2021
The Entrepreneurial Bookkeeping Formula

 

The goals for my business are BIG- I plan to profit and GROW!  

 

When I started my business, it was important for me to adopt an EMPLOYER mindset, rather than an employee mindset, which to me means prioritizing the success of my business in the long term rather than “working for a paycheck”

 

via GIPHY

With my "Employer" decision-making cap on, I put a money management strategy in place for my business, Meredith Kallaher Marketing, LLC, to optimize company growth.

 

I adopted a Cash Management System that I learned from “Entrepreneurial Bookkeeping” by Brook Castillo, a course inside her Self Coaching Scholars program that I discussed here.

 

Brook’s Entrepreneurial Bookkeeping Formula flips traditional accounting on its head.

 

She suggests that instead of calculating our profit as a result of our revenue less expenses, we should decide what we want our profit to be, then subtract that from our revenue to determine how much we should spend on the expenses to run our business.

 

If I decide I want more PROFIT or there are expenses for which I want to incur to run my business, I focus on increasing my revenue number, rather than cutting out expenses or profit.

 

Said another way, I decide ahead of time how much money I want to make, how much expense I want to incur to create that profit, then I go build the revenue to make it happen!

 

Brook based her bookkeeping calculation on the principles outlined in Mike Michalowitz best-selling book “Profit First” and then made her own modifications.

 

via GIPHY

 

The Entrepreneurial Bookkeeping Formula puts profit first as Mr. Michalowitz teaches, then accounts for taxes and growth (marketing) before deciding on any other operational costs.

  

Let me show you…

 

The Entrepreneurial Bookkeeping Formula  I use for

Managing Money to Maximize Growth and Long-Term Profit for My Small Business

 

REVENUE

-PROFIT

-TAXES

-MARKETING

EXPENSES

 

REVENUE: The money generated from creating value for customers

PROFIT: Positive cash flow from the operation of my business

TAXES: Money I owe the government which increase directly with profit (i.e. not a bad thing)

MARKETING: Money spent to secure new client contracts i.e. grow my business

EXPENSES: Costs incurred to operate my business

To start, I planned a monthly revenue goal.

Next, I decided on the % of my revenue I wanted to allocate to profit, taxes and marketing.

Instead of deciding expenses in advance, they’re the last thing to be decided.

And if any of the numbers seemed too small based on my allocations, then I focused on increasing the TOP number, the revenue, instead of cutting expenses or profit.

Let’s dive into the Line Items of Profit and marketing a bit further.

Now, remember, I committed to run my business with an employer mindset, so when I reference "profit", I’m not talking about money flowing into my personal bank account.  I’m talking about the “ profit” of the empire I’m growing, the profit of my business.

And when I say "marketing". I’m not talking about social media vanity metrics. I’m talking about initiatives required to create new customer relationships and signed service contracts.

 

via GIPHY

An Employer’s Definition of Business Profit

I categorize the profit of my business into 3 parts:

  • An “oh shit” fund, or working capital. Even though I’ve generated money from the beginning, sometimes the timing of that money generated doesn’t match the money I decided to spend, so in order to operate smoothly, each month I allocated money to an “oh shit” fund, which I kept separately from my operations money (i.e. a different account). In year 2 and beyond of my business, this account will change names to "Capital to Be Used on Something Totally Awesome for My Business, when I stumble on a totally awesome idea, and am so glad I have the money saved to implement that idea!"
  • Owners Withdrawal- Money moved to my personal bank account. I made a commitment to myself in year one to plan on zero to be moved to my personal bank account, to focus on business growth, rather than personal growth.
  • Reinvestment Money reinvested in my business in the form of assets. At the beginning of my business, I prioritized my most important asset, ME!  I started my business because I knew I had the skills, knowledge, and experience to help others grow their own business BUT  I wanted to offer premium services to my customers, and to do that I wanted to stay up to date on the latest digital marketing strategy and tips. So in my first year of business, I invested quite a bit of money and time in more knowledge and support for me.

Marketing for Growth in My Business

 When You Build It They Don't Come. I wish, but it just doesn't happen that way!

You have to pay to earn your customers. You can pay with time or money. But when starting at ground zero, often you don’t want to invest time into generating revenue, you want to make revenue in the now, so you use money to market your business.

 

The goal is that an investment in my customers will pay me back and then some. 

For example,  If it costs $1k to acquire a customer it’s important to see that as an investment into customer acquisition. If my customer then pays me $3k for a three-month project, then, I’m breaking even after the first month, meaning the remaining two months are profit. This is a very good ROI or Return on Investment.

 

 If you think of the customer as an investment, then this deal gets you a 200% return. 

 

* Note that I was using the cost of $1k to acquire a customer as a simple example. I can hear some of your brains exploding from here! In fact my customer acquisition cost is lower than $1k and my return is much higher than 200%... but if necessary would I be willing to operate at a 200% return on investment?  Heck yeah!

As Dan Kennedy, Founder of Magnetic Marketing® and one of the most revered marketing advisors to entrepreneurs and business owners in the world,  taught

"The business that can spend the most to acquire a customer wins!" 

 

Finding an effective marketing strategy requires testing.

via GIPHY

My service offer, pitch, and potential customer base are unique to me, so there is no guarantee that a marketing strategy that allows another business to grow and flourish will work for my business.

 

Testing means sometimes I spend time or money on marketing strategies that don’t work for me, which is why I am glad I committed to taking zero dollars into my personal bank account at the start of my business.

 

Look at the equation above again!

Putting a ZERO in the Owner’s Withdrawal line of my business allowed me to allocate a % of the money to marketing that made room for testing marketing strategies... you don't have to be a CPA to see that, right?

 

 

Focusing on investing my money back into the growth of my company, and doing this consistently, so I continue to gain customers at a strong return rate has created fast growth in the first year of my business.

 

And bonus my Return on Investment was BIGGER than I anticipated, so even though I did not plan to withdraw money from my business I did because there was an excess beyond the Marketing, Taxes, Working Capitol Savings, Education Investment, and Operation Expenses.

 

via GIPHY

 

The Entrepreneurial Bookkeeping Formula helped me manage my business's growth and create money.

 

You too can generate the profit you plan for ahead of time using an EMPLOYER mindset.  Be proactive and make decisions based on what will benefit your business the best!

 

Remember, instead of spending too much time fretting over expenses focus on growth strategies and increasing REVENUE!

 

Now it’s your turn to try this Entrepreneurial Bookkeeping Formula!

Meredith Kallaher helps small business owners Expand Their Reach and Explode Their Sales with

1. Facebook and Instagram Advertising Strategy and Management

2. Conversion Copy Writing

3. Kajabi Product Build Outs

Learn How Meredith Can Help You Build Your Business and Exceed Your Sales Goals. Book a FREE DISCOVERY CALL Today.

Let' s Talk

Stay connected with news and updates!

Join our mailing list to receive the latest news and updates from our team.
Don't worry, your information will not be shared.

We hate SPAM. We will never sell your information, for any reason.