Breaking the Failure Cycle: Mastering the Numbers Game in Small Business

Are you tired of feeling overwhelmed by your business finances?What if I told you there was a simple system that could transform your relationship with money and help you finally master your numbers?Yes, you can do that. Stay tuned as we explore how the Profit First method is revolutionizing small business financial management and breaking. The cycle of failure, cause who wants failure?Yeah. So one big

misconception we need to address right away is that profit first is not budgeting. At least how 99% of people define the word profit first is not budgeting. So if you hate budgeting, especially as a business, yes, we do too. Cash flow management, however, is a different story and the difference is critical to a stress-free growing business. Yeah. So stop trying to forecast what your electric bill will be in six months from now. I mean, who really knows?Anybody dealt with

inflation?There's a more effective way in a world where chaos seems to reign supreme, where uncertainty lurks around every corner and financial markets are now more unpredictable than ever. There's one place you can turn to to find clarity and control. Welcome to the Wealth Wisdom

Financial Podcast. Hey, I'm Brandon. And I'm Amanda. Join us as we dive deep in the world of personal and business finance to assist you in navigating through the chaos and building the financial future you deserve. We believe when conventional financial thinking doesn't get you where you want to go, you need wealth wisdom. So if you're ready to take control of your financial destiny. Tune into the Wealth Wisdom Financial Podcast because in a chaotic world,

your money shouldn't be. Subscribe now and never miss an episode.

OK. Welcome back to our special series celebrating small businesses all month long. In our first episode, we talked about the power of community and then last week we explored aligning your business with your calling. And today we're tackling one of the biggest challenges small business owners face, financial management. Dun, dun, dun. Yeah. I mean, who really, when you go into business, really wants to do that, right?They they want to sell their

widget, right?You remember those sobering statistics we shared?45% of businesses fail in the first five years, and more than half don't make it to year 10. But here's the thing. Many of these failures aren't due to the bad products or poor service. They've created great widgets. They're due to poor cash flow management. And today we're going to change that narrative. So here's our big idea.

Managing your business finances doesn't have to be complicated. In fact, the more complex your system is, the less likely you're gonna stick with it. Let me say that again. The more complex your system is, the less likely you are to stick with it. Yeah, I know for sure, because I don't like complex things.

In addition, no matter how simple the system is, if it doesn't fit who you are and how you think and how you live your life, then it'll do more harm than good, probably causing more stress, more anxiety rather than relieving it. And you know, we do not like stress and anxiety. Yeah, so this is where Profit

Burst comes in. It's a system that works with your natural tendencies, not against them. Mike Michalowicz does such a great job describing this that we have to read a few lines from his book. Of course, you know, Prophet First, we love it. So Amanda, read what is it?Chapter. So it's on page 30 of the book, and I'm going to read paragraph 2. I've got a little tab here because it's one of my favorite parts of

this book. So paragraph one introduces this idea of Spock versus Captain Kirk, which actually, before I read this, I have to tell a quick story. So when they restarted making the Star Trek movies back when was that early 2000s, mid 2000s, something like that. We went to see the first one in the theaters and legit within the 1st 5-10 minutes of the movie, we look at each other and we know what each other are thinking. Captain Kirk. And Spock. OK, he's Captain Kirk. I'm

Spock. If you're not seeing it on the the video you're listening on the podcast, I just pointed to Brandon for Captain Kirk and myself for Spock. Legit. This is who we are, how we operate as a couple, right? Yeah, all the things. So keep that in mind as you listen to this paragraph from Profit First, page 30, paragraph 2. And when people say I like budgeting. Yeah.

OK, so. If you were Spock, the relentlessly logical Vulcan on Star Trek, if you didn't know what that was, in addition to your pointy ears and awkwardly tight uniform, you would follow all the accounting instructions necessary to pinpoint your numbers. On a weekly basis, you would study your income statement, tie it into your balance sheet, and of course, do an analysis of your cash flow. Next, you'd run the critical ratios like the OCR, operating cash ratio, and tie all this into your

budget and projections. Then you would evaluate the associated KPIs, key performance indicators. You would do it all, and you would know exactly where your profits stand at any time. But you don't, do you?Not even close. I don't. In fact, I still can't read those documents well, and that's why I employ a couple of Spocks, my accountant and my bookkeeper. I am human, and so are

you. And I strongly suggest you are a Captain Kirk, and that is a good thing because you are the perfect person to lead your corporate ship to profits at warp speed. Now, this is a great book. Highly recommend getting this book. Mike McAlix also has an audio version of this book that he reads himself, and he does a really much better job reading his own book than I just did. But here's the thing, even though I have Captain Spock, he was captain for a while. Tendencies.

I still don't do those things. Because I am actually human after all, and not Vulcan. And I actually, you know, read that paragraph with emphasis on the right syllables. But seriously, that even I actually our administrative assistant, Ben, who you hear in his in these podcast episodes every single week, he says that I am the closest person to Spock he's ever met. Even I hate all like agree with. Mike and I am not like the Spock people that he had in that

paragraph as much as he describes. Maybe a little bit, but not all the way there. But then most business owners have the Captain Kirk tendencies and no Spock in their systems or none, none of that. And that's why people love Profit First or EOS or other systems because they're more, umNatural. Natural. Spock. Yeah. They don't ask Captain Kirk to

change who Captain Kirk is. Actually work with Captain Kirk's tendencies to make the financial management of a business work for the Captain Kirk's, whether they get a SPOC

or not. Yeah. So how Profit First fits in with natural tendencies, there is a thing called. Parkinson's Law. Yeah, so there's four big things that Profit First talks about, and the first one is Parkinson's Law. You might know this one, the task expands to the time allotted, or the expenses expand to the income

unless they're kept in check. Well, what Profit First does is that it helps us realize, like, we're going to do that and divides the different parts of our financial management into different envelopes, different buckets, different bank accounts. So that when we look at our bank accounts, when you know pull out your app and look at your accounts, you can see like, here's how much I have to spend on this rather than here's my big account. I don't know what it's all for,

right?So we're breaking it up into the different parts. That's how we use Parkinson's law to make sure Profit First is working for us rather than against us. Yeah. The next one is Primacy Effect. So what is that one about, Amanda or Spock? Primacy effect is what happens first gets done, what happens last gets forgotten. If you even like look at your to-do list, you do the top things on your to-do list, you never get to the bottom of your to-do

list. The same thing is gonna happen when you put your profit first, you are going to do your profit, but if your profits last, it's never gonna happen. I mean, I think about that like the time jar, right? So putting in the big things, big rocks first, and then the other things. And we wonder how these business owners who are amazing over time, you're like, how do they do it?It's because they put the big rocks in first or found the people that can help them or systems to, I don't

know, dominate in certain places. And so that's a huge thing instead of just running around in a hamster wheel doing everything. OK, so we got Parkinson's law and the primacy effect. Humans also have this thing where if it's out of sight, it's out of mind. And this is where we actually open up other bank accounts at a different bank that we don't look at. So legit, I still do this. Here's my phone. If you pulled up my phone, you would see the app for our main bank. It's actually a credit

union. And I can check my Profit First accounts anytime of day, anytime I think about it, how much do I have in this account or that account?but I don't put my other bank, my other credit union actually, on my phone because I want it out of sight, out of mind. I'm not thinking about it, I'm not touching it, and then I have that money there for what's important when it's needed. So that's how it works with that natural tendency. If I don't have access to it,

I'm not even gonna think about it. Yeah, and I think some of that for me as a more Captain Kirk, a lot of it is with these systems in place,I mean, out of sight is a some of it a lot. You know, I'll still go back and look at the PNLs and make sure, hey, we're not gonna, or balance sheets that we're not gonna go in the red or, or hit an asteroid or something. Um, right. But I wanna make you be able to use that, but also be able to, I don't know, be in my, my skill set. I

don't know. Yeah. Go save the world. Yeah. But if you give Brandon access to chocolate cookies, he's going to eat them. Yeah, right. Like, this is kind of if we give entrepreneurs, Captain Kirk's access to all the money, all of the time, they're going to spend it. This helps get it out of sight, out of mind. So that anyone realize that they're not spending all the money. It's great. And then that's a great, great thing. And I'm glad we don't have a lot of cookies. Exactly.

Don't buy it if you don't want to eat it. OK. And then routines. This is something. I am kind of have a love affair with. I used to say my first name should be consistency. Consistency, consistency, consistency. That is what builds trust. That is what helps us in our businesses, right. We say something, we're going to do it and we're going to do it consistently, right. We show up on time to meetings, all those kind of things that applied to our financial management,

building routines, building habits. So we're like, we know exactly what to do and when to do it and we don't have to think about it outside of those routines. is super, super effective because we're we're business owners. We're at least a little bit disciplined, right?We have habits, we want to. And so this helps build onto that part of who we want to be. Like Captain Kirk probably had a good workout schedule to look like- Yeah, we never saw it. At least

a younger Captain Kirk. Yeah, right, right So routines, super important. And part of what we like as humans, even if you don't think you like routines, you have routines. Right. And you have this, you wake up, you do the same kind of thing, then the same order every day, right?You put your pants on the same leg in first before the other one. All of us do that, even if we don't realize it or not. That can be applied to your financial management as well. And what

you habitually do, you become right. So we think about that from health. To family that again, the big rocks to be able to put those in place. If you're habitually eating McDonald's, that's going to affect all kinds of other stuff. So your financial habits will affect your physical habits and maybe even your spiritual habits. And that's kind of why I like the TIDE model, right?It's it's a habitual thing. Yeah. So what you're saying is if I want a profitable business, I need to have a

routine of profit. Yes. Otherwise, it's not a right. It's a, I don't know, hobby. Yeah. So cool. So that's how Profit First fits with your natural tendencies. You've been with us so far and you have never really heard about Profit First before. This is where we got to tell you that the at the core of it is this. Most traditional accounting systems tell you sales minus expenses equals profit. If you look at a P&L report, they have revenue minus expenses equals

profit at the bottom. What profit first does is it flips the script. You have revenue or sales minus profit equals expenses. This simple flip changes everything. Instead of treating profit as an afterthought, which a lot of businesses do. You make it a priority. It's like paying yourself first in personal finance, but for your business. I mean, we should want to do that and. When we are asking from like Wall Street, hey, am I getting a return on my investment?Our business is an

investment. Yeah. So then you set up multiple accounts for different purposes. You mean your income account, that's where all the money goes first. And then from there it flows to your profit account, which is your business owner's reward accounts. Then your owners pay account, that's your salary. And then your tax account, because Uncle Sam always gets his share, wants his share, wants his share. And then operating expense account, that's what's left over

to run the business. And then the magic, not really magic, but the magic happens when you allocate specific percentages to each account. So just like how you probably separate things. Hopefully you separate things like your grocery money from your money to save for your financial future or rent money. Yeah, yeahThis system allows you to avoid the temptation to dip into funds that should be preserved for other purposes.

When most people first implemented profit first in their business, it feels counterintuitive and it's sometimes hard, right?I mean, like putting. It's not that hard, especially in post pandemic world. Before you had to go to the bank and literally like sign documents, bring your IDs, like all the things. The last time I cause we moved to Ohio during the pandemic, we had to open up new credit union accounts. I was able to do it all

virtual. You don't even have to go anywhere to do this kind of stuff these days. So it's a lot easier now than when Mike first published the book and recommended doing that. You know, cause banks actually required people to come in. Now you can do it all virtually and most great awesome credit unions and stuff. Anyway, keep going. Yeah, so that's one thing that people say. I can't do it because it's too complicated, right?

But that's not true. And then people think, how could we take profit first when we are barely making ends meet?But that's exactly when we need it most. We start maybe small, just 1% for profit. It seems insignificant, but that's a tiny allocation that begins to shift your mindset, and business owners begin to look at expenses differently. Every dollar spent has to justify itself because they're no longer working with their full revenue. They had already taken out profit now within

six months, many. Increase their profit allocation to 5% and then 10%. More importantly, they stop having those anxiety inducing moments when tax time comes around or when unexpected expenses pop up. Like, I don't know, a flood or things like that in your business. Hopefully that doesn't happen to you, but you know, things happen if you're a business owner, you know, and so they have reserves just in case they have

a system. They have control. And I don't know about you, but most business owners I know are control freaks. So we want to have control, but we want to have a good system. Yeah. So if you're

not convinced yet, stay tuned. After the commercial, we're going to combat three of the biggest objections we hear about Profit First. Ready to take the next step towards securing your financial future?Whether you're planning for retirement, saving for your dream home, or you just want to make your money work harder for you, the team at Wealth Wisdom Financial are ready to assist you. And now it's easier than ever to see how we might give you a boost

on your financial journey. Schedule a 15 minute discovery call with one of us today. And let's discuss your questions and your financial goals together. Don't wait any longer. Your financial freedom awaits. Schedule your discovery call at www.wealthwisdomfp.com/call. Welcome back. So now I can hear some of you thinking, but my business doesn't make enough money to take profit first. Or my industry is different. This won't work for me. Or I need to reinvest

everything to grow my business. How many times have you heard that one before? Yeah, so we're going to take each one in turn. The first one. Here's the truth. If your business can't generate profit, it's not sustainable. Period. I'm sorry to tell you that. Say that again. The beauty of Profit First is that it forces you to face this reality early and make necessary adjustments before you end up in a much

worse place. It's way better to realize you need to do things like raise your prices or cut your expenses right now than to discover that when you're out of cash and seriously on the edge of something like bankruptcy or having to close the business and go back to, you know, a JOB or whatever it might be. Seriously, to face those issues now gives you a chance to correct them and move forward before you're out of the opportunity to correct them and move

forward. In all seriousness. Yeah. And I think when I talk to people again, I ask them, is this a business or a hobby?If it's a hobby, then it's, I guess, OK, but it's an expensive one. But be OK with it being a hobby. But if it's a business, treat it like 1. And yes, every industry is different, but the principle remains the same. Whether you're running a restaurant, a retail shop, or a consulting firm, you need

profit to survive and thrive. The percentages might vary, but the system works across all industries. Yeah, ones that have lots of overhead, ones that have no overhead. You can adjust the percentages, right?There's target allocations that Mike shares in the book, but if you like don't have a lot of expenses, good for you. Don't feel like you have to add them for it to work, okay?Yep. And now let's talk about people that believe they need to reinvest everything. Here's the

thing about that. If you're reinvesting everything and you're never paying yourself, maybe you don't need it now cause you still have that day job or whatever. And so you're growing this business with the idea that it can help you leap from that day job. It becomes really hard to shift from not paying yourself to paying yourself. And the further you get into your business, the harder that shift becomes. You think it's gonna be easier once you

have X number of sales, right?Or whatever it might be, but it gets more and more difficult. It's it's like you're moving the goal posts so you don't know when you've scored right over and over again and you you'll keep doing that. Think of

it in the other way. If you're using profit first, you might pay yourself money you don't need that you can use to build your personal wealth and then you can loan it back to the business or contribute it back to the business as it makes sense to help grow the business and then you.

Like are feeling that you're getting building good habits and you're also realizing like, yeah, this, I feel this every time I'm taking a risk to grow my business because that word reinvest has a very important part to it. Invest. You could lose everything. It is a risk. So we want you to have build that habit because if you start early with paying yourself, it's easier to keep that habit going, but also to be thinking carefully about the risk of the

reinvestment. Cuz that's what investing is, is you're putting money at risk, you could lose money. It also helps on the business valuation. If you're planning to exit or you wanna eventually sell the business, they wanna see a profitable business. And if they're coming in to that, they wanna make sure that they're gonna get paid. Yeah. They're not, no one's going in to, torun a charity. We want to make some money. Yeah. So the reason we're talking about all of this is that we want to break the

failure cycle in small businesses. And that starts or includes mastering your money. We've talked about, you know, you got to never do anything alone. We've talked about know that you know that you know that you're meant to do this, but you also have to master your numbers. But that does not mean you need to become a Spock-like accountant. All the nerds push up your your glasses, right?You don't have to be that right?No pocket protectors needed. Nothing like

that. It means implementing simple, practical systems that work with your Captain Kirk human nature, not against it. Yeah, I think that's a huge thing. And I probably should have worn not my contacts today, right?Yeah. I mean, remember, you know, this work is part of your calling. You're not alone in this journey. And now you have a system to help you manage the financial side of your business effectively. Okay. So now you might think, okay, you're gonna go buy a copy of this book. You're gonna

start to read it. You might take a whole year to implement. And you might get lost along the way and never actually implement. How could you adopt profit first in a way that totally transforms your business finances and helps you build personal wealth?And maybe in a community where you're not feeling like you're doing it all alone and where, I don't know, possibly you could go faster, implement easier, make sure that you stay on track to do this. How might people do that?I don't

know. But I do know, like, as we've been doing this for years, I'm like, man, we are really good. We are really, we're really smart at this. And oh, wait, not everybody has a Spock on their team. What what if we could create something that would help them have that in a dashboard or in a way of of connecting? How can we do that?And so that's where we decided that we are going to create it. If if we don't see it, we're going to create for us where you can have us or or specifically a Spock here.

We're excited to announce that our well, OK, so you just you pointed me out Spock. So I gotta jump in. The thing is like, like I said, I'm close to Spock, but I am not Spock. And in fact I don't think I'd want Spock handling my finances because it's gonna get overwhelming, too much data, all logic. I still need a little bit of that gut feeling to it as well. I wanna make sure that I'm not just doing what's logical, but what also fills fills my joy right and brings me joy so.

That's why we can't just pass things over to the nerds, right?Like, love the nerds. We want the nerds that, you know, the accountant that wants to just stare at a screen and move numbers around all day. Love them. But we want that human touch to it too, to make sure it's actually going to work with us. Yeah. So that's why abilities or things like that.

Yeah. So that's why we created this thing called the Profit Planning Network. We're actually currently enrolling people in that program for 2025. Where you can learn to implement these principles that we're talking about, connect with other entrepreneurs that are on the same journey, and master those numbers in a way that you can carry forward into your future, no matter how many other spocks come and go in your life. You can learn more about it at wealthwisdomfp.com/PPN

for Profit Planning Network. We're going to have a link in the description below where you can find out more and apply. And then we'll reach out to you to schedule a call to talk more about it if you and see if you for sure qualify. Yeah, I would say as we're we've built this, we know we are really good and we are stepping into that more. We're like, wow, we weWe have went through the stars and done some fun stuff, I guess.

So creating this profit planning network is a passion for us, but we also are only limiting it to a certain number of people. Yeah. So what we want you to do is apply. We are not taking everybody, but go to that link and apply and make your 2025 amazing as a business. Create the have the dashboards and the tools that are going to help. you dominate. And that's what we wanna do.

Yeah. One more thing. This one is for everybody and anybody, as long as you take action fast. Uh, in a couple weeks from when this episode goes live, we are bringing back Wealth Wisdom Week, where we're gonna be talking specifically to people who either are self-employed or want to be self-employed. Business owners, entrepreneurs, independent contractors, whatever kind of hat you fall under. This week it's actually a

Tuesday through Saturday, 5 days. Yes, I know that's not exactly a week, but close enough where we're going right where we're going to be digging into some really practical things that can set you up to have way more success in 2025. No matter what bubbles might burst or things might happen with our economy, we want you to be set up for success. So you will also find the link below here to check out Wealth Wisdom Week or W3 we call it sometimes. It's actually at wealthwisdomfp.com/seminar.

So if you're not sure if Profit Planning Network is right for you at this stage in your career, maybe you know, like you're it's still kind of a side hustle, something like that. Still come to Wealth Wisdom Week. We'd love to see you there. So wealth wealthwisdomfp.com/seminar.

The topics presented in this podcast are for general information only and not for the purpose of providing legal, accounting or investment advice. On such matters, please consult a professional who knows your specific situation or can learn it, like the Profit Planning Network. Well, and you totally skipped over the most important part. Thank you for joining us, everybody. Hit that subscribe button so you don't miss our next episode. And in true Star Trek fashion, live long and profit.