Take profit FIRST and then pay everything else, or else you won’t have any profit left.
Profit is often defined as what’s left when you subtract your expenses from your revenue. Say you make $10,000 in a month, and then spend $9,000. You’d have $1,000 left, or a 10% profit margin.
In theory that works great, but in practice, that profit margin can often get spent because it’s there to spend.
Instead, it is important to take the profit out first for your business, just as it is important to pay yourself first in your personal finances by saving and investing.
Why? Because profit leads to growth. If you take the profit first and put it in a separate account where it can’t be spent, then it starts to accrue. You then have cash available to invest in the business or pay yourself dividends.
Yes, even small businesses can pay dividends to their owners!
It also means that being profitable is a priority for you and your business. Being profitable means you’re more resilient when things get bad, like the last year with the uncertainty of the pandemic. It means that you’ll be around to serve your clients in deeper ways over a longer period of time.
Start small. Take 1% of what you make as profit and put it aside. Then adjust every quarter and increase that percentage little by little. It adds up slowly, then less slowly, then a lot over time.
Choose to be profitable, then prioritize taking profit first.
Here’s the deal – you gotta pay taxes, and you gotta prepare for tax season so you’re not caught off guard.
If you have set your business up as an LLC, you’ll want to pay quarterly estimated taxes. The IRS likes their money, and they like it early.
Work with an accountant, even for just a single call, to ensure your business is set up correctly and you are estimating your taxes properly.
What’s worked for me is saving 15% of “real revenue”, meaning the revenue the business brings in after I pay contractors and the costs of producing the product I create.
Then I divide that estimated number by 4 and pay that amount when quarterly estimated taxes are due.
Even then, I always save 15% in a tax account and save it until tax time. Some years I end up with more in that account which makes for a nice bonus. Other years I owe more than I paid in estimated payments, and it’s nice to have that amount just sitting there.
The business also takes care of any personal taxes I may owe, which is one nice thing about having a separate entity rather than using your personal business account(s) to run your business.
Since taxes could end up being thousands (or tens of thousands) of dollars each year, it’s worth taking the time to prepare properly to pay them in full each year.
My brother and I have been gearing up for the launch of our new web app Benchmark, which goes live on March 30th.
Part of this “gearing up” was completing a Typeform Quiz that would help those who take it to quickly identify the current stage their business is in and what they could focus on to grow.
But I broke one of my rules.
Lead With Value
To lead with value means that you serve and contribute before any transaction occurs.That could be a monetary transaction, or even signing up for something with an email address. You’re still transacting – trading an email address for more information or access.
I hate that.
I don’t want to be promised that the value lies just beyond this $1 signup, or entering my email address. I want you to prove to me that you have the goods.
It’s like that movie, Hitch. You come 90, I come 10.
The order matters. YOU come 90, then I come 10.
Not the other way around.
Well, I messed this up.
In the Typeform, I made the email question required, even though the wording said it was optional.
Meaning that I put the order in reverse. I was promising value on the other side of that email transaction, but hadn’t done anything to actually provide any value up to that point.
The results speak for themselves:
12 people started the quiz. Zero got past question 2, “what is your email address”.
Once I spotted the error, I quickly fixed it and double checked that it was CLEAR that people didn’t have to enter their name or email in order to take the quiz.
People started taking the quiz and getting the feedback they needed from us, which was the whole point of adding a quiz to the website in the first place.
Now, I could have approached it differently and said, “well, we only had 12 people try it, so we just need to get more traffic and get that number up in the thousands”.
But the principle is the same – people don’t want to transact first. They want you to prove to them the value that you have created and show them the results before the transaction.
I highly recommend approaching your business in a value-first way. Don’t think about optimizing funnels, adding more people to the “top of funnel”, or any of that nonsense.
Treat people with respect. Show them the goods before you ask them to transact with you. Prove your value and give them some results up front, and the right people will be naturally pulled toward you and your business.
Also wanted to shout out two great people that I came in contact with this week. Randall Kanna has being doing amazing things in growing her Twitter account, and just launched CrowdFox, a new tool to help you manage your Twitter growth.
Stefan sent me an email about a new tool to help get control of your calendar back. Rather than having people schedule blocks of time on your calendar for meetings, they can now, using his tool Callworthy, just get in line, and you can decide when and who you want to call when it works for your schedule. Pretty brilliant.
You can use code DARENSMITH at checkout and get 10% off for the first year. It’s a pre-order, so if you’re hipster like me and getting in early on awesome new products, this one is a perfect opportunity to do just that.