"Don't you just LOVE paying Taxes?"
Said NO One Ever!
Hey there Everyone!
Today is the last day of our 3 part series entitled,
If you missed that last two blog posts, here is the first one, "Hold Up! Don't Announce ANYTHING Yet!" and the second, "The Million Dollar Idea in your Studio Right Now!"
Today we're going to talk about this really "fun" topic called
Did your shoulders just hike up a bit? Your stomach clench?
It's tax season. And although this topic is not very popular in regular conversation, I feel it's part of business that needs to discussed. I've had friends go through the ringer on "just not knowing." And I hate to say ignorant... because honestly, when you're just starting out, you don't know, what you don't know.
For example, last year, a friend thought she had an "ok year." But then owed 20k in taxes! Thankfully she saved, but she saved only to give it all to Uncle Sam! YIKES!!
Like my papa says, "You only pay taxes when you're making money!"
And he's right! But that advice doesn't help me plan for it.
So before I go any further, let's get this out right now. I am NOT a CPA or tax advisor. I am a dance studio owner. However, what I am going to talk about is some real practical advice based on the book "Profit First" by Mike Michalowicz
The reason I want to make sure you all know about this book and his strategy for being profitable is because:
1. That you do NOT end up like me or my friend. (And apparently so many other business owners.) Most business owners live "check to check." According to Mike Michalowicz that's 83%! So there're a lot of us.
Are you part of the club? (It's ok... you're among friends. Did I mention it's 83% of us?)
2. The other reason, is that after you apply the first two steps outlined in this blog series, you are going to have some extra moola. And I want you to be able to hold it, smell it, feel it and roll around in it if you wish.
Stay with me.
Any Money Goes "Right Back into the Business."
You might think that is great! You're re-investing.
But here's what happened to me. (and apparently 83% of business owners.) I make more money. YAY! Then I would re-invest in the business! YAY!
But I wasn't taking out enough money out to
- 1. Make a profit,
- 2. Pay myself, or
- 3. Save properly for Taxes
I figured, "I'll do that later." Especially in the early years, because after all, it's not like there was a lot of "extra."
But then business started growing, and that "extra" didn't appear. And as much as I tried to follow my favorite Dave Ramsey principles, the temptation to put everything back in the business took over and I just wasn't able to "figure it out."
And then tax season rolled around. (and y'all, there is no coincidence that I'm writing about this now.)
And when the CPA tells you that you owe more taxes then you have in the bank... it's not just your shoulders that tighten up. Financial stress is real. It effects EVERYTHING! It bleeds into everything. Your sleep, your appetite, your confidence, your every thought.
It's an awful place to be.
Especially when 10 minutes before the appointment you thought you were rockin'.
So after that pivotal year, I vowed to change how I ran business financially.
But y'all this is a DAILY struggle. #TRUTH
When it comes to my business it is SO HARD for me to say, "is that a need or a want?"
Keep in mind, I'm a mama of five kiddos. I have no problem doing this with my kids. I can be very strict with our family finances. But my business? For some reason, that's different. And it shouldn't be, I know this, however it's the truth.
The struggle is real.
So, rather then wallow in it - Let's plan for it.
And this is where Mr. Michalowicz comes in.
Mike Michalowizc says that many of us do business that way. We make more, so we spend more in our business. But when we allocate our funds in the way he suggests, we will obviously will have less money to spend in our businesses, yet we will actually grow FASTER!
How you ask?
(I'm so glad you did.)
It's because we will be laser focused on what "investment" is best our business. We won't be tempted by each shiny object that comes our way because we have a concrete boundary around how much money we actually have to spend IN our business.
As I mentioned earlier, I'm a huge Dave Ramsey fan. And "Profit First" is very similar, I feel, to Dave Ramsey principles. And although I could apply Dave Ramsey principles to my personal/family finances, I had a hard time transitioning it to my business. (Sorry Dave. I still love you.)
Profit First was the answer I needed. Mike breaks down your money into four categories and he puts VALUE on YOU the business owner.
You're the person who took on the risk and started their dream to actually create the business. Mr. Michalowicz speaks so passionately about this truth. YOU are the greatest asset in your business. YOU are the idea maker, the shaker, the candle sick maker! And YOU need to be compensated FIRST.
I'm not sure about you, but I've heard of business owners paying their staff and monthly bills, and then there's nothing left for them. But when I heard the words "Pay Yourself First!" the first time, I stood up a bit straighter.
It was my favorite part of the book! (don't worry... there are a lot of favorite parts!)
If you get ANYTHING from this blog, I want you to get this!
YOU are valued. I don't care if it's $50 or $5000 that you can pay yourself each month, that fact that you can take that money and say, "This is my salary from my business that I created!" It will bode well for you mentally, emotionally and physically.
So this is how you do this!
The FOUR areas you are going to allocate funds:
- Owner Pay
Hope that helped. :)
I know. It didn't for me either. I needed more details.
Especially when the budget isn't very big. And this is where it comes down to percentages. These percentages will be different for everyone, but Mike suggest the goal is to get to these numbers:
AFTER Collecting your monthly income:
- 15% Profit
- 50% Owners Pay
- 15% Taxes
- 30% Expenses
So let's say your business brings in $5000 a month.
- $750 Proft
- $2500 Owners Pay
- $750 Taxes
- $1500 Expenses
So after going through that exercise you might realize that you are over spending. Or not saving enough, or not paying yourself enough. You might throw your hands up in the air and say, "F it!" (I did! and then I had a beer.)
But then I took a deep breath and start taking my baby steps. (Dave Ramsey peeps get it)
Maybe you only have 3% profit and 3% for owners pay for a few months until you get things tightened up. These percentage goals that Mike lays out, are not black and white. But they are a healthy business goal to aspire to.
Whew.... how you doing?
I could share the oodles of tips and tricks Mike gives in "Profit First," but I encourage you to grab your own copy of the book. Mike also has a fun podcast if your a podcast junkie like me.
Entrepreneurship can be tricky y'all.
We started our business because we love dance or whatever other field you're in. And then we find ourselves navigating the marketing, the sales, the administration, the financials and that whole "Teaching Dance thing" is actually the thing we do the least.
Many of us don't have a huge team of people to help us, so we are trying to do the best we can with what we have.
Thankfully, great resources are only a click away.
I truly hope this was helpful for you. No matter where you are in your business, whether it's an encouraging reminder, or a helpful goal to aspire to. I hope you can have your mindset go from:
"How am I going to pay my taxes..." to, "My taxes are paid, and I'm throwing a Profit Party!"
If you have comments or questions, hit reply or comment below. Our tribe is growing and our community is genuinely kind and encouraging.
You all make my world a better place.
Now Go Crush YOUR Day!
PS. If you'd like to chew on this further, head on over to my Coaching group over in Facebook land. I'm going to hop on live Friday at 10am CST to chat a little further about how I have applied these principles in my biz. Yup, the raw and real! And answer questions that come up!