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Ep 220 Transcript

00:02

Alright ladies, welcome to this episode of The joyful scaling podcast. I am here with Danielle Parker. She is a host of another podcast, you got to listen to it. It’s called fundamental entrepreneur. She’s one of the founders of percentage. It’s a business consulting and accounting firm focused on helping entrepreneurs maximize profits from their business, she is profit for certified. And, ladies, this concept of profit is huge. Like I can’t overemphasize it enough. Just last week, I was on a scaling strategy session with a woman whose business generated over 300,000 and she barely took home 50,000 So Danielle, and I both want you to take more money home. That’s what this episode is all about. Danielle has over 20 years experience in corporate accounting working for Fortune 500 companies as well as privately owned businesses. She understand what it takes to build, grow and scale a business and the systems necessary to make that happen with greater ease. Now, before I say hello to Danielle, I have to tell you, as I was researching her, this is amazing. Okay, she is an adventurer. She just does crazy things like zip lining and skydiving and hang gliding. So Wow. Danielle, welcome to the show.

 

01:20

Thank you, Judy is so good to be

 

01:23

here. Love it. You know, we’re like minded so many ways, but I’m a big old scaredy cat. So when I saw that, I was like, wow, that’s super impressive. Yeah, I

 

01:34

figure you know, you only live once, right? And people look at me like what you like to do, right? Like, but I yeah, my husband, I love to do like, events, experiences for gifts. And but yeah, he actually, he took me skydiving on. Let’s see my youngest was a year old. Like how’s the insurance today?

 

02:00

Ever. That’s like crazy adventurous that’s like doesn’t even begin to approach that kind of activity. So I’m very impressed. All right, so we’re talking about profit. So I really want to start with the basics here. So I would love for you to explain what revenue is versus profit.

 

02:16

I love that. Yes, absolutely. Duty. Okay. So like, every business owner understands sells income or revenue, right? It’s the money that you bring into the business from the sale of a service or a product, what did it whatever it is you’re offering, right? That is your top line, income. Now the profit is really the important part. And that is what you as the business owner, get to keep at the end of the day. And what I like to say is, let’s not make profit, the end result, let’s make profit, the strategic decision point, before we even start, how much are we going to take home in profit?

 

02:58

Okay, wow, you just send the magic word for me strategy. Okay, so and I am just a little bit familiar with the profit first model. So I’m very interested to learn more, but what you said, and I want to highlight that we’re going to make profit, a strategic decision point. Now that we know that revenue is all the money coming in, and profit is what we take home. Usually, we’re thinking about, here’s the revenue, now I pay my expenses, and whatever happens to be left is my profit. So this kind of flips that on its head, so let’s

 

03:30

totally Yes, flips it upside down. And really, it’s kind of like, you know, this, okay, can I make it? Did I make it I make a profit? At the end of the day? We’re all doing that, right? Is our county going to tell us that we made a profit? And how much am I going to pay in taxes of that? And so, yeah, what we like to say is, before we ever start, or at any point in time, like, we’d like to say, no, no, there’s no better time to start than today. At any point in time, we decide, okay, if we’re not making a profit today, how much of a profit ideally, do we want to have in our business? And if we’re not there today, you know, what are the steps we’re going to take to get there eventually, because we don’t want you to go from nothing to this, you know, whatever the ideal is, because like you said, there’s all those expenses and we’ve got to manage and navigate that, right. But at the end of the day, if you want your profit of your business to be 10% 15%, we’re going to decide that today and on your very next deposit. We’re going to make sure that happens. That’s the beauty of the system.

 

04:31

Okay, so okay, this is so good. So we decide and I love that you know me, Danielle, let’s decide with everything that’s decide intentionally what we’re thinking, let’s decide intentionally what we’re doing today instead of just willy nilly So, but but for those of us like myself, who aren’t really numbers, people, how do we know if we should shoot for a 10% profit or a 30% profit?

 

04:57

Well, here’s what I like to say, Judy, if you do Know your numbers, and you’re not sure where you should be. Let’s just start with one baby step. And let’s start with 1%. Because 1% is better than 0%, right? So I always like to say, you know, if you don’t know your numbers, you’re not sure where you want to go, let’s just start tomorrow with 1%. And then we can figure out over the long term where you need to be, but we do have some industry standards give us an idea of where you should be as a business, strategically, that’s over, you know, taking 1000s of successful companies from the fortune 500, you know, with Fortune 1000, and seeing how they do it, and how they’re successful. And using those averages to really kind of earmark where you’re at looking at your industry, there’s a lot of other factors, but as a place to start, I say 1% Or if you are making a profit today, increase it 1%

 

05:54

Okay, okay, so, so here’s the I, I love to keep it lean. And so that’s why I love the high ticket, revenue model, so that, you know, my team is lean, and so that my expenses are lean. So, you know, I shoot for, you know, 40% and more. So, I guess I guess I’m thinking to me, 1% surprised me, because that seems so little, but I see what you’re saying like baby steps to get there. So help us understand what that means. As a practical matter going forward, once you implement this decision, that hey, I’m gonna decide that I’m taking 1% as a profit.

 

06:37

So what that means I’m duty, let’s, let’s take it, let’s take it back to really simple. Okay, you know, in the older generations coming out of the Great Depression, what did our grandmas do? They use an envelope system, right? They got cash in their hand, and they just divided it up into their envelopes, right? So we’re gonna,

 

06:59

I’m sorry, do you know why I’m laughing? Because that’s exactly what my mom did. Right? He would have envelopes in her purse. And with daddy’s check. You know, Dad just passed a check to her. She’d go to the bank, and she had all these different envelopes. And as a little girl, I remember saying, Mommy, what’s that envelope for? Mommy? What’s that envelope for us? Because this is for groceries. This is for vacation. This is for I mean, so yeah, that’s totally I get it.

 

07:25

And we see oh, yeah, a lot of that generation did that. And hopefully, you know, they passed it on, or at least we seen it. But that’s the idea, right? We have an envelope for profit. That means we have a separate bank account from our regular business checking account, and we are stashing money away. And so you know, if we’re starting with 1%, or we’re increasing by 1%, we’re actually stowing that money away. For another day, we’re just gonna accumulate it and keep it and know that it’s ours at the end of the day,

 

07:56

okay. Okay. Okay, so how does that how does that work in the way of, it’s a separate account, and as a lawyer, now my brain is thinking, okay, as an LLC, I’ve got to keep my business money separate from my personal but this is kind of sort of a secondary business account. Really, kind of sorta, or,

 

08:15

yeah, so what yeah, basically what our system uses is business checking accounts or savings accounts to be able to create those envelopes, and whatever that looks like for you in your business. And today, we’re just talking about, you know, the simple profit. That’s just one envelope in our system. But yeah, so it would be a business checking account under your LLC, that is separate from your operating account, if you will.

 

08:41

Gotcha. Gotcha. Okay, so So how does that relate then? Because I kind of I’m thinking other different accounts that we should also think about our different envelopes besides the profit because I’m thinking, you know, I kind of in my mind, well, my, my bookkeeper and accountant in my mind, say, Okay, we’re gonna, in our mind, set aside X percent for taxes. So that be remaining in the counter, that should be its own account as

 

09:08

well. We say it should be in its own account. Because number one, you know, tax money isn’t our money. When you think about sales tax, and some of those b&o taxes and that income taxes, we want to make sure that we’re not using that money along the way. And then we get to tax day and we’re like, oh, shoot, yeah, I spent it on that. And I should have kept it in the checking account. So we say no, let’s move it off into a no temptation account, right? It’s not it’s not tempting to use it. So. So let me do it. Let me run through. There are five basic accounts that we say that any business should have. And number one would be your income account. That’s the money coming into your business. It has its own account, and then we empty that account, if you will, into your other four accounts, which is your operating expenses, which is the most the major have expenses in your business as a tax expense. So we’re going to earmark all those taxes that we need to pay. There’s a profit account. And there’s an owner’s pay account, because at the end of the day, you want to make sure that you as the owner are getting paid for what you’re worth and not taking your paycheck last.

 

10:19

Okay. Okay, that makes sense. So I kinda was thinking that the profit was the owners. Okay, so help help me in our listeners understand that distinction. But that’s a great question. Yes.

 

10:30

So the the basic distinction here is duty is that the owners pay is the pay that is goes towards the owners lifestyle, it maintains your lifestyle, the profit is the reward, or the bonus, if you will, as the business owner for all the hard work you’re putting into growing the business or maintaining the business.

 

10:54

Okay, excellent. So how I look at the owners pay is kind of like that’s your salary. That’s that’s salary as the CEO, and then the profit is, you’re intentionally deciding this is my bonus that I’m really putting away for myself this year. Yes. Yes. That’s a very great way to look at it. Okay. Okay. Excellent. And then taxes, you know, operating expenses, so, so do you set it up with your clients, then that you would basically like with the income account, from which you’re taking all these other monies, does that ultimately get taken to zero at the end of a month or a week? Or helped me understand what happens there?

 

11:34

Yes, exactly. So all the money will flow into that account. And you can decide to keep whatever floor is on that account, just as kind of if you know that there’s some bank fees or whatever coming out of there. But the idea is that that becomes a zero balance account on decided intervals that you would empty it. Now, however, often you empty, it is going to depend on your business, and the needs of your business. And the most common is on the 10th and the 25th of each month, and that correlates with kind of your bill pace. There’s some like restaurants would do it probably weekly. You know, you could do it monthly, if you are a service based business, and you’re only paying yourself and you don’t have other employees. So it really depends on your business on what interval that is. But the idea is whatever interval you choose, that income account goes to zero and isn’t allocated to your other accounts for you.

 

12:29

Okay, this is so good. I actually understand everything you’re saying, which is, which is a beautiful thing. Okay. So thank you for being explaining it so well. So when you work with clients, let’s say you’re working with someone who never had this setup before. And they’re thinking I want to do more than 1%, what’s my industry standard? Like? Like, would you look at the past? And let’s say that they want, they were deciding I want a 30%? I’m just saying throwing out numbers, I want a 30% profit. And based upon an analysis of the past, would you look to say, Okay, that’s great. But wow, this is not realistic, or how do you approach that kind of thing.

 

13:10

So I love that you said the analysis of past because really, what we would do duty is go in and do an entire financial health analysis of the business, we like to kind of walk our clients through, here’s where you’re at today, here’s where you’ve been. And if this is where you want to go, what would a road map look like to get you there, and what would be reasonable with your particular business and industry. So, you know, I kind of said, you know, we don’t like to take a client from, you know, base here I am today to, you know, 30 miles down the road all at once. So we would, you know, do strategic stepping stones, to get them to where they’re looking to be. And then also, you know, in our analysis we give them, one of the things we do is a deep dive into their expenses. And oftentimes, we can cut costs by 10%, overnight, just by doing that deep dive and understanding and I know you do this a lot with your clients as well duty, just understanding where you’re spending money that either you don’t know where you’re spending it, or you just you’ve forgotten about it, or it’s not needed in longer. So a lot of times we can cut 10% right there and really kind of help speed up that process of getting to the target. But in the end, it’s it’s a strategic analysis of the business to say, okay, where have you been? Where are you today? And where do you want to be and let’s design a plan to get you there. Hmm,

 

14:35

that is so good. I mean, there’s so many different scenarios in my mind, like, you know, like a lot of my clients once they start working with me, especially inside the mastermind, they tweak their offers, and they, you know, increase their rates. So that potentially, depending on you know, what that analysis looks like, they may be having a lot more revenue coming in and actually working less which is think is a very beautiful thing. So if you had a client like that come to you, would you kind of say, Okay, keep going, like have high goals, but let’s just, you know, because the reason I’m saying this is I tend to be very aggressive. I was gonna say assertive, but I’ll say aggressive, right? And I’m very optimistic. Because with Christ, as you know, you know, nothing’s impossible. But I think accountants tend to be more defensive and more conservative. So I would love to know, kind of I know, it’s this crazy kind of scenario. But how would you handle that someone that says, you know, what, I only had 10% profit. But now that I’m changing this revenue model, I want to go for 30%.

 

15:42

I love that. Okay, so here is where I’m going to differ from most accountants a little bit duty. Because you know, you’re right, most accountants would be really conservative only look at the costs and say, Okay, what can we, you know, control today, which is all is very good, but it’s not the whole picture. So we like to look holistically at the business. And like you indicated, there are two profit levers, right? We have revenue or income, and we have costs. And so we like to see how can we expand both of those, you know, you the scenario you gave is kind of one of those instant revenue increases, right. The other side of that is, you know, leads and sells, and that’s usually a longer term lifecycle, right to do to increase that. So, you know, two things that you could do today to increase your profit is, like you said, increase your prices and really analyze your offering. And then do that deep dive into your expenses and decrease your costs. Let me give you a quick scenario real quick, Judy. So let’s assume you know, a business has $300,000 in revenue. And let’s say they increase their revenue by 10%. And they decrease their costs by 10%. Just like you said, you can increase your prices strategically and get your revenue increase. And we can do a deep dive into your expenses. And usually, we can get that 10% Decrease in expenses as well. So what does that do to your business? Let’s say you have a 20% net profits, percentage, so you’re taking home at the end of the year $60,000 in profits, okay? If we increase our revenue by 10%, we’re going to increase our net profit by $30,000. Okay, and if we decrease our expenses by 10%, we’re gonna also increase our net profit by $30,000. So at the end of the day, we have just doubled our profit with using those two levers. And it’s just that compound interest is amazing, right? So we like to look at both approaches and see how we can maximize profit using both.

 

17:50

I don’t see this is where numbers actually get fun. I mean, I know my I know, my numbers. I know, I’m always surprised with clients, and I’m like, Okay, what is your profit margin? A lot of times they look at me, and these are ladies that are really doing well. You know, they’re they’re not like newbies, but But I get it. I don’t mean to shame anybody listening, ladies, because look, I’m more of a people person than a numbers person. But just like my tech, I know enough to be dangerous. That’s what I always say. Okay, I love that that’s a real life scenario that we can really picture and dive into. So how, what does this mean about avoid having the tax tail? Wag the Dog helped me understand, you wrote that down, and it’s something we want to talk about, I want to make sure we we cover that.

 

18:33

I love that. It’s It’s an intriguing concept, right? Because we all know the dog will wags the tail, right. And what we like to say is a lot of businesses operate their financial decisions by letting the tail wag the dog when it comes to tax implications. So you know, it makes me cringe when I hear it my partner, you know, it’s really fun to listen to my partner go off on this because he is the kind of the tax arm of our business. But when when a business owner comes and says, Oh, well, my accountant says, I need to go out and buy a new car, or I need to go on vacation or whatever, there is the end of the year, so I don’t have to pay taxes to lower my taxes. Okay, well, at the end of the day, what happens is when you make decisions based on the tax that you’re paying, you lose out on the opportunity of keeping that profit in your business and for you. So let me give you an example. Let’s say you want to go out if you’re going to buy a new car for the business, you’re good on, you know, maybe you have a service business that you’re doing H back installations and you use vehicles as a business expense. But you’re currently fully staffed. You just have a couple year old vehicles, they’re all working well so there’s really no need to go out and buy a new vehicle. Let’s say you go out and you spend 50 $50,000 on a new vehicle, you pay that in cash. So you take that away from your profit, that’s $50,000 you take away from your cash profit that year. And that is only going to save you 30% of that $50,000 on your taxes, potentially, right? So you’ve just spent $50,000 to save 30% of that in cash, well, you just gave up 70% of that $50,000 in cash, from your profit on something that your business doesn’t need. So the idea is that you’re making strategic decisions that will move your business forward, either your business needs it to produce provide the service or product or or move your business forward through efficiencies or offerings or whatever it is, if it’s benefiting your business, it’s a good purchase. If it’s only saving you taxes. It’s not a good purchase,

 

20:55

huh? Wow, wait, okay, so it’s 30% of 50,000 $15,000?

 

21:02

That sounds right. Yeah, I’m not good at numbers in my head. But okay, so the sound right.

 

21:07

Wow, that doesn’t sound. I mean, again, I’m not really a numbers person. But that doesn’t sound good. But I have heard that, where, you know, someone will say, you know, go do this and go spend that, and it’s kind of crazy. And, and, again, as a lawyer, you can’t take the lawyer out of the girl, I’m thinking, wouldn’t the IRS otherwise maybe they can’t track this. I’m thinking what if the IRS say, wait a minute, they didn’t need that. And then they would almost say that doesn’t, you know, you just did that to avoid taxes. Sorry, we’re gonna kind of Nix that as a valid, you know, exemption?

 

21:42

Well, it’s the end of the day, the tax that you pay is a formula, there are certain things that you can do to you know, minimize those taxes, but at the end of the day, it’s still a formula. And as long as it’s a qualified expense, the IRS isn’t necessarily going to try and decide if your business needed it. But if it qualifies, only a portion of that is going to go reduce your taxes, because at the end of the day, it’s just a formula. So yeah, so spending that $50,000 in cash saves you $15,000 in taxes, but you spent $35,000 in profit to get that $15,000.

 

22:22

Yeah, wow, this is just so interesting to me. And it just seems that okay, this is a crazy question. But but I’m going to ask it because it popped into my brain. If a business does not approach its dollars from a profit purse first perspective, what is the other model? Like? What is that called? Is that just a traditional way of doing things where whatever’s left is left, and it’s just kind of left to chance is that that’s,

 

22:51

that’s exactly what it is, right? It’s traditional accounting, where we say revenue minus expenses equals profit, and your accountant will tell you that sometime after the first of the year, on how you did for the previous year, right, and you’re just crossing your fingers, it’s a positive number. And you’re just left to chance on whatever it is hoping that you make good wise decisions on what you spent your money on in the prior year. Right?

 

23:15

This is so good. This is so good. So I imagine these topics and more or what’s covered on your podcast?

 

23:21

Yes, yes, we cover all these topics in anything related to you know, financials of a small business, as well as just entrepreneurship in general. So we have an entire segment where we call it this is their story. And we love to, you know, have the experience the journey of other entrepreneurs, because at the end of the day, we know entrepreneurship is hard. And sometimes is a very lonely road, especially for online entrepreneurs. So just being able to hear other people’s stories, you know, the hurdles they’ve gone through, you know, the successes that they’ve had, you know, things that they’ve learned along the way, the psycho favorite segment in our podcasts, we just love being able to share those stories of other people.

 

24:04

Yeah, I love stories because it’s easy to remember, it’s a great connection point. Really, really good. So the fundamental entrepreneur, ladies, if you have not yet listened, you’ve got to listen. And Danielle has a special additional opportunity for all of our listeners. Do you want to talk about that?

 

24:23

Absolutely. Yes, you know, if any of your listeners are kind of what you said, don’t know their numbers, or don’t understand, you know, the basic accounting concepts in want to understand where they’re at in their business. See that current state. You know, I’d love to get on a strategy call with any of your listeners, help them you know, gain clarity. Our whole goal is to gain financial clarity for our business owners so that they can have confidence and moving forward in their business. And so we love to have those discussions and help entrepreneurs know how know how they themselves can use their own business. Hey viewers to be able to really impact their profit in their business and, and give them the confidence and the tools to do that. So, would love to jump on a strategy call, you can go to our website at pro senate.com. And I’m sure Judy will have that link in the bio, but book a call with us. And we’d love to just sit and chat and see, you know what, what we can do to help you?

 

25:24

Yes, and what you just said, this is about strategy. This is about gaining clarity. And so really, wherever you are in your business, this is invaluable, because even if you’re on the earlier stages of business, ladies, as Danielle suggested earlier, it’s never too soon to get on the right track. And you may decide Profit First is for you or not. But you know, it’s worth the investment of time to spend it with Danielle. So thank you so much. Now, where would be the best place for ladies if they have questions? Besides, you know, jumping on the strategy session? Where is a good place to find you online?

 

26:02

You can find us on Instagram and Facebook under percent IQ. I think Facebook still hasn’t changed our website or our page name. So I think we’re still under a cent one on one there. But Danielle Parker, I’m there individually, you can reach out to me DM me, message me. And that will be the best way to contact us.

 

26:19

Okay, beautiful. Last question. This is called the joyful scaling podcast. So tell us, what do you find most joyful about your business? Oh,

 

26:28

you know, I, I only had two people one, one or two. Okay, now I love you know, when I first started this business, the whole idea in the journey was that I could design my own time that I had control over what I do now is with entrepreneurs, we know that that can get crazy, right? And we can get overwhelmed and do all the things and you know that but at the end of the day, I still have control over what I’m doing. And I get to design what that looks like. So for me, that is the best part.

 

27:01

Love it the time freedom and the financial freedom. And that’s exactly why women go into business so that we don’t have to answer to somebody else and say me, I please take a vacation day, May I please spend time and watch my child do their you know gymnastics or whatever it may be. That’s awesome. Well, Danielle, thank you so much for sharing your wisdom and expertise. Lots of great nuggets of information here inside. So thank you.

 

27:25

Thank you, Judy. It was a pleasure to be here. Thank you for having me.

 

27:29

Awesome. Well, ladies, listen, we want to hear from you. Your feedback means the world so please take the time, leave a rating and review. Your reviews help us to get higher in the ranks so that more ladies find this Christian focused podcast about business. So I look forward to reading your feedback and seeing you next time. Take good care.

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