This is an information heavy episode, so get ready to take some notes!

First, calculating how much your business should make based on your personal financial needs. Start with listing all your personal expenses like rent and utilities, then add 20%. That’s a starting point for the amount of money you need each month. To find your business revenue goal to support that, double that number. That’s your revenue goal in order to cover your owner pay, business expenses, and 20-30% saved for retirement and taxes. This is just a starting point, so adjust as needed.

Now, the big F-You to “profit first.” On paper, it sounds like a great idea, but in reality it’s much easier to mess up when you’re trying to do it yourself. Most businesses getting started aren’t making enough profit to support this system, so there are more transactions happening than necessary just moving money around. I recommend 1 checking account, 1 savings account, and 1 credit card for your business.

How can you make things simpler?  Can you set some bills on auto pay?  Does traditional budgeting work for you or not?

We cover ALL of this in the “Get Your Finance Sh*t Together” self-study course at confidentmoneypodcast.com!

Join our community at confidentmoneypodcast.com where we’ll share tips and resources, and you can suggest topics for future episodes.

Enter to win a free strategy session with me!  Leave a 5-star review and include your IG handle to enter. We draw the winner at the beginning of each month. 

FTC/Affiliate Disclaimer: By using some of these links, at no extra cost to you, I may earn a small commission or referral fee, which helps me continue to produce content like this, support my business, and my team.

DISCLAIMER: I am not a financial advisor and this is not financial advice. My podcast is for educational purposes and is my personal opinion only. To make the best financial decision for your situation, please do your own research and if needed, seek the advice of a fee-based, fiduciary.

Music credit: Neon Fairies by Wolves 

A Podcast Launch Bestie production

Welcome back.

We're going to talk today about accounting systems.

If you to profit first, the anti budget and how you can simplify your

finances and how to calculate what your business should make, based

on your personal financial needs.

So buckle up.

This is going to be a really, really information heavy episode.

So pause relisten, come back to it and take some notes because it's a lot.

Okay.

Number one, we're going to start with how to calculate what your

business should make based on what your personal financial needs are.

So it's a really long way of saying let's reverse engineer, your business income

and your business sales to support your life personally, because the majority

of us may love what we do for business.

I certainly do, but I got into business to make money.

And to support my livelihood and my lifestyle.

So I go into this in so much depth and there's even like a little calculator

worksheet for you and my get your financial shit together course.

But we're going to walk through this verbally.

And I want you to say, we're going to use an example.

You go in and you're going to add up all of your personal financial.

Personal again.

So like rent, mortgage utilities, car insurance, car payments, student

loans, credit card debt, whatever you have that are required, like

all those payments per month, add them up and then add 20% to that.

The reason that I recommend you add 20% to that is because.

Myself included.

We tend to chronically underestimate our actual expenses.

We all tend to be like major optimists when it comes to that.

And that's just not the case.

99% of the time.

So add that 20% and for a buffer that also accounts for my car broke down.

I had an unexpectedly high month.

I had family come visit and my food bill was significantly higher.

Or maybe you go buy clothes.

Cause most of us don't think the budget, those things in, but there

are absolutely things that you pay for maybe a couple of times a year

that you're not thinking about.

So we're going to use this example.

So your personal monthly finance expenses are 5,000.

We're going to add 20%.

It's another thousand dollars.

So your personal financial number is $6,000.

Okay.

So what does your business need to be making as a starting

point to support $6,000?

The answer to that in general is $12,000.

So you take your personal finances, you add 20% to that, and you double it.

Reason being.

Cause we're working backwards.

I recommend taking 50% of your business profit for your personal expenses for

your personal income for your owner's pay.

So what we just did was take what you needed personally and flip it.

Okay.

So we now have our number, right?

You need to be making $12,000 a month in your business and sales to have

on average, $6,000 to pay yourself.

This gives you a really good starting point.

Is this always.

No, this is not always going to be accurate.

Maybe you're an e-commerce business.

Maybe you're an agency or you have really high expenses or

you're taking less than 50%.

This is meant to be a starting point for you to be able to

forecast what you need to make.

So maybe you're looking to leave a day job.

Maybe you have a spouse or a partner that, you know, you're looking to

support while they go full time.

Maybe you're looking to, you know, move out of a situation

that you're in right now.

This lets you plan accordingly so that, you know, you're making

enough now by doubling that number that you need personal.

That gives you 50% for yourself.

It gives you approximately 25 to 30% for business expenses.

So about $3,000 a month, and it gives you the remainder of

that for taxes and retirement.

So by setting aside 20% on the low end.

I really recommend 25% wherever you can, especially if you're in a higher

income state, you then can get to the end of the year and you should have some

money left over in that tax account.

Now we're going to talk about the F-you to profit first.

I think that profit first is brilliant on the surface.

I think it is a damn nightmare and execution for the

majority of business owners.

So profit first essentially recommends, and we're gonna

start with the baby level.

Okay.

It recommends you have different accounts or different buckets,

basically for different things.

So you have an income, you have profit, you have operating

expenses, you have taxes.

I think you have owner's pay if I'm remembering correctly.

And the recommendation is that you open checking accounts for

each of these and you portion out your income and your expenses and

your money into those accounts.

So a certain percentage, you know, maybe 50% goes to you as owners

pay you, pay yourself out of there.

A certain percentage, like 1% goes to profit.

Great.

You pay yourself that.

I love the concept.

I think it is so over complicated, and I've seen it fail with a lot of

business owners that I've worked with because a lot of the business owners

that are interested in profit first are looking for control over their finances.

Right?

You want control, you want to know where your money's going.

You think of the system and you're like, oh my God, that's perfect.

Like, and it makes sense.

Right?

The reality is for a lot of those business owners that are looking for control,

they don't necessarily have the income to support the profit first breakdown.

What I mean by that is if you're not currently able to live on 50% or less of

your income from your business, then if you need to portion 50% into your owner's

pay account, but you actually need 60%, you need to adjust your percentages

or you need to increase your income.

So instead of putting money in all of these different accounts and

then having to move money, cause that's what I've seen happen.

So one, it can make your accounting more tedious and easier to mess up,

especially if you're doing it yourself, because you have all of these accounts.

Every time you move money into one of those accounts, a transaction has created.

So let's say that you do it maybe once a week and you split every

single one of your payments up according to these percentages, you

know how that going to every single one of those accounts, that's fine.

But then you're not actually set up

to be using profit first because maybe you're not making

enough in profit right now.

Maybe you're not making enough in sales right now to be doing this system.

You then end up having to move that money back into your account, then be able to

pay yourself or be able to pay bills.

So you've now duplicated those transactions when they didn't

need to occur in the first place.

So what I recommended instead is that we simplify it.

I recommend one checking account for your business, one savings

account for your business, and one credit card for your business.

And actually recommend something pretty similar on the personal

side plus retirement accounts.

So with those, all of your income comes into your checking account.

All of your expenses, humanly possible.

Go out on your credit card and you move a portion over for taxes and

retirement to your savings account.

This gives you more flexibility.

It decreases the number of transactions for accounting purposes, and it

helps if you do have a month where maybe cashflow is not great or

you're needing to move things around.

You're not getting a hit by fees and accounts.

I had a client once that had profit first set up with Wells Fargo,

Wells Fargo charges, $10 a month per business checking account that dips

below an average balance of $500.

She hit a cashflow crunch due to unforeseen circumstances, and she was

being hit with $50 of fees for those five accounts every single month,

because she had them all set up.

So.

Checking savings, credit card.

The reason I recommend a credit card is because you're able to a

earn points, be it comes with better fraud protection and see for any of

us that travel for business, there's additional travel perks as well that

normally come from most credit cards.

The best part of that is if you get a business credit card that is aligned with

whatever one of your personal credit cards is, you can generally transfer points

or miles or rewards that you earn with the business to yourself, personally.

With no tax issues coming up, which is really exciting.

So I definitely recommend doing that because then you can use those personally

for trips to redeem them on your end, you know, whatever really excites you.

So business savings, how much do you need to be saving?

This is probably one of the top five questions I get asked.

How much do I need to be saving for taxes for retirement, for emergencies.

So we're going to talk about just the business side of things.

In general, I recommend 20 to 30%.

I really like if you can be setting aside 30% of your business income

for taxes and retirement, that will almost always guarantee that you will

have leftover at the end of the year.

Assuming that you have leftover at the end of the year.

Number one, celebrate.

Yay.

Um, number two, I then like to take that and do two things.

Sometimes three things with it.

Number one, contribute more to retirement or contribute to

retirement if you haven't done.

So number two, upgrade any equipment that you had been putting off.

Number three, treat yourself.

I think it's so easy for a lot of us to get focused on, oh, it's a business.

Write up.

It's a business.

Write off, it's a business.

Write off.

I'm going to get these things for the business.

I'm going to reinvest in the business, but we don't take care of ourselves.

Take this time to take care of yourself and also be fiscally responsible.

So retirement contributions upgrading the equipment that truly needs to be upgraded.

And then treat yourself with your leftover tax.

30% is going to feel like a lot.

And actually in our next episode, we're going to talk about taxes, quarterly,

estimated taxes, annual taxes, payroll taxes, maybe even sales tax.

We'll.

We'll probably touch on that just a little bit, but I want you to understand

that you need to have a plan for the money that you need to be making.

So if you know, I need to be making this money.

Okay.

You know what?

You need to be making your business.

Now we're gonna use that same example from before.

You're going to take that $12,000 that you can do, making

your business and break it out.

If you're a photographer, how many weddings is that?

A month?

Is that four weddings at 3000 a pop?

Is it three weddings at 4,000 on average, is it two weddings at

4,000 and a couple of branding sessions or engagement session?

There are so many different ways that this can work out, but it then

gives you a plan so that you can work backwards and plan your marketing

and your outreach accordingly.

Because you know, you're not just running in the dark here

trying to get all the money.

You can make all the sales you can and making more than that.

$12,000 is absolutely fine.

But again, you know that that's your baseline for how to be pricing yourself.

And you have to take into consideration that if you're doing something

hourly, maybe you're a VA and maybe you are pricing your services hourly.

Again, we go into this in my course, get your financial shit together.

Self study course.

I have a whole thing for how to price yourself hourly based

on what you're wanting to make.

You don't base your hourly on full-time hours.

You are not an employee.

You're a business owner.

All of your hours are not billable.

So what I normally recommend is about a 20 hour billable week

15, ideally, but 20 normally when you're getting, getting going.

So what that would look like, let's say we're going to use

that $6,000 example again.

Okay.

And I'm actually going to pull up the calculator while we're here.

You need $6,000 per month.

You need 12,000 in your business.

What does $12,000.

Divided by four weeks.

And I'm going to tell you why we're using four weeks in a month, even though there's

more than four weeks divided by 20.

So that comes out to $150 an hour.

If you're working 20 hour billable weeks.

So for $12,000 a month, And business revenue.

If you're an hourly, you know, VA something along those lines,

you need to be aiming for packages that are $150 an hour.

If this feels really high, I encourage you to either work with a coach to

get additional certifications, to review your packages, to offer a

higher value service where needed.

Now, the reason that I recommend 20 hours.

Is because 40 hours of billable work per week is a lot.

That's not including time that you spend invoicing your clients time,

that you spend marketing, time that you spend, you know, potentially onboarding

clients, doing your social media, doing your admin, communicating with a team.

There are all of these things that go on in the background.

Writing blogs, writing social content, doing tick talks, doing

reels, all of this takes time.

And you you're, you're not able to build these to clients unless you're doing

social media management in which case.

Sweet.

Um, so you need to think about that.

You could probably go as high as 30 hours, especially when you're getting started.

Just be really careful because it's super easy to burn out.

And just for this example, 30 hours week, When you need to make $12,000,

right before room divided by 30, puts you at a hundred dollars an hour, and

also keep in mind in this hourly rate.

This is your sick time.

This is your PTO.

This is your health insurance.

This is your retirement.

This is everything.

If you were working with a client as a contractor or as a business owner,

you are not being paid as an employee.

Your hourly rate is going to be high.

So you can expect easily if you were making 20 or $30 as an employee in

a role to double, if not triple that rate as a contractor, because you have

additional expenses, including income taxes that you're now responsible

for paying that the employer is not responsible for playing or the, you

know, client that you're contracting with now is not responsible for paying.

So.

These numbers may feel high, but you really need to take into consideration

what all is factored in there.

And that takes us to why I recommend basing it off of a four week month.

So a four week month leaves us with four weeks a year unaccounted for

because most months are like 4.3 weeks.

So by working on 28 day or four week month, this builds in four weeks per

year of paid time off, essentially.

So we're not counting those weeks in here.

That's sick time.

That's personal time.

That's holidays.

That's non-billable days that are already built into your pricing.

So again, these numbers may feel high, but you need to be realistic when

you're looking to scale your business.

And I work with a lot of wedding photographers, videographers

and photographers in general.

Keep this in mind when you're looking at billable hours.

And for any of you looking to book a wedding vendor, remember that when they're

there for your day for your session, that is a very small part of the overall.

Client experience that they're curating.

So yes, you go there, you capture the photographs you capture, the moment

you then go back, you backup all of your photos, which can take some time.

You then most times do sneak peaks or previews you then cull, edit, and deliver.

And in some cases, design albums and all of that.

The same amount of time, if not more, that it took for the actual events.

So keep in mind that when you have someone and again, if you're a

photographer, your billable hours are what it takes you, and you can do this

when you're building your packages.

If you're doing an eight hour.

And that eight hour package includes an additional eight hours of work.

Your billable is actually 16 hours.

So you need to take into consideration in this example you would want to do

16 hours, times that $150 that we were looking at, which would be $2,400.

$2,400 in this case would be your middle.

Starting package for eight hours, that doesn't include engagement sessions.

That doesn't include albums.

That doesn't include anything else.

So, I understand that you're putting, like, those are your working

hours to make this package happen.

And you need to make sure for anyone that works events like this, that have

additional follow-up, or if you do maybe a VIP intensive day with someone, maybe

you're a coach or a consultant, and you're doing this VAP intensive day.

Is there pre-work that you're helping them with?

Is there additional support that's coming in after the fact.

Include those hours.

And again, use this as a starting point.

You are going to have to assess what the value is that you bring, what

the market value is that you provide.

And the specific niche that you're looking to be in.

I have a client that's a film photographer that charges six,

seven, 8,000 plus for weddings.

And I have some clients that charge between two and 3000 for one.

I'm not saying that one of them is more talented than the other.

One of them works in a different niche than the other one of them, you

know, is doing film versus digital.

Like there's a big difference in the markets and in the

marketing that they're doing.

So picking what you're wanting to do, picking the type of customer

you're wanting to work with.

And most importantly, making sure that you're pricing.

Is aligned with a what supports your lifestyle and what

your business needs to make.

And B that you're not under pricing your services because the majority of

us absolutely under price our services.

Okay.

This is gonna be a little bit longer episode than normal, but I want to

talk about systems automation, the anti budget, and how we can simplify.

So this leads into what we were talking about beforehand.

When you're moving money over to your tax account, to your personal

account, I want you to think about how you can make things simpler.

Where can you build up a buffer in your account?

Maybe you pretend like your checking account, maybe $0 for

your business is actually $2,000.

And you don't dip below that in there.

You've set a buffer in there, but that also lets you know, you can

set up some bills on auto pay.

Maybe you have, you know, a contractor that you pay regularly.

What can you do so that you're having to pay bills and do less admin work?

What accounting software can you set up so that you are able to do a

little bit of work on the front end?

Make sure your chart of accounts, which is your category.

It's set up appropriately, you know, how to use them and you're able to set

up automations and rules so that you're not having to go through at the end of

the year, which been there, done that.

I'm sure you probably have to.

Um, but instead at the end of the year, you're able to pull your

reports from your accounting software and like be ready for tax time.

It's seriously magical.

So where can you be doing things to set yourself up for success?

Like accounting software, like automating your money, like doing

an anti budget and an anti budget is exactly what it sounds like.

You essentially set up all of your bills to pay.

And then you are left at the end of the month or the end of the pay period or

whatever with what your fun money is instead of spending and setting money

aside for each of these categories, you basically can pay that money

out, automate your bills, and then Yolo with the rest of what's there.

And to me, at least it feels a lot more expansive and much less restricted.

Then traditional budgeting, which my ADHD ass never, ever could stick with

for more than like a month or two.

And then I felt like a failure and then there was a shame spiral, and

then I went into it all over again.

So for me, automating my budgets, automating my money, automating my

business and my finances, wherever I can has made such a big difference

a in my earning capacity, but B in the accuracy of my numbers and

the reduction in stress com tax.

And I think so many people struggle with this because we get all of this

messaging, you know, you're, you're lazy, or why can't you do this?

Why can't you make it work?

Like budgets are what you need to do in order to have money.

You need the budget to be rich.

You need the budget to pay off debt.

You can't have debt.

How dare you.

Um, debt is bad and it's just this constant spiral of like

shame talk and shit that goes on.

And I think that for so many of us, this is hard because you're getting these

mixed messages and you're being told that you should be able to do this.

And other people can do this.

And they paid off 36,000 or 50,000 or 80,000 in student loan debt in two years.

Here's how you can do it by just budgeting.

It's okay.

If that doesn't work for you, there are other ways, especially if you're

a business owner, especially if your earning potential is more untapped.

You are able to set up these automations so that your money can work for

you instead of you having to cram a square peg into a round hole and make

yourself fit in a budget or work in a budget when it's not working for you.

Cover all of this in my course, get your financial together self study course.

The calculators that I mentioned in here are there, the pricing tools are in there,

both for service-based and for product based or e-commerce businesses, because

those ratios look a little bit different.

And how does that appear accounting software?

How to do your categories?

Well, what the taxable categories are, how to do the anti-budget,

how to do this breakdown that I explained with the retirement, the

checking, the savings, it's all there.

So if you want more and you want to give this a try, because regular

budgeting hasn't worked for you.

You're tired of getting to the end of the year and having everything.

Knowing that it's looming at the end of the year when you get there is exhausting.

So instead of having that happen, make this the year that you kick

the year off and you don't deal with that ever again, you never have to be