The Path to Payday and Profitability

We start by cleaning up the accounts, paying you, and making strides towards profitability.

To do this, you’ll need new skills and practices to implement Today, Next Week, and on an Ongoing basis. They’re all laid out below for you to refer back to when it’s time, but don’t worry, I’ve got you, and I’ll guide you through this journey as well.

Today 

The first step is to gain control of your money. Do you know where your money is going? By knowing money’s current inflows and outflows, we can plan, then decide what’s going to happen in the future.

Chances are the money you make from your business is fairly tangled up with your personal money – and the costs of the business with the costs of just being a person. All the money coming in and out of one bank account may seem like the easiest way now, but it won’t be when taxes come around again, or when you’re trying to understand how much you’ve grown or when you’re ready to take the next leap with your business. 

Whether it’s $10 a month or $10,000 a month, it’s never too early, too little, or too much to untangle. So while all this is fresh on your mind, let’s have a look at what your business is making and costing versus your personal expenses.

We’re going to list out where the money comes in from and goes out to and whether that is personal or business. You can do this with user-friendly software like QuickBooks Online and importing your accounts OR just downloading your bank and credit card statements into spreadsheets. 

From the perspective of using spreadsheets, have one master sheet to combine all the information into. Add a column to the far left side, so it’s easy for you to find. Here you’re going to type Personal or Business next to every deposit or expense listed. 

If you find yourself wondering, think about what that specific money went towards at that time.

Now tally up Personal Earnings, Personal Cost, Business Earnings, Business Cost.

How much is your business making?

Costing?

Where are you using business money to cover personal expenses?

Where are you using personal money to cover your business expenses?

There’s no right or wrong at this stage; we’re just getting it all lined out. 

If you don’t have separate bank accounts and credit cards for business and personal, I’ve included a list of Profit First friendly institutions in the resources below, but the goal here is to quickly know where your money is coming from and going to on an ongoing basis. 

Use the email link I sent you to come back later in the week and take the next actions below.

Next Week

Now that you’ve taken great action at the start, we can think about grander ideas this week: 

Owners pay vs. owners draw. 

Whether you are intentionally paying yourself regularly or not, you are paying yourself in the eyes of the government. But to you, it may just look like the business paid a personal expense or sent you some money. Let me explain.

Owner’s Pay is a salary with tax deducted and typically run through a payroll company so all those deductions are correct and reported when the pay is given (like Gusto, QuickBooks Payroll, or ADP- think back to how you were paid when you worked for someone else in the past). 

Owner’s Draw is money the business gives the owner without the upfront deductions because you’ll report it and pay taxes at the end of the tax year. 

On day one, the work you did to separate business money from personal money would’ve shown you anytime your business paid for something personal or when you sent money from your business bank account to your personal bank account. 

Technically speaking, that is an Owner’s Draw- even though you did it on an as-needed basis. 

So using what you learned on day one about your business expenses and personal expenses, set up a regular Owner’s Draw- your Payday.

On a dedicated day twice a month, say the 10th and 20th, the business pays you a set percentage % of earnings, like 5% to start. Then anything you need to cover that’s personal is paid for out of your personal account. 

The accounting is clean and straightforward, and You are rewarded for your work!

You now get to spend the money as you see fit instead of feeling like it’s all sucked up by the business. Even if you just start with 1%, that’s 1% more than you paid yourself last month!  

And that, my friend, means you are graduating from Hopeful to Purposeful!