{"id":300,"date":"2019-08-22T11:32:22","date_gmt":"2019-08-22T11:32:22","guid":{"rendered":"https:\/\/silviomuscat.com\/?p=300"},"modified":"2020-01-10T11:11:58","modified_gmt":"2020-01-10T11:11:58","slug":"profit-and-loss-procedure","status":"publish","type":"post","link":"https:\/\/silviomuscat.com\/profit-and-loss-procedure\/","title":{"rendered":"Pay Yourself First: Profit and Loss Procedure"},"content":{"rendered":"

Pay yourself first: Profit and Loss Procedure<\/h2>\n

Times are changing and so should our thinking when it comes to \u201ctraditional\u201d accounting theories. Especially if you want to grow your business, but find yourself stuck in a vicious circle enable to move forward. I know first-hand both from personal experience as well a from helping clients get out of this dead-end.<\/p>\n

We all by now have heard of the classic standard Profit and Loss Procedure below (that has set us back more than it has really helped us<\/p>\n

SALES Less  EXPENSES<\/a> = PROFIT<\/p>\n

Basically anything that remains (if any) from your services or products sold after deducting all your expenses is your Profit.  It is your \u201cwage\u201d before tax and social security payments came in and eat 3 months\u2019 worth of it away.<\/p>\n

Well, the mind-set behind the system doesn\u2019t really set yourself for success and certainly less to give yourself a wage for your time or more importantly grow!<\/p>\n

It\u2019s sort of like a waiting game, let\u2019s see what happens, I\u2019ll just pull out some money from the business to get by, hopefully at the end of the year we\u2019ll end up with something.  It\u2019s a reactive strategy than a pro-active stance.<\/p>\n

Ever had that feeling that despite the many years running your business and doing all it takes, you\u2019re still sort of going round the same circle? Your business is doing OK, but for some reason you still seem far from moving to the next step? Despite your best efforts?  Thank traditional accounts for that<\/p>\n

So let\u2019s tweak it around abit:<\/p>\n

SALES less PROFIT = EXPENSES<\/p>\n

Some basic but important steps:<\/p>\n

    \n
  1. DECIDE A WAGE FOR YOURSELF<\/li>\n<\/ol>\n

    You might ask much of a wage you should have? Well, the amount depends on your stage in the business, BUT what is most important is that you take this amount for yourself and that you realise that it is your wage and NOT you\u2019re Profit!<\/p>\n

      \n
    1. DECIDE ON A PROFIT YOU WILL ADD ON TOP OF YOUR WAGE<\/li>\n<\/ol>\n

      We all know that a wage is what we pay someone to do a certain job or task in exchange for a fair hourly rate we think is merited for the task.<\/p>\n

      If we employ someone we also calculate that we must charge the client a higher amount then we pay the team member to factor in a profit after deducting our team member\u2019s wage and to cover other expense. <\/p>\n

      So far so good, most get this right.<\/p>\n

      BUT\u2026when it comes to our wage as the owners\u2026 do we actually think about adding a profit on top of our own wage?  Most of the time\u2026. NO<\/p>\n

      This I have found through many years of helping small business owners is something they sadly don\u2019t do.<\/p>\n

      When it comes to themselves they just either take a \u201cwage\u201d hopefully, or just wait to see what remains at the end of the year.<\/p>\n

      You must decide on a wage for yourself that you would pay someone if that person was doing your job!.<\/p>\n

      Also more importantly.. You must factor in a profit on top of this. Otherwise when you think about it, you\u2019re not a business owner, you just own a job. Your just your own employee, with a crazy boss (yourself J )<\/p>\n

      To matters worse, you own a job in a more stressful environment, (since you have to wear all the hats and multitask in different roles such as HR, Marketing & Sales, Customer Care, Servicing the client etc), longer hours, no guaranteed income \u2026. and with no profit to grow your business !<\/p>\n

      If you plan to grow, you will need to delegate your \u201cjob\u201d. <\/p>\n

      So start from now, think long term, not today but for next year! Make sure that if you had to get someone to do \u201cyour\u201d job and paid him the same wage you paid yourself\u2026 you would be able to live of the Profits on top of your own wage! <\/p>\n

      How else can you grow your business? And make the step from self-employed with no team members or a just few\u2026to a Big business?<\/p>\n

      The answer is on your profits, trading money for time whilst living off your profits till you secure the next few sales to balance out the new the new team member that will replace you!<\/p>\n

      3.    AND ONLY THEN\u2026WHAT\u2019S LEFT SHOULD COVER ALL YOUR EXPENSES.<\/p>\n

      The remaining amount left after deducting Sales from your Profit (and your wage ) \u2013 should cover all remaining expenses.<\/p>\n

      Perhaps the amount can even leave a further profit!  <\/p>\n

      In most cases though especially when starting out the expenses might slightly be higher and you might actually have to use profits to pay expenses… Or even your personal funds.  ( or other people\u2019s money if you have savvy accountant guiding you)<\/p>\n

      BUT the point of this is to get your mind thinking:<\/p>\n