How I Used Profit First to Build A Solid Business Foundation
By Nena Hart, MSN, RN C-DONA, CHPN, RAC-CT Founder and CEO of Hart Healthcare Solutions
My step-dad has operated his own landscaping business for as long as I can remember. Money was uncertain in our house and the approach to money seemed to be to spend it when you have it. On one particularly long day, I threw away a napkin with blue ink and a coffee ring on it that was on the kitchen table. The napkin was an estimate for a customer. I thought it was trash and threw it out. It sent him into a tailspin of frustration and I spent the rest of the day walking on eggshells. We never knew if there would be money coming in or if there’d be any leftover after the bills, or if the bills would get paid. It was a constant point of stress in our home.
Part of the mindset block for me starting my own business was the money. What if there wouldn’t be enough to support my family? How could I live without a guaranteed paycheck every two weeks for the exact amount I needed to have?
When I started thinking I’d like to start my own business in 2019, I started buying basic things first like a website, business cards, course platform, courses for me growing myself, and learning more about how-to content and manage all the moving technology pieces that tie together business systems and workflows. I didn’t have a business checking account and was buying things little by little out of my own personal checking account.
I’m not even a full year not working for myself full-time yet. If you asked me what I’m most proud of, it wouldn’t be not giving up and leaving Hawaii after being fired from the CEO job that brought my family back across the ocean just 6 weeks before, or keeping pace with the income I had in that role, or even being able to have the freedom and flexibility to go to the beach in the afternoon with my kids. The thing I am the proudest of in my business is how much pain and frustration I’ve saved myself by starting it out on the right financial foundation.
I am not a financial advisor, I’m a nurse. I have limited financial knowledge that was mostly self-taught from my roles in operations and leadership. I was responsible for nursing budgets, supply utilization, and labor costs. I have no training for being the CFO of my own business.
My interest was peaked in the concept of Profit First through a SCORE (SBA) small business webinar I attended. I ended up reading the book and applying the principles that Mike Michealowitz teaches over the next three months. Profit First is an approach to entrepreneurial finance management that ensures the business is profitable. It does that by allocating percentages of funds to business accounts as you receive them. So you put aside a percentage to profit, first. Then for taxes, then owners pay and operating expenses. Following this structure has done multiple things for me.
I set up accounts for each area of allocation like the book explains. Every payment I received, I put aside profit first. In what seemed like no time I had over two thousand dollars in profit and bought my family tickets to Arizona to spend Thanksgiving with family. It felt amazing.
Here are the things I’ve done that have set my business up for long-term financial success and those I would recommend you to do as well.
The first is, it forced me to consistently pay myself and limit the money I took out of my business. That way, I always had money left over to feed my business growth. I was able to afford to pay for software, certifications, and training and my quarterly estimated tax payments. It also helped me recognize that if I paid myself 100% long-term as I had been doing, I wouldn’t be operating a business long-term.
Knowing my quarterly estimated taxes were all saved up and sitting in an account ready to go was a huge relief. They were significant and if I hadn’t anticipated the payment and allocated the money in advance, I might not have been able to manage it when they came due.
It hasn’t been perfect and I still have a long road to being a financially stable business and trying to scale. I have been able to successfully make gradual changes to my percentages to increase my ability to reinvest in my business operations.
They are many approaches to hanging your finances and expenses for success. I’m certainly not suggesting Profit First make sense for everyone. The concept of paying profit immediately and scaling expenses down to a percentage is intimidating. Most businesses wait to learn at the end of the year what their profit will be and are dismayed to find out there may not have been any at all.
What I am suggesting is that at a minimum, start organizing your business expenses for the new year by creating a business account, separating your accounts and expenses from your personal. Make sure you anticipate any taxes and operating expenses. Don’t forget to leave a margin between what you’re taking as owners’ pay and what’s leftover for future operations. It doesn’t have to be complicated, and it may be something that brings you increased profits, increased longevity, and increased pride and self-confidence.
Nena Hart MSN, RN C-DONA, CHPN, RAC-CT has more than a decade of experience in long-term care and hospice leadership. She is the founder and CEO of Hart Healthcare Solutions, a senior care consulting company. Specializing in compliance and operations, Hart Healthcare Solutions offers accreditation and survey support, streamlined operations, and courses and training for leaders in senior care and aspiring senior care consultants. You can learn more about us at www.HartHealthcareSolutions.com. If you’re a leader in a senior care specialty, join our group on Facebook for tons of free tools and resources, or just search groups for Leaders In Senior Care.
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