3 Ways Business Owners Can Be Financially Stable & Make a Profit
For me personally, and probably for you as well, financial management and organization has always been one of the most challenging and stressful parts of owning a business.
That’s why I’m so excited to share these 3 things that have finally helped me stay on top of my business finances consistently (my favorite is the third one).
1. Keep your overhead low
Having worked at a few other design agencies before founding Knapsack, I got to witness firsthand the anxiety that high monthly overhead can bring to a business owner.
Keeping up with rent, bills, and salaries was a monthly challenge – let alone making a profit. When I started my own company I resolved to not make the same mistake.
Here are a few ways that we keep our overhead low:
Employees & Payroll - We only hire employees when we absolutely need to, and when we do, we start with a part-time flexible schedule so that we only pay additional employees when we have the extra work. The goal is to only pay for additional help when it is directly generating income.
Office Space - I worked from a home office for as long as I could when I started Knapsack (a little over a year) in order to avoid paying any rent. Now that we have employees and frequent in-person meetings with clients, we rent an office space. However, to keep the cost low we sublease parts of our space to two other companies. This decreases our overall cost to be about 25% of what we would normally pay for rent.
Every few months we revisit our list of recurring expenses (software subscriptions, monthly bills, etc.) to see if there is anything we can eliminate or replace with a one-time purchase.
2. Pay yourself a consistent paycheck
One of the goals I set in 2012 when I first started Knapsack was to have my cake and eat it too.
Here’s what I mean:
I wanted to have the freedom and perks of owning my own business but still get a consistent, reliable pay check every two weeks, just like I did at my corporate job.
In order to do this, I waited to quit my job and go full time after I proved to myself I could make consistent income each month. Then I set my twice-a-month paycheck to a goal I estimated I could meet even in the slow times.
Having that regular paycheck every two weeks has brought financial regularity and kept the stress low for my family.
Even though it started lower than what I was making before I quit my job, it was predictable and we knew how much money we would get, and when we would get it.
Most years I’ve been able to give myself a steady pay increase as the business has become more successful. Six years later I still get paid on the 15th and 30th of each month, and when we have profitable times I’m able to take out a bonus from time to time as well (more on that in the next section).
If taking a consistent paycheck out when your business income fluctuates up and down seems tricky, think of it this way:
Respect yourself and make it a priority to figure out a way to make it work. It’s what you would expect if you were working for someone else, so give yourself the same treatment.
3. Implement the Profit First Method
The book that had the most impact on me in the last year is the book Profit First by Mike Michalowicz.
Mike’s goal with the book, as he puts it, is to “eradicate entrepreneurial poverty.” He basically is trying to help you as a business owner (no matter how little money you’re bringing in) to stop spending all of the money you make in your business on unnecessary expenses, and instead actually start making a profit and enjoy the rewards of your hard work.
In the book he lays out a very simple system where you distribute a percentage of all of your income into separate bank accounts regularly to help to keep your money management easy and stress-free.
Twice a month we transfer everything from our “income” account (where all of our paid invoices go) into 5 separate bank accounts, each designated for a different purpose.
Here are the actual percentages that we ‘re using in the first quarter of 2019 for Knapsack:
Operating expenses account: 46%
Owner’s compensation account: 35%
Tax account: 8%
Profit account: 6%
Each quarter we tweak the percentages slightly to help us make more profit. The goal is to keep increasing profit and savings a percentage point or two at a time as we decrease our operating expenses.
The most fun part for the business owner is that you receive a percentage of each quarter’s profit as a bonus, in addition to your regular paycheck. (My wife and I are using our most recent quarterly bonus to go to Jamaica!)
I can say first-hand that after one year of following the Profit First method, Knapsack is more profitable than ever. I also experience very little financial stress, and I am more grateful than ever to be a business owner.
If you’re looking for a big financial change in your business, check out the book and let me know how it goes!