247 - From bankruptcy to a profitable business - An Interview with Luisa Alberto, Founder of People First Finance
On today’s episode of the podcast, I interview Luisa Alberto, CEO of People First Finance about her profit and loss statement.
People First Finance’s mission is to ease the financial burden and overwhelm that holds too many ambitious enterprising women back from achieving financial autonomy.
Luisa opened a brick-and-mortar juice bar in San Francisco that closed its doors when Luisa had to declare bankruptcy for the business. The business was a partnership and was carrying a lot of debt. Luisa leveraged the lessons she learned from this experience to segue into 1:1 coaching.
Going into the business bright-eyed and bushy-tailed, it wasn’t until filing for bankruptcy that Luisa and her partner realized they were personal guarantors for the business loans they had taken so it had to be a personal bankruptcy. Before this, Luisa was in an excellent personal finance situation with great credit, which did help applying for a credit card after bankruptcy. Bankruptcy does not have to destroy you and there are options to build back up your credit. A secured credit card (one where you essentially make a down-payment toward the line of credit) is one option to help build credit. There is no one way to structure your own financial journey. You have to focus on what is best for you.
Looking back on the juice bar, Luisa shares that she while the location was chosen for the high level of foot traffic (second highest in San Francisco) the space at the food hall was small and did not have the infrastructure that allowed them to produce the amount of revenue needed to not only cover all overhead and debt but have any kind of profit margin.
People First Finance offers done-for-you services for agency owners and service providers and advisory services for all kinds of businesses. We dive into People First Finance’s profit and loss statement (P&L) for this fiscal year through end of August. They have $161,800 in gross revenue. On the business’s P&L there are sublines for sales and for services, the difference being retainer clients versus one-off services.
People First Finance is an agency made up of three bookkeepers, one CPA, a subcontracted tax professional, a director of operations and a virtual assistant. People First Finance is an S Corp and Luisa and her accountant are both employees. The rest are contactors with their own businesses with People First Finance being one of their clients and paying them an hourly rate. The team was built through Luisa’s networking.
For her own business, Luisa uses Collective for her bookkeeping instead of a member of her team to keep a line of separation between her contractors and her own business as well as to get an insight into how their company works and because Luisa knows what questions to ask them.
When getting her P&L there are a few things Luisa looks for. First, she looks to make sure revenue is captured properly with nothing double counted. Then, she makes sure all her contractors are organized and that it matches what she spent on billable contractors versus overhead and ops. She also checks the balance sheet for accurate journal entries.
Breaking down the Contractor expenses, Luisa has accounting subcontractors, bookkeeping subcontractors and financial specialist. General contractors is an operations expenses and covers the Director of Operations and virtual assistant. Bookkeepers are billable work related to direct costs. The placement of line items on a Profit & Loss can be called a tax net neutral mistake if it is on your P&L accurately but listed in an improper category.
At the time of recording, Luisa was approaching her first year in business this week. Starting the business, she pulled in clients she had from her personal coaching and consulting which set the baseline before adding additional clients. Luisa has focused on building a team in the last few months to support doubling revenue over the next year.
Currently, Luisa’s at about $36,000 in contractor expenses which is about 30%. Her target direct labor cost is 40% or less of gross revenue and 20% or less of gross revenue for operating expenses.
Other line items include meals, Luisa’s health insurance runs through payroll to save self-employment taxes on health insurance. Luisa went the HSA route for her IRA. When you have an S Corp, your salary comes through the business. The lower it is the more you spend on taxes, but it also needs to be considered reasonable.
When looking at P&Ls for clients, Luisa often sees a lot of duplicated accounts where repeated expenses are getting categorized differently when they come in each month.
Looking at Luisa’s P&L pie chart if we broke it into thirds, her YTD salary goal is $33,300. Looking at the expense total of $142,000 and subtracting $33,000, expenses other than salary would be $109,000 and then profit after salary and expenses is $19,000. Luisa plans to look at profit more
strategically next year in a way to increase tax liability and therefore maybe not increasing her salary in order to max out her retirement account instead for example.
Different methodologies work for different people, it’s not just about profit first and that may not be the one that’s best for you. Luisa shares that your finances “don’t have to be hard.” What we really need to focus on is the compliance piece. You don’t need to get fancy with your cash flow, you just need to know and organize what everything is that is coming in and out of your business. Your business decisions rely on the accuracy of this information being well-documented. Having a business bank account makes this all streamlined and more efficient and easy.
Get in Touch with Our Guest
Luisa Alberto, CEO of People First FinanceVisit the People First Finance Website
Follow and send a DM Instagram at @peoplefirstfinance
Connect with Luisa on LinkedIn
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