255 - Is Your Bank Account Leaking Money?

On today’s episode of the podcast I’m discussing the topic, “is your bank account leaking money?”

I gave a presentation on this topic at Wedding MBA last week titled, “Crunch the Numbers: The New Six Figure Benchmark for Wedding Pros.” I’ll be focusing today on one of the pillars from my talk – The Client to Piggy Bank Pipeline.

The pipeline is the cash flow process of what happens to your money. You get paid by a client, the money goes into your business bank account, it pays for some of your expenses, it pays you a salary, maybe a distribution (these are all pipes your money goes down), it goes into your personal bank account, it pays some of your personal bills and then maybe it goes into your personal savings account to save for a purchase or pay off debt.

You may remember about a year ago I launched my new message and program Profit Rx to shift the brand messaging to focus more on profit. In December I’ll be opening the doors to Profit Rx with some exciting bonuses and an open/closed door model instead of an evergreen model so we can offer additional support and more 1:1 services including tax return services for the first time in the business only available to people in the membership or working with us 1:1 so we can help you stay organized all year round to help us help you at tax time.

During my talk I discussed the pipeline and dove into what the top of the pipeline looks like and I asked the audience how much revenue they thought they would need at the top of the pipeline to create a life fundable business to have enough money left at the end of the pipeline to pay for all the things you need in your personal life.

I like to argue that you should aim for $200,000 at the top of your pipeline, with the caveat that you are single or the only income for your home and have no other revenue coming in. Expenses for a lot of people are about 30% of their revenue (though this can vary widely) and about 20% for taxes leaving you with about 50%. This would leave you with $100,000 which may or may not be what you need based on where you live and what your personal home and travel goals are.

When you envision your pipeline, envision it has a few leaks. A burst pipe would be something like a lawsuit against your business and money is flowing out. So what comes first? Focusing on revenue or on the pipeline? I believe the right answer is the pipeline. Getting more money into the pipeline is marketing. I’m focusing on the tax side of things and fixing the pipeline helps you keep money in there.

A few ways to fix your pipeline are:

1. Decrease expenses – this will help you lower the revenue at the top and still get the same tax home pay you are looking for.
2. Reduce your taxes – this includes business deductions, making sure you’re tracking them so you know what you spent it on and so you’re prepared if you’re ever audited. I have a bookkeeping template available both in Profit Rx and available on its own for $10 if you don’t currently have a bookkeeping solution.
3. Form an S Corp – Once you determine if an S Corp is right for your business, if you form one (making sure it’s done correctly) putting yourself on payroll can save you money. This may not make sense for you though if you are a high-income earner outside of your business as you may be maxing out your Medicare and social security in your full-time job. Listen to next week’s episode for more information on this.
4. Running your health insurance through your business – this is another big way to save money as an S Corp. This really only works if you qualify for self-employment health insurance deductions which means you can’t qualify through any other means like another job or a spouse.
5. Leverage retirement savings through your S Corp – Learn more about that on the Retirement Savings blog post here.

Those were some quick tips for fixing your pipeline with tax strategies because taxes are one way that money leaks out. We can also fix it by maximizing profits. This is why I do my monthly profit reports and interview my business owner friends about their profits so we can get a better sense of what this means to different people and different ways to increase profitability.

How can you increase your profit?

1. Increase your income – raise your prices and/or increase your marketing to take on more projects
2. Decrease your expenses – stay on top of your bookkeeping so you are always aware of what you are spending your money on.
3. Focus on your time – what offers/services are the most profitable based on the time it takes you to deliver this offer? What makes you the most amount of money with the least amount of work?
4. Review your profit matrix – Compare your hours worked to your revenue and profit. Focus on what it is that you like to do. Think of three tasks in your business - one that you love doing, one that you hate doing and would love to outsource and one that’s neutral. An hour of what you love will make you feel more energized than an hour of what you hate. This is profitability based on feeling.

Diving into these can help you better understand what is making you the most profit and saving you the most time and then with your leftover time you can do more marketing to increase revenue.

Protecting your profit margins is where your legalities come into place. This includes contracts, insurance, trademarks, and layers of protection. If you need contracts, click here. If you are looking to protect your business, start with my blog posts. Need a trademark attorney referral? Click here for the trademark firm I recommend. Prefer to listen? I talk about all of these topics in their own dedicated episodes and you can search podcast episodes here.

Optimize your cash flow by segmenting it into the places it needs to go. You do not want it flowing from your client to your personal bank account! Cash flow management helps you get off the WTF Happened to my Money Hamster Wheel. In Profit Rx I teach you Cash Flow 1.0 to save for taxes and manage your income. I also go into 2.0, 3,0, and 4.0 that I recommend at different stages of business.

My call to action to you is to start actually thinking about your cash flow in terms of this pipeline. Money comes in from your client. What happens to the money after it goes into your business bank account? Does it just sit there or do you pay your personal bank account regularly? We want our money flowing freely at a set schedule. Don’t just pay yourself when you need money for groceries.

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