Episode #28 – Hello, Profit Distribution!

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Welcome back! Today, I'm thrilled for several reasons. A couple of weeks ago, I shared an episode on both YouTube and my podcast to demonstrate how I manage profit allocations in my business. While this won't become a regular thing, I thought it was the perfect moment to do it again. You see, we're at the end of the calendar quarter, and that means a couple of exciting things are happening.

In real-time, it's October 2nd, 2023, as I record this. On my YouTube series, we're on week 11 of my Profit First journey, where I've been showing you the ins and outs of how this system works in my business. Although I've been using Profit First for years, this YouTube series has been going strong for about three months now. In the podcast world, we're on episode 28. I'll include a link to the YouTube video in the show notes so you can see it in action. (See YouTube video HERE.)

The beauty of this journey is that you can now go back and watch weeks of progress unfold, witnessing how things change in my business. But why is this week particularly significant? Well, it's the start of a new quarter, and that means two things: adjusting my allocation percentages and taking out my profit distribution.

First things first, let's update those percentages. I'm increasing my profit allocation from 4% to 5%, and my owner's compensation from 47% to 48%. My tax account, set at 9%, is working just fine, so I won't be changing that. The same goes for my mastermind account, still steady at 7%. However, you'll notice that by bumping up profit and owner's comp by 1% each, I exceed the 100% mark. To remedy this, I'm reducing my OpEx from 33% to 31%.

The process takes less than a minute, and then I'm ready to move on to my regular allocations. But before we do that, let's take a moment to celebrate the profit distribution. According to the Profit First book, you should take 50% of your profit bank account balance as a distribution, leaving the other half in your rainy day fund.

In most quarters, I follow this guideline. However, in the spring of 2023, I made an exception. My girls had a special spring break trip to Los Angeles, which included their first plane ride and a visit to Disneyland. I didn't want to say no to them because I couldn't afford it, so I used my profit distribution to fund this unforgettable experience.

For this quarter, I'm planning to take 50% of the balance as my profit distribution, which amounts to $1,092.55. You can see the balance drop by half on the screen if you're watching online. What did I do with this money? Well, I had two big expenses.

First, I attended ProfitCon in New Jersey, an annual conference for Profit First professionals. Since these professionals have become my friends, I extended my stay to enjoy their company. I used my profit distribution to cover my hotel, meals, and entertainment expenses during this trip.

Additionally, I had some leftover funds that I'd been wanting to use. I found a fantastic deal on string lights at Costco, but realized I had nothing to hang them from. With the remainder of my profit distribution, I purchased extendable poles with hooks to hang the lights, creating a cozy atmosphere on my deck.

Now, let's dive into the financials of my business. I follow a specific order when reviewing my accounts. First, I add up my deposits from the past week. My coaching business, which also includes some bookkeeping work and non-recurring projects, operates on set monthly payment plans. This means my total deposits equal my income, which, in turn, equals my real revenue.

Last week, my total deposits amounted to $6,245. Some might wonder how I had income when I was away in New Jersey. Well, most of my work is based on automatic monthly payments, ensuring a steady income stream.

Now, with my updated allocation percentages, I allocated 5% to profit, over $300, 48% to owner's comp, nearly $3,000, and left the tax allocation at 9%, approximately $560. OpEx received 31%, which is slightly over $1,900, and my mastermind account got almost $440.

The only distribution I made was for payroll. My payroll comes entirely from my OpEx account, which I replenish from my owner's comp account. This week, I paid a total of $5,116.26 in payroll expenses, with $4,140.38 going towards wages and payroll taxes. This amount was transferred from my owner's comp account to refill my OpEx account.

As you can see from the graphs on the screen, my different bank account balances fluctuate regularly, but they all serve a purpose and keep my finances in check. OpEx may look sporadic, but that's the part of the chaos we're trying to control with the Profit First system.

Now that we've completed a calendar quarter-end, I'd love to hear from you. If you're following Profit First in your business, how did you celebrate your profit distribution? Share your experiences in the comments on YouTube or send me an email at [email protected].

Thanks for tuning in, and I hope you have a fantastic day!

Listener’s Question of the Week

It’s time for our listener’s question of the week.  Today’s question is from Juan.

Juan writes: My office is struggling to get new cases set up in Clio. It’s causing me headaches because my admin frequently complains that she can’t do her job efficiently. My accountant complains that billing takes forever because he’s always waiting for new cases to have time entered. I worry that time is not being tracked accurately for hourly billing files.  How can I make this situation better?

Hi Juan! Sadly, this is something that many firms deal with. Luckily, I have a few suggestions.  Because you mentioned Clio, I’m going to suggest that you look to add Clio Grow to your account.  Take the time to set it up correctly and this will streamline your entire intake process from beginning to end.  Clio Grow starts with a prospect booking an appointment with your firm to send an engagement letter for electronic signature.  Once signed, you can push the data for this new client to Clio Manage.

If you are resistant to adding Clio Grow, then you can have your admin create a form – it can be a paper form or electronic form (Google Forms would work perfectly for this). The form should contain every piece of data he or she needs to open a new case. This will make the set up in Clio efficient. 

But, this most likely will not help with the billing and time capture function. To improve this issue, I would make a recurring offer to your originating attorneys. Give them an incentive to open new matters the day an engagement letter is signed. It could be something as an office-wide catered lunch if the billing person does not need to wait on any new cases to be opened for a continuous 3-month period.

I’d love to know what you come up with!

If you have a question, please send it to [email protected].

Inspirational Quote

This week’s inspirational quote is from anonymous, “Believe that tomorrow will be better than today.”

Final Thoughts

Final thoughts for today! Lot’s of great information. If you have been using Profit First as your cash management system, I would love to hear how you are enjoying your profit distribution! Even if your first distribution is $20 – that’s $20 more than you had before. Take a friend out for drinks or lunch. Enjoy it.  Please let me know in the comments section or send me an email to [email protected]. 

If you are not yet using Profit First, what are you waiting for? It all starts with baby steps. If you don’t start, you’ll never enjoy the calm and confidence that Profit First can give you with your money.

If you have any questions about today's episode please let me know. If you're watching on YouTube, you can comment below or send me an email to [email protected] and if you know someone who might need to hear this information please share this episode with them or if you're on YouTube, you can tag them below. 

Be sure to follow and subscribe to get notifications for future episodes. 

Did you enjoy this episode? Please consider leaving a review. 

And before I go, remember profit is something you intentionally plan for in the beginning. It is not a potential bonus at the end of the year. 

Thanks and have a great day.

Let’s talk about how Profit First works for me in my business – and how it can work for you too! It's the end of a calendar quarter, and I will explain the changes I need to make to my allocation percentages. I also celebrate my profit distribution and share how I used the funds for a special vacation and some personal purchases. 

Additionally, I discuss my recent business deposits and allocations, including payroll. Watch the video to get all the details and see how Profit First is transforming my business!

Be sure to follow and subscribe to get notifications for future episodes!

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