As a bookkeeper and tax preparer, and I love putting together the financial puzzle pieces for small businesses. In this post, I am sharing a system that will help you pay yourself more in your business and see a higher profit margin.
To get a good grasp on this system that will transform your business, allowing you to keep more of your money in your pocket, I would recommend reading Profit First by Mike Michalowicz. Instead of operating under the system of Sales – Expenses = Profit, start paying yourself first: Sales – Profit = Expenses. This strategy works by distributing your money into different accounts (Profit, Owners Pay, Taxes, and Operating Expenses) when you are paid.
The percentages I recommend for estimating your numbers are:
Income = 5% Profit + 50% Owners Pay + 15% Tax + 30% Operating Expenses
To show an example of how this works, if I receive a $2,000 payment from a client, I would break it down like this:
$2000 x 5% = $100 for profit/savings
$2000 x 50% = $1,000 to pay myself
$2000 x 15% = $300 to save towards taxes
$2000 x 30% = $600 to use towards operating/business expenses
Even if you are just starting your event planning business, you should start implementing this system now. You will see results! I recently ran my latest quarterly report and see that I made an 80% profit this last quarter. Your percentage may not be that high, different businesses require different expenses, especially for startups. But pay yourself first and be rewarded for your hard work.
Now lets talk a little bit about quarterly reports. There are three main reports that we normally run when reviewing a business’ financials:
- Profit & Loss (the in and outflow, all the important stuff!)
- Balance Sheet (talking assets and liabilities here)
- Statement of Cash Flow (cash in, cash out…)
Your business is a lot more than what is sitting in your bank account. Your financial decisions should be based on what you see in these reports. All are important and give us different views on the health of a business. My clients receive these reports (PDF or Excel format) after each quarter, but customized reports can also be pulled at different times of the year if the need arises. And the beauty of having these reports on hand is that it makes tax time a breeze.
Other than reports, the other main services I help clients with is setting up their bookkeeping into a cloud-ware based accounting program such as Quick Books Online or Xero. Your business transactions (checking accounts and credit cards) will import into the software via bank feeds and be categorized weekly. As a bookkeeper for my clients, I reconcile these accounts on a monthly basis with receipts attached to transactions. Keeping digital receipts attached to your transactions is a best practice and one way to foolproof your business in case of an IRS audit. I also offer payroll, accounts receivable, and accounts payable as add on services for my small business clients.
This is a guest post by Jaclynn Scribner. She helps women entrepreneurs remove the stress of juggling the numbers, empowers them in their business financial decisions, and gives them a bookkeeping system that will serve them instead of vice versa. She is married and the mama to a 2 year old daughter and lives in beautiful Northern California. When she’s not working, she enjoys hiking, road trips, the beach, reading, and snowboarding. You can find her at jaclynnscribner.com, and on social media at Scribner Book Keeping Solutions and @scribnerbookkeeping.