Set Up a Simple Budget For Your Business Using QuickBooks Online & Google Sheets

👇 Click to get the template 👇

I read something interesting this week. Maybe a little unsettling. The intention was good, but I think the outcome was poor, at least from my point of view. 

The message was about a company that apparently grosses $1M/year and that just because they are grossing $1,000,000/year doesn’t mean they are sitting on a pile of money.

My experience in recent years suggests otherwise. Even if you are making a lot less than that, you can and should be sitting on a big pile of money.

Read The Richest Man in Babylon. And read The Millionaire Next Door. The principles that these books teach can be applied to businesses just as well as individuals. 

Let’s say your business grosses $25,000/month and your monthly payroll is $20,000/month. Something is wrong with that picture. Of course the big question is, how many employees are on that $20K payroll?

Let’s say it’s ten. 

That means you’re generating $2,500/employee/month in revenue.

Now, depending on the business, that might be really good or it might be really bad. But it’s probably really bad. Read on to find out why.

The next important question is how much more business can you handle before you have to hire an eleventh employee? 

Maybe you’ve hired more than you really need, because you’re gearing up to scale? 

But if it’s costing you $20K to generate $25k then you likely have either a project management/efficiency problem, or a scaling problem. 

You also have to consider the business model, but the particular company I was reading about is a service based business. This means that their labor pool is their main driver for revenues, and normally that means about a ⅓ vs ⅔ split between staff and the company on the revenues.

Based on this, if the business generates $25K/month, the payroll should be $8,500/month (rounding up here to keep it simple).

Why, then, would a company be paying more than twice that? And from what I saw, most of their revenues were from “marketing coaching”services. 

I have a coaching program. Two coaching programs, if you include the fact that with 97 & Up I run two weekly group coaching calls. With Bulletproof CFO, each person who signs up gets eight one-on-one sessions with me. 

And do you know what it costs me to run those programs in terms of labor?

$0.00.

I do it myself. It doesn’t take up much of my time. One hour, twice a week on 97 & Up, and on Bulletproof CFO, it’s eight hours per client. And the client pays $8K. 

The Business Model

If I focus on Bulletproof CFO and enroll ten people per month, that would be $20K per month ($2,000/month/client). If I hired a coach to help me with group coaching, it would not cost me $10K. I could probably hire someone for $5K per month and support them. 

Let’s say I am getting $2,000/month/client and I am able to keep the number of active clients at about twenty per month. 

That’s $40,000/month in revenue, which is $480,000/year. 

Assuming I pay 25% of that in payroll to coaches to support that business, that’s $10,000/month in payroll, which is $120,000/year. Not a bad salary for a coach by the way 😉.

That’s a gross profit of $30,000/month and $260,000 per year.

Which is a gross margin of 75%. 

This is a business model – one I intend to build with my Bulletproof CFO program. I’ve been sitting on it for a while, just sort of taking it as it comes.

And by the way, in my Bulletproof CFO program, I teach accountants and bookkeepers how to build this exact same model offering CFO services (doing this very kind of analysis, as well as forecasts and variance analysis).

Click here for a sketch of the numbers and what this looks like:

Bottom Line Math 

(Click File, then Make a Copy so you can have your own editable version)

You can play with the numbers in this free template and see how much easier you are going to have it when you have a plan like this to look at.

Like that internet application schedule? Copy the tab and repurpose it for any line item in your business model. Then, in the Business Model tab, flow the totals by setting January’s total equal to January on your schedule. Then copy that formula to the right. 

And if you want to learn how to automate the $#!t out of a coaching business, click here. 

Now, if this marketing company can double to $2,000,000 per year without hiring anyone else, then they are smart. That means they are building systems to scale and they are lining up the resources they need to grow and scale at the same time. 

This means that the next $1,000,000 will be 100% profit, or close to it.

But I don’t know. They are not one of my clients. Their CEO put something out there to make the point that it costs a lot of money to run a business that size. Looking at my own business, I do about what they do in Gross Annual Revenues with a fraction of the overhead.

I have systems and I use software (apps) to run things efficiently, and I run my company with just four people on Payroll. Two of them are the bookkeepers who do the bookkeeping work on a 50/50 split with me. That’s right! They get half the fees for any clients they work on. This makes their earning potential unlimited and they love it. One of them tells me that when she goes to file her taxes, the CPA who does them can’t believe how much money she makes as a “bookkeeper.”

This keeps me free to focus on several other streams of income. 

The other employee is my wife, who helps me with admin and customer service – behind the scenes stuff.

And the real message here is that this is what a CFO does for companies. We analyze things like the above to see where the opportunities are. How can we scale? Where are we being inefficient? 

Did you look at that model? This is what we design for clients, and this is what we teach you to design in The Bulletproof CFO.

Another Perspective

I had some dental work done this week, and my dentist has the most wonderful toys!

He has this machine where he takes video inside my mouth, and the software renders a 3D image and an enhanced model that allows him to look inside my mouth from every angle. It’s the coolest thing ever. 

He was making a crown for me. 

After the initial part, since he knows I love this stuff he invited me over to show me the machine that renders the crown. It’s like a 3D printer, but it sort of goes the opposite way. He puts a “block” in there, and the software he uses that has the image from my mouth chisels the block down to make the crown – in essence, the part of the tooth that needs to be molded. This takes about eight minutes.

The machine renders the crown about 20% bigger than it needs to be.

Then it goes into an oven that cooks it at 1,400 degrees. That takes about thirty minutes, and causes the tooth to reduce in size by about 20%.

As I was talking with him, I asked if it was a lot of training to learn to use all of this equipment. He confirmed that it was a bit of training.

Then I said something like, “I can’t even imagine what all this equipment must cost!”

He didn’t give me the amount, but he acknowledged that it was, “an expense!”

And then I put my CFO thinking cap back on. 

Here’s why this is so smart…

Without this equipment this procedure would have required two visits. Today, he would have gotten the molding, which he would send out to some lab, who would create the crown. He told me the ovens they used to use would take nine hours (versus the ones he’s using that takes thirty minutes).

Then, I would come back a second time, get shot up with Septocaine a second time (they don’t use Novocaine anymore) and get the molding put into my mouth. 

This equipment my dentist has invested in saves him the cost of sending it out, and it also creates tremendous efficiency. I was in and out in three hours and it’s all done. 

As a patient I am very happy.

And my dentist can dramatically increase revenues because he can increase patient turnover, which means he can turnover his labor costs many more times and make a lot more money without increasing his costs. He basically doubles his efficiency, because for every one of these procedures, he gets it done in one sitting instead of two. And that means he can fit twice as many procedures in at the same amount of time. 

And he charges the same amount. He SHOULD charge the same amount. Maybe he should charge a little more, because look how convenient he made it. And I didn’t lose anything in the outcome just because he got it done in less time. Again, if anything, I gained something by that – the time I saved by not having to come back again in a week.

That is what it looks like when you SCALE the $#*T out of a business.

When you spend big money on equipment, there needs to be a really good ROA (Return on Asset). That means that the equipment, a.k.a. the asset, generates more revenue for you than you could generate without that asset. In this case, he gets it on both sides of the equation; decreased costs and increased revenues at the same time. 

Investing in equipment that generates more revenue increases your net income, and that increases the equity (or net worth) of your business. And that’s the bottom line. Literally!

Imagine if he was charging by the hour? He would never be able to pay off his equipment, because the model would be the converse. He would have to take on twice as many patients to make the same amount of money as before!

Get it?

Got it?

Good!

See you real soon!

Seth