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Ask Donna: How do I get my business back on track?
Note From Donna... At the behest of my marketing intern, Larissa, I have opened my inbox to take question about the intricacies of Profit First. If you would like to submit a question feel free to leave a comment below this blog or reach out to us through social media or our contact page! For now, let me introduce the first question.
The Question
I got my business off the ground by managing accounts for other agencies. At the time, Facebook ads were new, so I never had an issue finding agencies needing help. Fast-forward a year and Facebook ads were becoming a cash cow. I was a boutique agency with 7 to 8 referral clients, three to four contractors working with me and performance-based agreements. Some months I was doing $25K +!
However, I knew if I didn't invest in sales systems and automation, then my business would stagnate. So, I hired someone local who I've worked with previously, opened an office, invested heavily in automation, refined pricing, cleaned up reporting, and created client portals and SOPs, sales systems and lead generation. And guess what… Nothing happened, and the landscape completely changed.
Within 6 months, we faced the impact of software updates which ultimately killed our ability to bill based on performance. It also resulted in significant client spending reduction. We spent much time trying to pivot our efforts to TikTok and video content campaigns. Our sales pitch changed. The cat was out of the bag with Facebook. Unfortunately, we weren't a creative agency, and it was not a profitable area. I also struggle to close deals and notice many of the brands I was pitching to couldn't afford the costs or didn't see the value. I’ve realized that the value proposition I had years prior was no longer the same. I wouldn't even buy my services.
My question is, where did I go wrong? How did my business go from boom to bust seemingly overnight? I still have several systems in place but my business is in limbo and I’ve picked up a job as a digital consultant to keep the lights on in the office. A few months ago I started listening to the Jason Daily show and learning about Profit First… But I don’t know if coaching can save my business. What should I do?
The Answer
Donna: This is a great question, and many businesses fall down this path and there is a lot we can learn here. When the asker started seeing their revenue increase and money in their bank they rushed to the next “logical” step of growing their business. And I agree with the idea… if they had used the Profit First methodology. The first thing I would have done to rectify this situation was setting up 6 bank accounts to ensure their financial security: Income, Profit, Owner’s Pay, Taxes, Operating Expenses, and Expansion. I included this unique ‘expansion’ account for the eventual sales systems, and automation.
Next, seeing as there was already a remote team in place, I would have hesitated to rent office space and hire a local. In the world of work-from-home policies office space isn’t a must have anymore.
If the asker had implemented Profit First and relegated their expansion to a percentage of their total revenue they would have had a cushion of funds set aside to pivot their business. Additionally, because Profit First forces us to hesitate on our expenditures they would have had the time and clarity required to see the platform changes and software updates that ultimately impacted their business.
Advise for the Present
What can you do now? Read the Profit First Book to get the concept of this valuable cash management system. The next step is to create the 5 basic accounts with your bank. This is a crucial step, so the business owner knows how much for the operations of the organization is truly available.
The very next payment the company receives should go into the Income account and allocated out to the other accounts by percentage. The most important step of the whole process is to use the allocated money for the purpose of the account it’s in. If it’s in the tax account, use the money only for taxes. If it’s in the owners pay account, it’s only used to pay the owner. There are no covering operational costs with profit, owner’s pay and taxes. Money will slowly build up over time and you will find some great relief.
Once you are stable, it’s time to invest in a Profit First Professional who can help you design an advanced system of Profit First. Your Profit First Professional will help you navigate when cash flow gets tight, and you are tempted to use money from other accounts. It’s best to have some accountability in your Profit First journey.
I have helped many companies go through the process and it literally saved the business.
The concept of Profit First is simple, the implementation is challenging. Or... you could skip the challenge and sign up for my Profit First coaching course. Implementing and following through on the Profit First method is made easy with a coach keeping you on course.
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