#53: Parker Stevenson shares how to manage your online business finances to maximize profit, what key metrics you should be paying attention to in your financial reports, and how to plan for disasters so your business can continue to run well even when the unexpected happens.
This episode is jam packed with useful tips and strategies for managing your finances, so if you’re the type of person who wants to take control of your business and maximizing your profits, you’ll definitely want to give it a listen.
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I’m so excited to announce that I’m releasing a BOOK this month.
You probably already know how important it is that your content is actually contributing to the growth of your business, and in this book I’m sharing everything I’ve learned from the first 50 epiodes of Content Heroes about the secret to creating content that fuels business growth.
I’m sharing the lessons learned from 50 episodes and interviews with other business leaders whose approach to content marketing catapulted them to influential leader status in their niches.
Based on real-world conversations, experience, and insight from over 40 influential business leaders, this is not your average business book.
If you’re serious about growing your business and influence in your niche, join the waitlist at contentheroes.com/book and be the first to get your hands on it later this month.
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Podcast Episode Summary
In this episode, you’ll learn:
- How to manage your online business finances to maximize profits;
- What key metrics you should be paying attention to in your financial reports;
- How to plan for disaster so your business can continue to run well when the unexpected happens;
- What it means to be profitable;
- Making wise financial decisions and avoiding online profit pitfalls;
- How to change your mindset about finances to set yourself up for success.
The cost was very tangible because there was a specific cost to build. With online businesses, the cost can get a little nebulous; they can get a little murky. (3:48)
What we’ve seen is the average profit margin for a digital-based business has fluctuated a little bit. As of right now we are pushing for our clients to have a 30% profit margin, if not better. (4:26)
In the online space, profitability is tremendous, but you still have to be intentional in building the business to be profitable. (6:05)
Knowing where I was financially with my personal budget was really important. I knew how much money the business needed to support me, what the bare minimum I needed was to get by, what the more comfortable level where I could start to put some money away was, and what that income goal for myself was so I could start to build wealth. Wherever you are in your business, it’s really important to have clear personal financial goals. (9:00)
Probably one of the biggest mistakes where I’ve seen the entrepreneur dream turn into a nightmare is not getting a certified tax professional to file your taxes. The reality is, that as soon as you go into business for yourself, guess what? You have extra responsibility. If you’re going into entrepreneurship because you want to make your finances easier, I hate to tell you but that’s not going to happen, and you have to take that responsibility seriously. (10:10)
The reality is, that in small online businesses, what finance is is so much more basic than what most of us think. We revert to that higher level, more complicated definition of finance and we think that needs to be put in place in our businesses. The reality is the cleaner we can keep our business’ numbers, the easier it is. (13:29)
With online businesses, if you are simply paying attention to good financial data, it’s not super hard to keep your business profitable. (14:20)
What’s holding me back from doing better? Do I need to go in and cut some expenses or do I just need to actually sell more? A lot of the time for small businesses, the answer isn’t cutting back on expenses, it’s just going out and driving more sales. (15:29)
The complicated part is organizing the data, which is what we do at Evolved Finance. We do the complicated part. The bookkeeper does the complicated part if they are doing it right. Interpreting the data isn’t hard, it’s just tough to find a bookkeeper that understands online business. (16:37)
The accountant, let them focus on your taxes. You want someone who is really focused just on the bookkeeping because there’s a lot that goes into it and you want to make sure they have good processes. (20:40)
If there’s one thing we want you looking at daily or weekly, it’s your sales. (21:25)
As a business is scaling and growing, over and over again I’ve seen it after looking at so many profit and loss statements over the last 6 years, if a business isn’t profitable it’s almost always their contractor and employee costs or advertising, or both. (24:41)
The IRS calculates your tax liability based on your profitability. I know there’s some people that say put aside 10-15% of your total income, and that’s better than not saving anything for taxes, but it’s not very accurate. What we want to know is how profitable were we this month, where does that bring our profit for the year, from January 1 to now, because if you have that number it makes it easy to go to your accountant and ask “how much of this profit should I be saving for taxes?” (29:32)
We can make money doing what we love and making a difference in the world, but we have to pay attention to how we play the game. (34:05)
The hidden game that will sneak up on you later on is how to manage cash flow, how to actually generate revenue profitably. (34:35)
Links You Want to Click
Find out more about Parker Stevenson and Evolved Finance here: https://www.evolvedfinance.com
The Bottom Line Podcast: https://evolvedfinance.com/podcasts/
Sign up for the waitlist for the Content Heroes book here: https://contentheroes.com/book
Join the Content Heroes Facebook Community here: https://contentheroes.com/facebook
Content Heroes 053 - How to Manage Your Online Business Finances to Maximize Profit, with Parker Stevenson
Parker Stevenson: [00:00:00] I look at entrepreneurs as a game, the sales, the marketing, the money, just doing, know the rules to the game. The quicker we can learn the rules, the quicker we can get good at playing the game. We can make money doing something we love and making a difference in the world, but we have to pay attention to how we play the game.
Josiah Goff: [00:00:20] Welcome to content heroes, everyone. We're back with another great conversation to help you build a profitable business, your own terms by creating content online. Our guest today is business finance expert Parker Stevenson. And in this episode, we cover how to manage your online business finances to maximize profits.
What key metrics you should be paying attention too, and your financial reports and how to plan for disaster. So your business can continue to, well, even when the unexpected happens. This episode is jam packed with useful tips and strategies for managing your finances. So if you're the type of person who wants to take it for all of your business and maximize your profits, you'll definitely want to stick around for the rest of this episode.
But first, a quick, I'm so excited to announce that I'm releasing a book this month, sharing the lessons learned from 50 episodes and interviews with other business leaders whose approach to content marketing, catapulted them to influential leader status in their niches. Based on real world conversation, experience and insights from over 40 influential business leaders.
This is not your average business book. If you're serious about growing your business and influence in your niche, then join the [email protected] slash book. And be the first to get your hands on a copy later this month, once again, that is content heroes.com/book. To join the wait list. All right now, it's time to talk finances and profit with Parker Stevenson.
So let's jump in.
You're listening to the content heroes podcast, where entrepreneurs and marketers and creatives share how they build profitable businesses on their own terms by creating content online. And now your host Josiah Goff.
I am here with Parker Stevenson, who is the co owner and chief business officer of Evolved Finance.
And I am very excited about this conversation because we're going to be talking about all things, profitability and finances, and how to make your business actually a business that you can make a living on and pays your bills. And it's not just a hobby. So Parker, thanks so much for being on the show.
Parker Stevenson: [00:02:22] Hey, I appreciate it, man. Thank you for your time.
Josiah Goff: [00:02:24] So I would love to dive into first of all, what it means to be profitable, which might sound like kind of a dumb question. But what we talk about here is building a profitable business on your own terms by creating content online. But profitability, technically you could make a dollar over cost, right?
And that's profitable. So when we talk about a specifically online business and we talk about profitability, how profitable should an online business?
Parker Stevenson: [00:02:53] That's a great question, because I think a lot of the times when people get going with businesses, they just want to make any sale. They can, it's just so hard to get your first customers or your first viewers or listeners or whatever it is you're doing.
That you go, Oh, I got revenue coming in. And then usually later on you go, Oh, am I actually keeping anything? Like, is there anything leftover? And so, you know, we were talking before we hit record here, decided that, you know, like I worked at Adidas golf before I partnered up with my business partner, Corey, and of all finance and the costs are so tangible over there because we were making actual shoes.
Like I was a product manager for us, Gulf footwear. The shoes, cost X amount of dollars to make. So I had to price the shoe at a certain level to sell it wholesale. So that way we can make some profit and then our retailers could double that price and they could make some profits. So profit was very tangible because again, there was a specific cost to build with online businesses.
The cost can get a little nebulous, right? They can get a little murky because you're paying for some software, your paints for some contractors. But like for instance, a lot of our clients are course creators or they have membership sites or group coaching programs or podcasts like yours or something like that, where it's like there's team members and software, but there's no hard direct costs because there's no tangible product.
So because you know, my business partner and I, I mean, I joined all finance six years ago. He started of all finances, the founder, 2010. We've been in this space for a long time. What we've seen as the average profit margin for like a digital based business has fluctuated a little bit. But as of right now, we're pushing for our clients to have about 30% profit margin.
If not better. So again, if we have a client who's selling strictly courses, and if they did a hundred thousand, I mean, this would be kind of a bad example, but a hundred thousand, we would expect at a minimum to be 30,000. And the reality is for business that small, I would actually want the profitability to be higher than that, but let's say a million dollar year business, right?
We're all shooting to get to that million dollar range, a million dollar year business. I would expect them to have $300,000 in profit. Or better. Now, if you start to get more on the service side of things, like you're more of an agency based model. Like we are all finance, right? Our business is going to be a little different.
It's going to be more like 20% margin because as you get more clients, your labor costs are going to go up, but in a different way than if you're just selling courses or adding people to a membership site. So when we're looking at a service based business, we don't have the same profitability expectations.
We're going to be more like 20%. But again with like courses and digital products. I mean, we have some clients have multi seven figure businesses and they can do 40 to 50% profitability certain years. So the profits are definitely, really good. And just for some context for everyone listening, like again, when I was at Adidas global Adidas would have been pushing for like, I kind of.
Crummy year would maybe be a couple percentage points of profit. We're talking on a eight to $14 billion a year business. So that couple percentages of profit can be a lot of actual dollars, but you know, if they did 10% profit, that's a massive year. So they're usually going to be around five to 7%. So I just want to use that as kind of like a comparison that in the online space, like profitability is tremendous, but you still have to be intentional in building the business to be profitable.
Josiah Goff: [00:06:12] Yeah, that's a great insight. So when you're talking about, especially for the people who are like the solo preneurs, or maybe the freelancers who have just gotten started, or they're growing their business, and we're talking about profitability, are you talking about, and you said you want that 30%, does that include their salary as a cost?
That can we maybe define the margin there?
Parker Stevenson: [00:06:32] Yeah. So with our clients, we look at it from like the way that essentially the IRS is going to look at it. All our clients are in the U S so U S listeners you'll get the IRS, but essentially. Anything we can write off through the business, anything that's a business expense.
We're subtracting that from the revenue and seen what's left over. So when it comes to salary, if you're just taking distributions out of the business to pay yourself, we would call that profit distribution. Owner distribution owners draw all just nomenclature for the city. Same exact thing. That's not something you get to write off.
So if you made, let's say $10,000 in profit in your business that month, and you take out $5,000 of that to pay yourself, you still made $10,000 of profit. We wouldn't show 5,000 being subtracted out. The only way payment to yourself gets to be subtracted out is if you're on payroll and that gets into like S-corp tax strategy.
Geez. And I don't know how deep we want to get into that. But in essence, if you're just taking out, owner's draw, that's going to affect your cashflow. And we definitely want to know, okay, we made $10,000 in profit. I took $5,000 of that to pay myself and I left $5,000 in the business. That's an important number to know and understand.
But at the end of the day, again, when we're looking at profitability, I don't care if our clients did a million dollars in revenue kept $300,000 in profit. And then use all $300,000 to pay themselves. They took all the profit out of the business to pay themselves. I don't care how much. Well, I do care because we're guiding our clients and I don't want them to make poor decisions with their money, but that's would be up to them if they want to take every dollar profit out of the business, it's still $300,000 in profit, regardless of if they're leaving it in the business or taking all of it out to pay themselves.
Does that make sense?
Josiah Goff: [00:08:13] Yeah, totally. You touched on, you do want people to make wise decisions with their finances. What are some of the biggest mistakes that you see people make in online business with their finances?
Parker Stevenson: [00:08:25] There's a few things that come to mind here. And so stop me when it becomes too much.
But in essence, one of the first thing is I think just not having their personal finances in order, I think that's a big one. And especially like just, I was reading some of your story on your website about how you made the leap into your business. Right. And how scary that is. And you're having a kid, you know, your wife was pregnant and you're trying to figure all this stuff out.
And I think that's a very relatable story because even for myself, luckily my wife wasn't pregnant, but I still took this cushy corporate job at Adidas and took like a massive pay cut. I must have been like a 90% pay cut to start partnering up with Corey of all finance, but, you know, knowing where I was financially with my personal budget was really important.
So I knew, okay, how much money does the business need to support me? What's the bare minimum I need to get by. What's the kind of more comfortable level where I can start to put some money away. And then where's that goal of, you know, where's that revenue goal or that income goal. I want to get for myself where I can really start to build some wealth.
So wherever you are in your business, I think it's just really important that you have clear personal financial goals. But then the second piece is, is like a lot of entrepreneurs will come to us and their business and personal finances are still mixed together. And that's something that makes finance or really complicated and feel really confusing when you're taking deposits from Stripe and putting it into the same checking account where you're paying for your groceries and your vacations and your oil changes and stuff like that.
So getting dedicated personal accounts and then dedicated business accounts where only business transactions are going through them. Is going to make things easier for your accountant makes things easier for your bookkeeper, makes things easier for you as the business, this owner. And it's going to make things a heck of a lot easier.
You're again, for managing your personal budget, to make sure that you're doing things properly on the personal side. Another thing that I've seen, probably one of the biggest mistakes where I've seen the entrepreneur dream turned into a nightmare is not getting a certified tax professional to file your taxes.
And the reality is is as soon as you go into business for yourself, guess what? You have extra responsibilities. Like if you're going into entrepreneurship, because you want to make your finances easier, I hate to tell you that's not going to be the case and you need to take that responsibility seriously.
Right. Because. Now it's like, no, one's just taking money out of your paycheck and taxes are covered. You are now responsible for, and when I say responsible, I don't mean you need to file your taxes, but you're now responsible for finding an accountant who can guide you and help you make sure you're paying your taxes on time.
And the only real way. I've seen entrepreneurs just turn their business into a nightmares. They trusted the wrong person to file their taxes, or they avoided their taxes or they let like a friend or family member file their taxes and just, Oh yeah, I'll do it for you. My aunt's done it before. And then they ended up getting hit with some huge tax bill down the road, or they get hit with fines and the IRS is breathing down their neck.
That's the thing that I feel so bad for them, but it could have been avoided if they just took the tax liability or their tax obligation seriously. So those are like maybe just a recap, take your personal finances, seriously, like get a personal budget in place, separate your business and personal finances from each other.
So you have dedicated business accounts and dedicated personal accounts, and that means credit cards and PayPal accounts and all that. And then get an accountant involved in your business as soon as you possibly can.
Josiah Goff: [00:11:36] That's absolutely great advice. Thankfully, someone gave me that advice when I did jump ship at my job is to start my own business.
And I did that sooner rather than later. But even though I didn't do it at the very beginning, the process of detangling the business stuff out of my personal stuff was just a huge nightmare. And I'd only been doing it for a few months, but still it's just like, what is going on here? Terrible.
Parker Stevenson: [00:12:00] And a lot of entrepreneurs will learn from pain, right?
When it hurts so much that, you know, you need to make a change. And now it's time to hire a bookkeeper or it's time to book out a weekend and just sift through this and get things cleaned up. The pain will tell you what the next step is in your business. Because really, at least from my experience, most people will only put their heads in the sand for so long until they finally go.
All right. I actually want to make some money from this business. Let's start to take this stuff a little more seriously.
Josiah Goff: [00:12:24] Yeah, definitely. So you've talked about the things to avoid how to not fall into the pitfalls. I'm curious from your perspective, how should we think about finances in a way that will set us up for success?
Do you have a framework or a philosophy around how to get that profitability and how to really set your business up for success from a financial perspective?
Parker Stevenson: [00:12:47] No, that's a great question. I don't think I've ever been asked it that way before, but I think ultimately. Our philosophy is keep it simple.
There's something about money and finance. This is going to sound maybe a little too deeper introspective by sometimes even think about the word finance and like the way it sounds in my head, right? Like what it brings up for me, it makes me think about my time at Adidas. And it makes me think about like these big departments where you have a CFO when you have accountants and financial analysts.
And it's like, and again, even with finance, I think in the stock market, in what we think about in terms of investments and people from Harvard and Stanford going and working in New York city and doing complicated formulas, right. And the reality is, is with small online businesses. What finance is is, is so much more basic than what I think most of us think it is, but we revert to that higher level, more complicated definition of fun.
And we think that needs to be put into place in our businesses. And the reality is the cleaner. We can keep our businesses. Numbers the easier it is because with online businesses, especially the business models really are so straightforward, right? There's not like, again, I think about my time at Adidas and it's like, we had all these costs for labor and cost of materials and manufacturing, and then you get the landed costs and the U S like when it hits the warehouse and then.
We have to sell it in and then some of your customers get discounts. So we're not getting the full go in margin that we want. Like it gets so complicated. There's all these little things that start to change the numbers around that you'd need a full finance team to help keep track of that with online businesses.
If you're just simply paying attention to good financial data, it's not super hard to keep. Your business profitable. It's just again, and I don't mean to speak disparagingly of the book, but like profit first, for instance, this book, the author need to open 70 checking accounts and it's like, profit first is better than nothing.
Like it's better than just doing nothing against sticking around head in the sand. But when you start to think about all these checking accounts and the percentages and how to move things around, the reality is that ends up being more of a bandaid for, well, can I just get a good bookkeeper? Do they understand my business model?
Can they organize my financial data and make it accurate and organize it in a way that allows me to understand what my business is doing. And then from there, it's just a matter of again, knowing the metrics, everyone who's just listening now is going okay. I want to build that my business to work towards 30% profitability, especially if you're selling courses or if I'm more of a service based business.
I'm going to get to 20%, that insight alone, knowing your industry standard, like what are the industry metrics? We need to keep an eye out on. Well, now you can find that on your profit and loss statement, which is just the basic financial report your bookkeeper would provide you. And now you're like, Oh, okay, well I'm at 15%.
What's holding me back from doing better. Do I need to go in and cut some expenses or do I just need to actually sell more? Which a lot of the times for small businesses, the answer isn't cutting back on expenses. It's actually just going out and driving more sales. So these insights it's just, are we making more money than we're spending?
And are we making more money than we're spending to the extent that we can pay you as the business owner? We can build up savings in the business bank account. So we can have a runway, which I had based on this year with COVID a lot of our clients who followed our advice on that have much less stressful marches.
And April's because they had a runway. They had three months of operating expenses built up in their business. But these are the things that it's just like, if we're making more money than we're spending, we now have cashflow to invest back in the business. We have money to pay the owner. We can build up the savings so we can make the business a little less risk at first, a little more stable and all that comes down to is, do we have accurate financial data?
That's being organized in a way that allows you as the business owner to understand what's going on in your business. And again, the complicated part. Is organizing the data, which is like what we do at, of all finance. We do the complicated part. The bookkeeper does the complicated part. If they're doing it right.
Interpreting the data, isn't hard. It's just tough to find a bookkeeper that actually understands an online business. And that's what a lot of our clients struggle with before they come work with us. And then once we put the data in front of them the right way they go, Oh, why was I so stressed out about this?
Why was I making it so much more complicated? Than it needed to be. It's just, again, we just need to organize the data in a way that tells the right story.
Josiah Goff: [00:17:08] Hey, they are content heroes. This is Josiah. And I'm sure you're really enjoying this conversation with Parker, but I wanted to take a quick minute to share with you some more about my upcoming book.
Now you probably already know how important it is that your content is actually contributing to the growth of your business. And in this book, I'm sharing everything I've learned from the first 50 episodes of content heroes about the secret to creating content that fuels your business growth based on real world conversations, experience and insight from over 40 influential business leaders.
This is not your average business book. So if you're serious about growing your business and influence in your niche, then join the wait [email protected] slash book, and be the first to get your hands on a copy later this month. Once again, that is content heroes.com/book to join the wait list. You, I touch on a couple of things there that I was curious about earlier, you talked about getting a good accountant and then you talked about getting good bookkeeper.
Are those the same role or are those separate roles? Do you need both one or the other? Like, what are you talking about here?
Parker Stevenson: [00:18:11] And again, we're biased here. I'm not gonna lie and say that I don't get that. It is beneficial for us with this opinion, but this is something an opinion we form from real world experience here.
The way we look at like building out your finance team is you want an accountant. Who's focused only on your taxes. Accountants are really good at helping you pay the least amount of taxes you can legally and making sure you're not missing off the IRS really good person to have on your side. Right. We want to stay out of trouble with taxes.
Now we personally, we feel having a bookkeeper that's outside of your accountant is really beneficial because you want a bookkeeper. Who's only focused on organizing your financial data. Because again, if the financial data, like, for instance, when I say financial data, we use QuickBooks it's online. So we'll take one of our clients that say they have a checking account or credit card, Stripe, PayPal, payrolls processing.
They'll have all these things going on that. Whatever's going on in their business needs to show up in QuickBooks online. Exactly the same way, which seems like we'll know does, and that would a bookkeeper supposed to do, but there's a lot of ways you can take shortcuts. There's a lot of ways that mistakes can happen.
If you don't have a bookkeeper, who's only focused on making sure your data is 100% correct. And what our experience has been. Is that when we have a new client come on and they had an accountant who was also doing the bookkeeping, it doesn't mean the actual accountant was doing it, but their office bookkeeper was doing it.
What we find is that the bookkeeping is either not done to a very high level because accounts want to make money off of your taxes. Like that's what they're good at. They want to make money doing that. The bookkeeping's a necessary evil. It's like. Well, I need the financial data organized so I can actually file the taxes.
So they just do it to do it. But we've seen some of the worst sets of books we've ever seen have come from accounting firms or accounting offices, because they're trying to do all of the financial things for you. And the reality is, is you kind of need to specialize just like you wouldn't want your accountant to also be your certified financial planner.
Right. I could see how it seems convenient to have everything on one place. But just like, you don't want your Facebook ad manager to also be your copywriter and your content strategist. And like all of the things you're like, no, just get me a return on my Facebook ads, pulleys, like, just be good at that.
I'll find other people to fill in and be really good at the other parts of my business that need experts in it. So. We feel the same way where it's like the accountant, let them focus on your taxes. You want someone who's really focused just on the bookkeeping because there's a lot that goes into it and you want to make sure they have good processes.
They have checks and balances. They're sending you reports on time. You need your bookkeeping every month. And if your accountant just doesn't take that seriously and doesn't take their bookkeeping service seriously, a lot of the times you get burned and we've seen it firsthand how bad it can really be.
Josiah Goff: [00:21:05] That's great advice. So when we're looking at the data, how often are we monitoring that? Are we looking at it every month? Every quarter
Parker Stevenson: [00:21:11] we send our clients their profit and loss statements every month. So they get five profit and loss statements in a dashboard. Now, does that mean don't look at anything going on in your business until you know, of all finance sends you reports.
No, if there's one thing we want you looking at daily or weekly, it's your sales, right? And that's the easy part is to go in at the very minimum, like Stripe or PayPal or wherever you kind of get money from your merchant account. But ideally we have something like, you know, if you're using Kajabi and that's your main portal, then you can go log into Dobby and see how we're doing with core sales.
Or if you're using checkout software like Sam card or thrive cart, having these places where we can log into one place to see where all of our sales are happening. And just kind of keep up with sales from the standpoint of, are we hitting our goal for the month? Hopefully you're setting goals and forecasts for the month.
And if you are like having a place where you can kind of keep up with this on a daily or weekly basis, especially if you are running Facebook ads on a daily basis and keeping up with like, okay, what's the return I'm getting from those ads. Or even just if it's a launch month and you just want to see, okay, how much is coming in?
Like, and you want to be checking in and seeing how you're doing during your launch. These are all pieces that we don't want to wait till the month, but in terms of overall expenses and stuff like that, the bigger financial picture, if you're looking at it for an hour or two a month, especially for an online business, because the business model is so straightforward, you're going to be good to go again.
It's just making sure that data is organized, right. And you know what to look for in it. Then there's no reason to be like spending hours a week diving into this. Like we want our clients to be efficiently making good use of their time in terms of, okay, am I getting the financial insights I need? Cool.
Now let me go off and make more money and sell more things.
Josiah Goff: [00:22:48] We're looking at the data. What really should we be paying attention to in that? Are there specific types of expenses we should really keep an eye on that can get away from us? Are there other things that we should really pay attention to?
Parker Stevenson: [00:22:59] Like, if you're only going to look at two things and you literally ignore it, every other category in your business, it's going to be your advertising costs if you have it.
And I know not everyone has it. And a lot of our clients don't have to spend money on advertising and their profits definitely benefit from that, but it's usually going to be advertising and it's going to be labor. Those are really the two pieces. Have we had some claims to maybe go a little crazy with travel one year and spend a little more than we want?
Sure. Can smaller businesses go a little higher are on continue education and start to spend more on courses and coaching than they can reasonably execute on. For sure. And we want to keep some of those types of expenses in check. Absolutely. But as a business is scaling and growing, it's just over and over again.
I've seen it after looking at so many profit and loss statements for the last six years. If a business isn't profitable, it's almost always like their contractor and employee costs or advertising or both, that's it. If you can keep those things under control as your business grows, there's no reason you shouldn't be able to, you know, at least be around 30% profitability.
Josiah Goff: [00:24:02] That's great. You touched on this a little bit earlier. You mentioned that when the pandemic hit, your clients were a lot less stressed than they would be because of how you've had them set up everything I'd love to dig into from your perspective, how we can best set ourselves up for the next crisis that comes.
Hopefully it doesn't come too soon, but you never know. So how do we prepare financially for that sort of thing?
Parker Stevenson: [00:24:26] Yeah, this is something where for me, it's a matter of yeah. Opinion. And we like to think our opinion is based on a lot of. Tangible data and real experience and stuff. So for us, what we've seen after doing this for so long, what we felt like based on the types of business, this is that we work with.
I'm going to be very specific here, you know, online businesses. Then we have been telling our clients for years, we want to save up three months of operating expenses in the business. For some of our clients, they go, are you kidding me? That seems like so much. And some of our clients were like, I'll do six, I'll do eight pack.
Maybe I'll do a full year. And we're like, okay, we don't need to go that crazy. Right? Like there is such thing as saving more money than is than is needed in the business. But we found three months to be kind of the sweet spot for an online business because. There's number one, naturally fluctuations. And a lot of our clients, businesses where they'll have big launch months, or maybe they had a month where something didn't go as well as they thought, or, you know, it's just ups and downs of entrepreneurship.
Three months seems to be an ample amount of time to adjust. And really it's only a month. Most of our clients, they can react. Their businesses are small, they can pivot and small, I mean, even multi seven figure businesses. It's still a very small business. You can still pivot, adapt change very quickly. But the reason we always are adamant about three months, cause it's like, Who knows what's going to happen.
And sure enough, a pandemic happened never would have expected that this is where we'd be in 2020. And for again, March and April, when we were really unsure how the online business space was going to be hit, how our client's businesses were going to be hit, they felt like, okay, I have some room to think about this.
And so instead of all of the profit out of their business, From the last year or two, they start to build up that savings that's money that they could paid to themselves or invested in another probably PI coaching program or who knows the way our clients are able to find it. I used to spend money, but instead they were disciplined.
They had a plan. They kept that money in there, which again, even having a month or two just makes cash flow so much easier to manage when we have more money in the checking account than we actually need. And then they felt really ready to adapt to whatever happened in the day fully once may came around.
I mean the online space has just been blowing up. It's been unbelievable. I mean, we've had more of our clients have their biggest months this year than they've ever had. And a lot of our clients are on track for the biggest years they've ever had. So luckily it's worked out well for them, but again, a lot of our clients did pause in March and April.
And the reason they were able to pause was because they had that money set aside, but they needed to have clarity around. What is a normal month of operating expenses for me. So they know what three months of operating expenses look like saved up in their bank account. And then again, just understanding the value of that, seeing that money in the checking account and not being tempted to just take it out and spend it.
They see that money there and feel some comfort, knowing like, cool. I know why this is here. It makes my life a lot easier. And then again, it makes cashflow. Just, you know, pandemics aside and huge emergencies aside, they just always have enough money to deal with the ups and downs of cash flow to where they don't have to have all these complicated internal systems to be tracking cashflow like to the penny every single day, which a lot of like manufacturing businesses, retail businesses, brick and mortar businesses kind of have to do because their margins are so tight.
So I know I kind of maybe took that further than we needed to, which is what I do. But does that kind of make sense? Does that answer the question?
Josiah Goff: [00:27:46] Yeah. Yeah, absolutely. I just had one question in there. You may have answered this already, but do you just have them leave it in one account? Like, is everything in one account or do you recommend that they take that three months and kind of set it aside somewhere so that they're not tempted to spend it?
Like, what do you recommend there?
Parker Stevenson: [00:28:00] It kind of depends on the client and, and how quickly money's going in and out of the bank account. Like if they're spending a lot on Facebook ads or something like that, I'd just be like, Keep it in the checking account, like trying to move money back and forth from the savings account or the checking account and all that, it just becomes cumbersome.
Versus if they have a really stable business, then they might want to put it in a business savings account and kind of keep it separate. Cause they still have plenty of money in the checking account to kind of manage. The weekly cash necessity. So it just kind of dependent. And we do have some clients where they're like, if it's sitting in the checking account, I'm going to spend it.
So please just put it out. Like I'm going to put it out of sight out of mind. And it's like, then go ahead and do that. There's no one size fits all. We just need to know what's the goal. The goal is to have this money saved up in the business, wherever you want to put the money. We don't really care about out of all finance.
We just want the money to be available liquid when we need it.
Josiah Goff: [00:28:47] That's great advice. Okay. So we have a question here from the content heroes, Facebook group. If you're up for a question from the community,
Parker Stevenson: [00:28:56] I'd love it, bring it
Josiah Goff: [00:28:57] awesome. So for everyone listening, if you want to be part of the conversation yeah.
And have the chance to having your question answered on an upcoming episode, go to content heroes.com/facebook, and you'll be able to join our content heroes, Facebook group. And I've got a question here from one of our community members in the group. His name is Alan, and he asks many folks with online businesses, tend to forget about taxes.
Is there a specific percentage of the income that should be set aside?
Parker Stevenson: [00:29:27] So this again comes back to profit. The IRS calculates your tax liability based on your profitability. So I know there's some people that go, Oh, just put aside 10 or 15% of your total income. Sure. That's better than not saving anything for taxes.
Right. But it's not very accurate. What we want to know is how profitable were we this month? Where does that bring our profit for the year? You know, before from January 1st up until whatever day it is today. What's my profitability been like, cause if you have that number, then it becomes pretty easy to just go to your accountant and say, how much of this profit should I be saving for taxes?
And so depending on the state, you're in, depending on like, if you're married and the income level of your spouse, Your tax bracket is going to fluctuate. So what we normally tell our clients is 30% is a good place to start, because again, all of our clients are going to have at least six figure revenue, businesses, or higher.
So this is going to be a little different. If your business is just getting started, maybe you start off at 20% or something along those lines. But you want to talk, and this is again why we want an accountant in the early stages of your business, because that's when the accountants, therefore it'd be like, roughly, what should I be saving for in terms of my profitability or every time you take out money from the business to pay yourself, what percentage of that should you be putting into a savings account for taxes?
Right. So it's going to range probably somewhere between 25%. All the way up to as high as like 45%, if you're making a lot of money and you're in a state with a high tax percentage, right. So it's going to be anywhere in between there. So that's kind of why we always say 30% is a good starting point, but I urge everyone to talk to your accountant, get an account.
Number one, if you don't have one and then talk to the accountant. About what percentage you should be saving, because this is where like everyone's tax situation is gonna be a little different. And we don't want to just like be making broad guesses based on what we heard someone else tell us we should do.
This is why we have accountants as business owners is so that we're not taking advice from our aunts or uncles or friends or neighbors. Get someone who knows what they're talking about. And locked down a plan for you around what you should be saving. And again, it's going to be so much easier to know what percentage of that profit we're saving if we're actually tracking the profitability on a monthly basis.
Josiah Goff: [00:31:41] Yeah. I love that. That kind of goes full circle around to what we talked about towards the beginning of taking your finances. Seriously, as a business owner, you talked about, you mentioned my story and how. I should, should've had a plan as I was listening. You talk through all of that. I'm like, yeah, I absolutely should have done that.
And I would recommend that to everyone to know what your numbers are and have goals and all of that stuff. I think where I was at that point, if I had gone through that process, I probably would have talked myself out of quitting my job when I did for better or worse. For me, it ended up being a good decision, but not financial reasons for all the other reps.
That's right. And I also, you know, I had to move into my inlaws basement for a few months while we ramped stuff up and all of that. But what I've found in talking with entrepreneurs, especially people who are in the side hustle mode, it's really easy to not take finances seriously. When your entire livelihood is not dependent on this business that you're working on, but from my perspective, and the reason why I didn't go the side hustle route at that time was because I knew I wouldn't take it as seriously.
And I would treat it more like a hobby than a business. And I think a big part of that, that distinction between treating it like a hobby and a business is taking the financial part of it. Very seriously and acting as if you are the CEO of a business and all the responsibilities that come with that, because that's going to set you up for success in the long run.
Probably the short
Parker Stevenson: [00:33:05] run too. Well, I look at entrepreneurship as a game, like, and I say this all the time. I don't look at what we do for our customers, the results we get for our customers, the passion for the work we do as entrepreneurs. That's not a game. That's what inspires us to start over businesses and to get really good at doing something and to get real, you're good at helping people with whatever problem you solve for them, with your offer.
But everything else is just a game. The sales, the marketing, the money. Do we know the rules to the game? The quicker we can learn the rules, the quicker we can get good at playing the game. And for me, I wake up every day. I'm stoked to work with our team. We have an amazing team of people that have all financed.
I'm stoked to work with our clients. Our clients are some of the most interesting, inspiring people I have ever met. I love what I get to do for them, but at the end of the day, if this business isn't set up to make me money, I'm going to go do something else. I'm not here to run a charity. If it was only about giving back, I'd be a monk somewhere like working with the poor.
And I don't think you have to go to that extreme, right? We can make money doing something we love and making a difference in the world, but we have to pay attention to how we play the game. There's really two games. And I talk about this in one of our workshops. We do our live workshops and there's two games we're playing and we don't realize it as entrepreneurs.
The first game is. How do I make money? How do I find customers? How do I sell things? Right? How do I rate revenue? Everyone loves that game. And that's what we spend our time and money and energy into figuring out, especially in the early stages of our business. But the second hidden game that will sneak up on you later on is how to manage cash flow.
How do you actually generate revenue profitably? Cause if I told you, Hey, I have a million dollar year business and that's all I tell you. Everyone's mind goes, Oh, they're a millionaire and they're crushing it all. Parker's got a million dollar business. He must really know what he's doing, but what you don't know is behind the scenes, I did spend $900,000 in Facebook ads to make that million dollars.
You'd probably go dude, your business. Model's not very good. Like you must not be very good at running your business, right. Because it's, how are we generating that revenue? How many expenses are associated? With the amount of revenue we're bringing in. And that sounds kind of boring. I get it doesn't sound super sexy, but if you can learn to understand the full picture of what we're trying to do here, which is again in the early stages, just learn it.
Just go sell more. But once we start to generate revenue on a more consistent basis, To me, the exciting part is, well then how do I set this thing up? So I can actually make some money and build my wealth. Because if I want to just a steady paycheck, I would have stayed at Adidas or I would have stayed in the corporate world.
There's a little bit of comfort. There. There's some stuff you put money in the 401k. Great. I want to build wealth while doing something I actually enjoy. And the only way you're going to build wealth is if you're looking at like the actual numbers of your business, Do they make sense? Does the game you're playing makes sense.
And that's where I think entrepreneurs who get stuck in chasing just more and more revenue and never feeling like they're making as much money as they should be making. That's the difference between those business owners versus the ones that understand game number one in game, number two, who are growing their businesses.
And this is really true for online businesses specifically. Where it's like we're growing that revenue line while keeping our profitability high along the way. So as we're hustling, spending more money and taking more risk in the business and putting more time and energy into it, we're actually building something that's gonna benefit us hopefully sooner than later, which is the beauty of these highly profitable online businesses, cash flows can be really juicy.
Profitability can be really juicy. And so as much as like we have clients where maybe that happens. On accident in the early stages of their business, they have a lot of really fast success that profitability won't maintain itself over time and less the business owners paying attention. So again, if you're listening in your business is just getting started.
I get it. You're going out. You're hustling to get sales. You're figuring out your offer. You're figuring out your business model and you're trying to build some momentum around your revenue, but I just want to plant that seed for everybody that if you really want to build wealth from your business, If you really want to truly feel successful from your business, then we're going to have to start paying attention to those numbers.
We're going to need some bookkeeping. You're going to need to put together a spreadsheet and track some of your expenses and put together a budget. The sooner you get comfortable with doing that stuff. Number one, it feels like, Oh, this isn't as hard as I thought it was. This isn't as complicated as I thought it was.
And then too, The sooner you can start fixing things in your business before they break and just not give up more profit at any one time than you need to. And please know that I don't, I mean, don't ever spend anything in your business cause you have to spend money to make money. There's no question about it.
We just don't want to get to a point where we're not getting a good return on all the expenses we're putting in our business. And that's where paying attention and being intentional with how we're spending our money in our businesses. Becomes increasingly important as your business grows. That's the thing, big thing here.
I just want everyone to walk away with learn how to make that money, but just don't put your head in the sand in regards to tracking your money, understanding what you're spending your money on and being clear on profitable your businesses on a monthly basis.
Josiah Goff: [00:38:13] Oh, I love it. I think that's a great place to stop, man.
This has been fantastic, so much great advice in there. Really appreciate you coming on today before we hop off here. Can you just share with everyone where they can find you online?
Parker Stevenson: [00:38:24] Yeah, absolutely. So if you're an online business owner, you're interested in our bookkeeping service, just go to a finance.com.
Like I said, we work with businesses in the U S making a hundred thousand dollars or more a year in revenue and are selling again, digital products. Unfortunately, we just don't work with e-comm businesses. Because again, I worked at Adidas. I know how difficult it is to get going with e-comm physical product stuff.
But if you're a business that's just getting started or you're not quite to that Mark yet, I recommend checking out our podcasts, the bottom line by of finance it's on our website as well. It's usually 15 to 30 minute episodes of me just sharing the stuff that we talked about today. Just I, and it's just like a mini course just with weekly episodes.
So I recommend everyone check that out as well. I love it.
Josiah Goff: [00:39:04] Yeah, definitely go check out the podcast and if all finance and we'll make sure that all of that is linked up in the show notes and for everyone out there listening, go be a hero. Hey everyone. Thank you for listening to the content heroes podcast.
I just wanted to take a second and let you know that we have some amazing guests planned for the coming weeks. So if you haven't already go ahead and hit subscribe so you can make sure to catch every episode. And if you enjoy today's episode, go ahead and leave a five star review to help make it easier for other content creators to find and enjoy.
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