07 Jan EP 154 | Master Your Financials for Business Owners with Danielle Hayden
Welcome to episode 154 of Profit Boss® Radio!
Today’s topic is one that is very close to my heart. I’ve worked with hundreds of business owners to increase their wealth. It’s something I’m very passionate about, and business financials are invariably intimidating. Honestly, I rarely meet a business owner who feels they have a good grasp on their costs, revenue sources, and profit, let alone what to do about any of that. The worst part is that I see so many business owners languish in “I’m still in ‘investing in my business’ mode” which is always code for “I’m not paying myself enough.” It’s a common, chronic condition that I’m out to cure!
Business can be the golden road to an amazing lifestyle, but you have to PAY YOURSELF in order to accomplish that. Otherwise, you’ve simply built yourself a job.
So, let’s get to work decoding your business numbers.
In today’s episode, we’re digging into how to measure financial performance for three types of businesses: product businesses, brick-and-mortar businesses, and online businesses. You’ll learn what the most successful business owners I’ve worked with do (and look out for) to meaningfully measure performance, turn a profit, and consistently take home a paycheck.
If you’ve struggled to measure your success by key performance indicators, or worse, struggled to use key performance indicators that simply didn’t apply, this approach will feel like a breath of fresh air – and can help you figure out exactly what you need to do to achieve smart, sustainable growth.
Joining me for today’s conversation is Danielle Hayden. After 10 years in the boardroom as a CFO, she’s now the co-owner of Kickstart Accounting Inc, where she helps women get out of overwhelm, stop hiding in the dark, and take home the paychecks they deserve.
So, are you ready to stop hiding from your financials so you can finally get to know your business, inside and out? Then you don’t want to miss this episode.
Here’s what you’ll find out in this week’s episode of Profit Boss® Radio
- Why women constantly struggle to pay themselves from their businesses.
- Why the metrics and KPIs so many business coaches focus on don’t apply.
- Why failing to understand financials makes it nearly impossible to achieve profitable growth.
- Examples of great product businesses – and what makes them so good.
- When owners of product businesses should think about shutting down or considering other avenues.
- How to evaluate financial underperformance and determine if it’s time to reevaluate a business model.
- Why being emotionally attached to an unsuccessful business can be financially devastating.
- The unique metrics that make measuring brick-and-mortar business performance different from that of online businesses.
- The KPIs I use to understand where to focus my energy and make sure my online service business is growing.
- How online service businesses can effectively track time – even when they don’t bill clients by the hour.
- What business owners should be paying themselves, and how payouts should work.
- How people in their 30s and 40s should save for the future.
- Why it’s so important to understand your numbers.
- Why almost every business owner needs custom tools to measure their finances.
Danielle is giving away her Financial Goal Setting Worksheet – her signature framework designed to help you set financial goals and take a serious look at your numbers. This is a great time of year to really get prepped for 2020, and once you complete the worksheet, you can start to work on Danielle’s Profit Planner books, which are designed to set you up with the foundations and financial metrics to achieve business success.
Resources and Related Profit Boss® Content
Call for Listener Stories
Hey Profit Boss® Radio listeners! If you reach a financial goal you’re proud of, tell me about it! I will continue to share listener win stories throughout 2019. Remember, the Profit Boss® community is here to support you and that includes celebrating with you when you accomplish something incredible.
- If you crush a specific financial goal, I want to hear from you.
- If you’re thankful for something that has happened in your financial life or career, I want to hear from you.
- If you are making big financial or career plans, I want to hear from you!
Your financial success is possible and so many of you are already making that a reality! So, don’t keep your wins to yourself! Share them with me so that I can air them throughout the year on Profit Boss® Radio.
Email your audio clip to firstname.lastname@example.org. And we’ll be in touch if we plan to air your story. Thanks, ladies!
And let’s not forget that this show is powered by you and your stories and questions. Every month I’ll be doing an #AskHilary episode where I answer listener financial questions.
- So, what’s that top of mind money question that’s been pinging around in your brain?
- Where have you been stopped?
- What have you been arguing with your spouse or significant other about?
- What tip or tool aren’t you sure about?
- Do you have questions about saving? Spending? Budgeting? Investing?
Pick up your mobile phone right now. Yes, right now. And open your voice recorder app. Yep, go ahead and open that app and record yourself asking me that question. Just say your name, first name only is okay, and then what city you’re from, and then ask away.
Anything you want to ask. And once you’re done recording, export that beautiful little recording and email it to email@example.com. I can’t wait to hear your questions!
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Hilary Hendershott: Hello, profit boss. Welcome to this special episode for business owners. I have with me Danielle Hayden. She’s a reformed corporate CFO who’s on a mission to help rule-breaking female entrepreneurs understand their numbers, so you can gain the confidence needed to create sustainable profits. And after spending 10 years in the boardroom, 10-plus years as a corporate finance officer, Danielle is now in her sweet spot as the co-owner of Kickstart Accounting Incorporated, where she helps business owners with bookkeeping, financial analysis, and education as the author of the Profit Planner book series. When Danielle isn’t knee-deep in numbers, you can find her hanging with her two kids or competing in the nearest Spartan Race. We’ll have to ask her about the Spartan Race. Actually, Danielle, what is a Spartan Race?
Danielle Hayden: I’m so glad you asked. This is next to numbers my favorite next topic. The Spartan Race is an obstacle mud run where you can do a short of three miles and as long as 30 plus miles through obstacles and mud. Super fun.
Hilary Hendershott: How many miles do you do?
Danielle Hayden: My favorite is The Beast and it’s 13 miles and about 25 obstacles.
Hilary Hendershott: How do you train for this?
Danielle Hayden: Lots of running. I’m a big fan of I have a peloton bike and lots of lifting weights. We have a pull-up bar in our workout room here and we all have competitions.
Hilary Hendershott: There in the office?
Danielle Hayden: Yeah, right here in my office.
Hilary Hendershott: Oh, that’s quite a company culture you have. And so, here’s the real question. After the race, how long does it take you to get the mud off of you?
Danielle Hayden: You know, I believe we’ve gotten pretty good at actually preparing so a lot of times we’ll travel for these races and we’ve gotten a lot better at learning what to bring with us and so usually by two hair washes, I’m pretty good. Those first few races we were amateurs and it took a while to get back out.
Hilary Hendershott: Okay. More power to you. I’m impressed and now I want to take a second for you, profit boss, and I just want to read to you a little bit of language from Danielle’s website because her bio is good. You’re in financial services. You have to give people their credibility and that’s all fine and welcome. Listen to this. Imagine for a second a world with no more accounting overwhelm, no more hiding in the dark from your financials, no more running from your family and mentors when they ask you questions about your numbers. Add to that your financial advisor finally getting to take home the paycheck you deserve. I read this and I thought Danielle and I are cut from the same cloth because I find myself, I sometimes say I’m the Joan of Arc for women actually paying themselves from their business. And I have a feeling that normally we have some of the same sentiments. Danielle, I find that women the biggest thing I have to argue for is pay yourself from your business like pay and save.
Danielle Hayden: Yes. Amen. Pay yourself and save.
Hilary Hendershott: So, let’s talk about so in investing, we can divide all investment methodologies into either active or passive investments. Now, in accounting, you only have one. Well, there’s different types of accounting but we talked before I hit record, we talked about dividing, categorizing the different business types so that people can learn to think from the right framework or system for their business. I remember when I started in business and there were business coaches who kept hoisting on me these questions like what are your financial KPIs? There were questions that I ultimately realized and learned didn’t even apply to my business. And so, I want to help people get out of that confusion and overwhelm and so we talked about three different product categories. You want to say what those product categories are?
Danielle Hayden: Yes. So, we have three categories, product businesses and then businesses who have a brick-and-mortar. So, you have a storefront and you may be providing services within that storefront or products within that storefront. And then the third would be online service-based businesses.
Hilary Hendershott: Okay, great. I’m just taking notes here. So, if you can hear me typing along but I want to remember to go back and ask you about these things. Let’s start with product. For whatever reason, I see a lot of women starting product businesses now and that product businesses are they’re special. They have the potential to make people really rich, but they’re also really hard. So, what do you want a product business owner to be looking out for from a financial perspective? How do you want her to design her business? And what are the key elements that are specific to her business?
Danielle Hayden: So, somebody who is selling a product needs to really be looking at their inventory and spending a lot of time on their inventory management and their profitability by product. I’m going to hone in on the profitability by product because we have a lot of clients who, who sell several different products and they might have one product who they actually only make a little bit on it. Maybe they only make about 10%, 15% margin on that product. But they are able to attract a lot of people in their door or onto their website by offering that lower-margin product, but then they have a higher margin product. And they know that once people start with that lower-margin product, they’re going to come back for more and they’re going to eventually purchase that higher-margin product. But it’s really important to know and understand all of your products, right? So, if somebody doesn’t know how much they’re making by product and how much they’re selling by product, it would be really difficult for them to understand that story and how to make business decisions based on that information. Does that make sense?
Hilary Hendershott: It does. It does. Let’s back up just a little bit in the timeline. For example, there’s a woman in my coaching program this year who is launching a product business so she concepted this product. It’s currently in design. And so, what would you want her to be thinking about in terms of what are the – I know distribution is really key. How should she price the product relative to cost? What would be your advice there?
Danielle Hayden: I would advise her first and foremost to start looking at where she will be purchasing her product and then how that will be shipping to her customers. So, does she need to buy the inventory and house her inventory and then ship her own inventory? Does it make sense for her to be able to have somebody who manufactures her product for her, and then ship it on her behalf or find somebody who can provide her with a drop shipping option?
Hilary Hendershott: So, it’s obviously best if you don’t have to store and ship your own inventory, I would imagine. The top of the line or the platinum level would be they don’t make it until the customer pays for it, right?
Danielle Hayden: Absolutely. But keep in mind, you’re probably going to pay more for that. So, you also want to think about how much money – so if you’re going to charge $20 per product, and it is going to cost her $15 per product in order for her to have it drop-shipped versus maybe it’s only $10 per product in costs in order for her to actually hold the inventory and then be able to ship it on her own behalf. So, that’s $5 per product that she’s saving and these are a round number.
Hilary Hendershott: That’s 25%.
Danielle Hayden: Right. And that’s just throwing numbers at the wall. I mean, the savings could be even greater when you are actually purchasing your own inventory. But again, you have to know depending on what the product is, how many do you need to purchase, of what colors need to be purchased, or if you’re going to have more than one product, how many of each need to be purchased. But if you are starting with one product and one color, it may make sense if you have the funding available to be able to purchase that inventory and ship that on your own as a starting point until you ramp up the volume to be able to afford a lower margin in dropshipping.
Hilary Hendershott: So, take that savings and sort of reinvest it in marketing and product manufacturing until you deepen the breadth of the product line.
Danielle Hayden: Absolutely. Yes.
Hilary Hendershott: What are some of the businesses you work with that are product businesses that you think of as the most sweet? Like they’ve got it, they’ve got distribution going, they’ve got the product is right, they know their market. How are they distributing? Is it Amazon? Is it their own website? And I’m not asking you to name names but just as an example so people have something to think from.
Danielle Hayden: Yeah. So, we have an online store who actually sells. Her biggest passion is golfing and this client loves to golf. And so, she started an online store using Shopify and she is dropshipping all of her golf accessories to her clients. So, she uses Shopify and it’s an online store and she is now using drop shipping. She was one of my clients who originally when she first started, she actually was purchasing her inventory, storing it in her basement and her two teammates were shipping it out. And as she was able to reinvest in the business, she was finally able to find a manufacturer and afford the lower profitability in order to be able to drop ship that inventory.
Hilary Hendershott: So, she did a couple of years of daily trips to the UPS store?
Danielle Hayden: Yes. You know what, we have so much technology right now. You can use Stamps.com and so you really don’t need to leave your home. You can buy the necessary equipment and printer and shipping materials to be able to do it right from your house.
Hilary Hendershott: So, she didn’t have to put them in her Toyota tercel and drive them down herself…
Danielle Hayden: No, she didn’t.
Hilary Hendershott: So, she probably has a diversification of products, multiple product line. She’s probably got a personality brand. I’m just guessing. I’m trying to give people a framework to think from of what’s most magnetic right now.
Danielle Hayden: Yeah. You know, to me, it’s get started, right? So, I think that’s number one. So, she did start with a few products and then built from there. And so, as she learned what her clients loved and what was selling really well, she was able to bring on more products that were similar to that and refine her products and inventory line as she learned more and more about her ideal client.
Hilary Hendershott: Okay. Have you ever given someone the advice to shut down a product business?
Danielle Hayden: Absolutely. Not just the product business but maybe a product line within their product business or consider different avenues in how they’re delivering their product.
Hilary Hendershott: What kind of performance, obviously, would be negative performance? But how consistent or how long would it have to be underperforming for you to make that recommendation?
Danielle Hayden: It depends on everyone’s personal situation. And I hate saying that but if you are somebody who has gone over a year without taking a paycheck from your business, if you’re losing money, if you’re having to invest in money month-over-month, those are definitely red flags to be able to make that determination. Really the goal of my accounting firm when we deliver our financials to clients, we do that on a monthly basis and give them their key metrics so that they can make these business decisions before they ever get to the point where they need to close their operations. So, they’re getting a monthly report saying, “Hey, you’re spending too much money here. You’re taking a loss. What are our goals for this year?” And what do we need to look at to change in order for them to succeed and not have to get to the point where they’re closing down?
Hilary Hendershott: Right. I have in the past met some people who get, in my opinion, emotionally attached to the business. They have a soft spot in their heart for the products. They’re like evangelists for the product, but nobody’s buying it or they just can’t get distribution. Right? A lot of those products, they go to pasture and die, unfortunately, because you can’t get them to people for whatever reason. And so, I just…
Danielle Hayden: Or you can’t find your market or you don’t have the right marketing in order to be able to find your ideal client and be able to serve them and you’re right. The emotional piece, we see it with clients time and time again. They’ve invested so much that they’re afraid to cut the tie because they’ve already invested so much.
Hilary Hendershott: Do you present to them the literature about the sunk cost fallacy?
Danielle Hayden: Yes, absolutely.
Hilary Hendershott: You have to walk away. Okay. Anything else about product businesses that you want to mention before I move on to brick-and-mortar?
Danielle Hayden: No. Just concentrate on profitability by product.
Hilary Hendershott: Okay. Very good.
Danielle Hayden: Ending statement
Hilary Hendershott: #Profitability by product.
Danielle Hayden: Yes.
Hilary Hendershott: Okay. Brick-and-mortar businesses with a storefront either services or products. So, it’s interesting that you lump services and products in there. I guess a brick-and-mortar with a service could be, I mean, could I be a brick-and-mortar if I had like a store in a foot mall, street mall, strip mall?
Danielle Hayden: Yes, you could. Yeah, if you had a consulting business where people could come into your office, a few different people you could think of. Your local CPA who might have an office down the street who used to watch to come in to file their return. A hair salon would be a good example of this. They’re providing a service. Even some gyms, you’re offering maybe personal training or group fitness classes, yoga studios, Pilates where you don’t need a lot of – you’re not selling a product. You’re selling a class or a service.
Hilary Hendershott: And so, every type of the business you’ve mentioned so far, CPA, hair salon, or in a gym have some kind of recurring revenue or subscription revenue. Is that correct?
Danielle Hayden: Actually, most likely not. So, a CPA you’re actually going to pay by tax return so clients are coming…
Hilary Hendershott: But clients are sticky so you don’t consider that recurring revenue, huh?
Danielle Hayden: Not in a CPA firm. I’m going to say that because we’ve worked with a lot of tax accountants. Yes, once you’ve worked with it, it might be difficult for you to change but we see it all the time. A hair salon, yes. Once you find a hairstylist that you love, you’re going to stay with that hairstylist and get your hair cut every three to six months or for men every four weeks. If you are a yoga studio, you might sell a class pass per month and therefore that would be recurring revenue or you find people who love you. All right, I love my yoga studio and I don’t go anywhere else. And so, they get, although I don’t have a monthly payment to them, I come to the gym on a regular basis.
Hilary Hendershott: Okay. And then also in this category would be a retail store boutique.
Danielle Hayden: Yeah, absolutely. A retail store boutique, that you would fall product and brick-and-mortar.
Hilary Hendershott: Okay. And so, is it the cost of the brick-and-mortar, the rent that has you categorize them similarly?
Danielle Hayden: Yes, absolutely. So, that is so important. You have to think about, you know, if your starting rent is $2,500 per month, your first $2,500 in profit every month needs to go to just covering your space before utilities, consultants or anything else. So, it’s really important when we’re looking at how much revenue we need to bring in to break even to be able to cover that amount.
Hilary Hendershott: Okay. That breakeven term is really important in what you do. So, do you want to say more about why you mentioned that number?
Danielle Hayden: Yeah. Breakeven is the first step to profitability. Obviously, I always breach profitability but breaking even is your first step. So, when we look at, when we help a client determine what is their breakeven revenue, we will take all of their monthly recurring operating costs. That means the rent that you pay, the utilities, your internet, any of these software or subscriptions that you must pay in order to continue to serve your clients. You need to add all those up, and that is the minimum amount that you need to bring into your business to be able to break even and then become profitable. I always tell clients once you have that expense number, that breakeven number, you can then divide that by how many services or how many classes or how many haircuts you need to provide in order to be able to break even.
Hilary Hendershott: Perfect. Anything else for brick-and-mortar business owners to be keeping in mind?
Danielle Hayden: So, when we look at brick-and-mortar businesses, they have very different key performance indicators than somebody with a service-based business. And so, in that category, you may want to think about your square footage and if you’re thinking about expanding your brick-and-mortar space. There’s some very key pieces of information that you can work with your bookkeeper in order to understand your revenue and understand your business further. And so, that’s why that one is put together in its own separate category because there’s some very specialized metrics for you.
Hilary Hendershott: Okay. So, beyond just the profitability by product, you need to be thinking about how much money am I making per square foot that I’m paying to rent? Am I guessing correctly?
Danielle Hayden: Yes. Yeah, that’s perfect.
Hilary Hendershott: Perfect. Okay, and you obviously and your consultative team are helping people customize these numbers.
Danielle Hayden: Yes, absolutely.
Hilary Hendershott: For their businesses. Okay, perfect. And then the final category is online and service-based businesses. And I kind of kicked off you’re in my pre-chat today with by mentioning that this is the kind of business I have and I felt in the beginning that people that were coaches who were trying to hoist on me KPIs, key performance indicators, that didn’t really end up applying to my business at all. And I will say that over the time I have been working with a coach who I think does understand, I know who does understand the numbers that I’ve put together this standard operating procedure where every month my team has specific tasks that they do and they give me slides that show me my net income for the quarter, I get paid quarterly, so a net income for the quarter and costs and recurring costs, and we break out what I call cost of service, which is really just the cost of paying people including myself versus paying for things like rent or computer equipment and it’s really insightful. What I have found is that it informs my activities. So, this view of my numbers that I didn’t have until maybe a year-and-a-half ago really gives me insight that then changes how I behave in my business the following month. And it’s been massively helpful. And so, I just want to put that little, how do I say, I want to promote what you do by saying I don’t know how I could run my business without it now.
Danielle Hayden: Great. Right? And that’s what most of our clients say. There’s so many of them that come to us who are scared to even face their numbers. They’re so fearful around getting this information and then once they start getting the information, they always say, “Wow, I can’t believe I ever went without it and I feel so empowered.” And I’m so glad to hear that you’re making business decisions with it, right? You can decide, are you pricing your services right? Is your team spending the proper amount of time on each client? You might find your team isn’t spending enough time with clients or they’re spending too much time with one or two clients. And you can understand, you know, what is working and what’s not working or maybe where you’re spending too much money or where you need to decrease your spending so that the next month you are acting with intention in your business.
Hilary Hendershott: Right. Well, just to share anecdotally so people really get the value of this is, yes, key performance indicators are things like profitability and net income. But what we’ve determined and what we now sort of colloquially call a key performance indicator in my business is the number of upcoming meetings with prospective clients because that’s the top of our funnel. That’s how we know what’s coming in. That’s how we know our activity level. And no, it’s not an accounting thing. I mean, we just count that it’s – I don’t need a bookkeeper to count the number of meetings I have in the next four weeks, right? But it gives me a sense of where do I need to pay attention. Am I doing enough marketing? Have I done enough calls to action? Have I asked? Have I made those return phone calls? It really informs my activity that then increased profitability and that can be done for any business is my communication.
Danielle Hayden: Absolutely. And I’m glad you said that. I do still consider that an accounting key performance indicator. So, we talked about this in the Profit Planner book series and marketing key performance indicators are key performance indicators that can tell you about your upcoming revenue. So, I’m glad you said that because it could be how many discovery calls do you have coming up? What is your close ratio? So, how many calls do you need?
Hilary Hendershott: I track that too, yes.
Danielle Hayden: Yeah, in order to close one client. So, those are all great revenue indicators.
Hilary Hendershott: Okay. So, I took over this particular subcategory. What else do you want to say to online and service-based business owners?
Danielle Hayden: So, we talked about this a little bit in the products, know your profitability by product but let’s hone back in on this and say let’s understand your profitability by service line and your profitability by clients. So, if you’re analyzing how much time your team as well as yourself, you should be time tracking too and so know how much time each of you are spending on clients and by service so that you know what to do more of and what to do less of.
Hilary Hendershott: Time tracking. Tell me about your best practices on time tracking. This is something I’ve tried to do several times and it makes me want to just put a hot dagger in my eye.
Danielle Hayden: So, I do time tracking for myself on a loose basis but my team all time track. So, I have a team of six bookkeepers who work with me at Kickstart and they are all tracking their time by client. And that’s really important for us as a firm. Although we do not bill our clients based on the amount of hours that we spend working with them, all of our clients are on a flat monthly rate, it’s still important for me to be able to understand are we spending enough time with the clients or not. For me, we use an app on our phones that makes it pretty easy. I know that if I forget to turn it off, I can easily adjust it. So, it’s also not taking it too seriously. It’s not the Bible but it gives me a gauge of to where I’m spending my time.
Hilary Hendershott: Do you want to plug that app?
Danielle Hayden: Toggl.
Hilary Hendershott: Toggl. Perfect.
Danielle Hayden: And they have a free version so it’s great.
Hilary Hendershott: Great. And do you track your time? I mean, for example, I mean, as a business owner, do you track your time 24 hours a day sometimes? Do you write down how much do I sleep, how much do I work out, things like that?
Danielle Hayden: I am an accountant through and through and so I’m pretty dorky from sunrise to sunset so, yes, I do.
Hilary Hendershott: I have tried to do, I really want, I wish there was something, some way I could pay someone else to do it because I can’t seem to keep it in my mind to do it. How do you remind yourself? Do you have reminders every 30 minutes or something?
Danielle Hayden: Well, actually, I use my planner. So, that’s…
Hilary Hendershott: So, you wrote that way.
Danielle Hayden: Yeah. When I wrote the Profit Planner, I wrote it because it was something that I was using but in a notebook. And so, that’s how I keep track of at the beginning of the week, on Sunday or Monday. I’ll go through look at what I’m going to do every day. So, you know, what time am I going to work out? What time do I pick up my kids? What time do I have meetings or recording podcasts? And I’m able to block out each of my days within that planner. And so, that really helps me to be able to keep that schedule.
Hilary Hendershott: You block your time in your planner in addition to keeping like a Google Calendar?
Danielle Hayden: I do. I do.
Hilary Hendershott: What does that do for you?
Danielle Hayden: It’s taking pen to paper. So, I do use erasable pens. I will give a plug to erasable pens.
Hilary Hendershott: I haven’t seen an erasable pen since high school.
Danielle Hayden: It’s fantastic. You know what, I somebody I worked with about a year ago. She gifted them to me and we still joke that she’s changed my life with these pens. So, I block my time. It is on my Google Calendar but just taking that step back on Monday and writing everything out, I’m just able to see where I might have some overlap. Or I might be able to say, you know, I know that doing that type of activity takes a lot of my energy and so I might not feel like taking a client call after I do that type of activity. I might feel a little drained and that for my client might not get the best coaching from me. So, for me, it allows me just to kind of take a step back and look at does this look realistic?
Hilary Hendershott: It’s really impressive. Organization is just such a great thing as a business owner. I just really don’t think you can be too organized. I thought I was organized that I hired a woman. Her name is Jen. Many of you on the podcast have heard from her before. But she is about 1.8 times as organized as I am. And there are times she’ll bring me reports and I think this is overkill. We’re double-tracking this, but then I just get addicted to the report. It’s so great to have.
Danielle Hayden: Yeah. Well, and there’s a balance, right? So, there is a balance that you want to be efficient and not duplicating but on the other hand, some things like that just really helped me and it’s important to strike that balance.
Hilary Hendershott: Yeah, perfect. Well, thanks. There was one other thing I wanted to make sure to ask you about. So, as a bookkeeper, what do you say business owners should be paying themselves and talk about payroll versus profit distributions and what those are? But how do you advise your clients?
Danielle Hayden: So, when we talk about distributions versus payroll, remember to take a step back and think about how you’re structured. So, if you are an LLC, you are taking an owner’s draw and you should not actually be receiving a W2. You should not be structured as an employee of your business because you are only taking owner’s draws. You are actually not a business expense of your business. That is different as you grow and you’re taking a regular owner’s draw from your business. We recommend for our clients to change to an S corp. Once you become an S corp, you can pay yourself as an employee. You could put yourself on payroll. This decision is different for every client but our signature framework that we provide our clients with is to look at your cash balance at the beginning of the month. So, at the end of every month, we will send our clients a financial report that has their historical financials. So, what they did last month and then we’ll tell them this is what your cash balance is today. Here is your average operating expenses and we suggest clients have two to three months’ worth of operating expenses in their checking account to cover future expenses.
So, if something happened to their business, they can cover their expenses for two to three months and then your ending balance. And so, from there, you can take what you need as an owner from that ending balance but that gives you the comfort and the confidence to know I can pay my contractors next month. I can pay to keep the operations of my business running and so I can now confidently take that cash from my business.
Hilary Hendershott: Perfect. And then how to think about or is there really a technical way to think about the proportion of payroll to profit distributions?
Danielle Hayden: I would definitely talk to your CPA and look at your…
Hilary Hendershott: Your taxes, right?
Danielle Hayden: Yeah, your total personal story. So, if I was to give you a calculation right now, that’d be wrong of me because it really depends on your total situation and how much taxes you’re going to pay.
Hilary Hendershott: Perfect. And that really is, I mean, that’s exactly my answer. When people ask me questions like, how should someone be saving in their 30s? How should they be saving in their 40s? It’s like it’s not based on age. It’s based on your personal situation.
Danielle Hayden: Yeah. What else you have going on? Yeah.
Hilary Hendershott: Yeah. What if your recommendations don’t make sense? So, I’m completely aligned. I just wanted to see if there was anything, any golden nuggets you wanted to drop. Anything else I didn’t ask about today, Danielle, before we sign off?
[37:55] Danielle Hayden: Two big things. You know, if you are somebody who is struggling to understand your numbers or you’re saying to yourself, “I am not sure how to use these numbers to even make decisions in my business,” make sure you’re getting the help. Talk to your mentor, your coach, your bookkeeper. We would love to help you but make sure that you are able to use the numbers in order to drive your business. They are telling you a story. We had a client recently who was growing her business and she launched a new brand. And we were sending her financial reports month after month and she realized that after six months, the brand was actually going to sink her business and she was able to quickly make a decision that she needed to actually offload that brand and it saved her and it saved her family and her debt and her sanity.
Hilary Hendershott: Her marriage?
Danielle Hayden: Yes. So, the numbers are trying to tell you something. Don’t run from them. Read them and understand them. And then the second piece would be find a dashboard that works for you whether it be the financial reports or we give a framework and the Profit Planner for a weekly dashboard. But the point is don’t be afraid to really look at, you know, what you have in your business, what’s coming up, who owes you money, what contract or payments, what payments do you have coming so that you can really be looking at your business, not just today from an emotional standpoint but from a real business standpoint where you can make good decisions.
Hilary Hendershott: Yeah, and I just want to be clear so people understand how to get to this dashboard that you’re recommending. There isn’t a tool or an app that’s going to be ideal for your business. It really does need to be created in a consultative relationship. Do you agree?
Danielle Hayden: Yes, absolutely. So, there are several different dashboards out there. We offer a framework in our Profit Planner book series and we talked about some of these key performance indicators in these categories. There’s not going to be one size that fits all. We talk about this all the time. Use a KPI. See if it works for you. If it doesn’t, stop doing it and find one that does tell you a great story.
Hilary Hendershott: Don’t throw the baby with the bathwater.
Danielle Hayden: Yeah.
Hilary Hendershott: Okay. So, Danielle has been generous and put together a complimentary giveaway for you today. It’s linked to on her website but just because I know you’re driving or in the train or in the subway or washing the dishes right now, we’re going to make it simple. I’m going to link to it from the show notes at HilaryHendershott.com/154. Danielle, would you talk about this giveaway and in context of the Profit Planner series, which you’ve mentioned several times.
Danielle Hayden: Yeah. So, the giveaway is the Financial Goal Setting Worksheet. This is our signature framework to help you walk through setting financial goals and starting to look at your numbers. This is the first step to take before – this is a great time of year to do this to really prep you in your business. From there, you can start to work on the profit planner series. We have two books currently launched, a third one coming that will set you up with the foundations and the financial metrics for success in your business.
Hilary Hendershott: Okay. And the worksheet is just a worksheet but then the Profit Planner you can choose to purchase if you like that, right?
Danielle Hayden: Yes, absolutely. Yes, yes.
Hilary Hendershott: Perfect. Thanks for being here, Danielle.
Danielle Hayden: Yeah. Thank you for having me. I really appreciate it.
Hendershott Wealth Management, LLC and Profit Boss® Radio do not make specific investment recommendations on Profit Boss® Radio or in any public media. Any specific mentions of funds or investments are strictly for illustrative purposes only and should not be taken as investment advice or acted upon by individual investors. The opinions expressed in this episode are those of Hilary Hendershott, CFP®, MBA.