How to Save Money in Your Business, and Increase Your Profitability

I want to talk to you about how, as a construction business owner or a service-based business owner, you can save money in your business. It all comes down to being proactive and having control over your money and time.

So of course, I’m going to tie this back to Profit First because that is something that we believe in as a principle to use within your business that can help you to really take your business to the next level and have control of your numbers.

You must be in control of your finances, and you must have different accounts set up. As we discussed in Profit First, you should have your income account, where all your deposits come from, your profit account, your tax account and owner’s comp account and operating expenses, as well as some others that will help you be more in control of where your money is.

So, for example, I have a payroll account at the bank just for my payroll expenses. I set that up as soon as I hired my team because I like to be able to put those funds aside for my payroll from the operating expense account. I know that money is designated for payroll and nothing else.

 You can do the same thing for savings as well, and we call those vault accounts in the Profit First world. So, you have your profit account where you’re putting the profit aside and saving that money. You have your tax account, where you put money aside and label it for taxes. That way when your CPA or tax professional tells you how much you owe in taxes, you’ll be prepared. There’s no huge panic of, like, “Oh my gosh, I don’t know how I’m going to afford to do this.” So having that tax account is critical. Just in December, my CPA called and told me what she wanted me to pay, and I was like, “Okay, I got that.” It was a great feeling knowing that I didn’t have to look through my bank accounts and try to pull that money together. It was already designated for taxes.

You can create additional bank accounts as well, as I previously mentioned, called vault accounts, and you give them names as well. For example, you could have an emergency fund. It’s always a great idea to have at least three months’ worth of your fixed expenses saved in a separate account. So, if something happen, like a COVID-19 pandemic, you’d have three months’ worth of expenses saved. You can pay your rent, you can pay your team, you can pay your utilities, you can pay your loan payments, and you can make all those payments that you need to, even though you might be shut down for a month.

An emergency fund is a great way to start slowly building it up that safeguard in the event the unexpected happens. The key is not to use it for other expenses because you didn’t plan for something. Create that bank account as a separate bank and treat it as a holding account. And don’t touch it; just leave it there in case you need it.

The same can be said for wanting to pay off debt as well. You can use the method we talked about last week for paying off debt. You can create a separate account for saving up for those monthly payments as well. If you are using the “Profit First” method then at the end of each quarter, when you’re taking your profit bonus. Remember, we’re only going to take out half of the balance. Then I suggest you take 10% of that withdrawal and treat you and your family to a nice meal out or day out etc. as a reward for working hard in your business. Then with the other 90% you will pay down the balance on that debt with the highest interest rate that we calculated last week in conjunction with your on-time payments. For example, if you have $20,000 in your profit account at the end of the quarter, you will take $10,000 as your profit bonus. Take 10% of the $10,000 and treat yourself and your family. Use the remaining $9,000 to pay down the debt with the highest interest rate. Does that make sense?

The key here is not just let your money sit in one account and accumulate. “Great, I have $20,000 in cash”.  Use the Profit First method to tell your money what it is to be used for.

Knowing that you have your money allocated is critical to the success of your business, it’s critical to be able to pay down debt like we talked about last week, and it’s critical to be able to start saving as well.

When it comes to saving, remember what we said about having a separate account for your fixed expenses? You want to look at what expenses you incur every month, regardless of whether you make $1 in sales. $50,000 In sales, what are the costs that you have? You have utilities, rent, loan payments, and possibly a mortgage payment; simply go through a monthly P&L and look to see what those costs are that you must pay, regardless of whether you do any sales. Then take that number, multiply it by three, and that’s going to be your goal to have that money saved in that vault account. You’ve got three months’ worth of bills, or three months’ worth of savings, to cover those bills. So, it’s critical.

I know I say this a lot. Knowing the numbers will help you know exactly where your money is at and where it is going and what it is to be used for is going to give you a huge amount of peace of mind.

It’s going to give you the knowledge that, okay, I know where my money is coming from. I know what it needs to be spent on. That way, even if you check your bank balance 5 times a day, you can see how the money is allocated and you will not overspend.

 So, if you know a business friend that needs to hear this message, please share it with them below. If you like the sound of running your business this way, then leave me a message or send me a message.

At the end of the day, being successful, increasing your standard of living, having that money available to you, and having the freedom of time and money is why you started your business.