Most stable companies should be able to post a profit of 10% – 25% after all expenses.
But, to start off, begin with low threshold, where maybe 5% of every inbound dollar goes to the War Chest.
Over time, slowly increase the percentage. Monitor your cashflow to see if your business gets woosey.
Once you have adjusted expenses and cash outflow to sustain your Profit War Chest withdrawals, you will quickly accumulate a tremendous cash reserve.
In this case, should tough times come knocking on the door, and they often do, you will have our Profit War Chest to back you up and if necessary, bail you out.
Of course as your cash reserves grow, they will be in excess of your rainy day needs – our recommendation is 3 months of business expenses.
At that point, you should take a portion as an equity distribution.
Trust me, it’s a really nice way to reward yourself for running a healthy business.
If you’ve never given blood, I strongly recommend you do it. If you don’t regularly donate to your company’s Profit War Chest, I strongly encourage you to start, there’s no question.
Anyone who knows me, knows that I’m a big coffee freak. I have about 3 or 4 cappuccinos every day. My favourite coffee shop is Bellissimo. You’ve got to try it. It’s around the corner from Inspire and there’s also one around one from my house. I get it everywhere.
I was down there meeting with a prospective client the other day. I shouted the coffees, of course. I went to pay for the coffees and the kind girl behind the desk asked me, “Would you like a tax invoice?” It made me think, why would I need a tax invoice? Are coffee meetings tax deductible? So I went back to Inspire and asked the accountants this very question:
“Are coffee meetings tax deductible? What about other meetings that include food, are they tax deductible too?”
Here’s what they told me:
If you’re an employee going off to a conference, and you’re away from your usual home, then you can claim that meal.
There’s guidance from the ATO, but budget for about a hundred dollars per night. That means you might be able to go to the coffee club and grab a Bolognese, but I wouldn’t really be going to Jamie’s Italian and getting a full course meal.
Say you got a team, this happens quite regularly during tax time, we’re really busy and we tend to work late. We go out and buy Domino’s. That’s fine because that’s all part of keeping the progress going, with regards to our work. If it’s related to our team being able to continue working, then that’s okay.
I know this really cool engineering business in West End, who have a chef in-house and they supply meals to their team, throughout the day. What a great place to work? These items would be tax deductible and exempt of FBT.
As a business owner, you might be out and about, meeting with clients throughout the day. Grabbing a coffee and a muffin, here and there, while you’re doing your day-to-day work is A-okay. Again, you’ve got to be reasonable. The ATO isn’t stupid. If you’re putting through 7-course at a gas station lunches, instead of a coffee here and a muffin, it’s probably not going to go down so well.
To conclude, My advice to you, as a fellow business owner is to:
2. Ask yourself the question, ‘What is the return on investment you’re going to get from that?’ I always try to aim for 5 to 20 times our way. This is the focus point for you as a business owner, if it turns out to be tax deductible as a result, well bonus. If it isn’t, move on. There’s no point in trying to spend an hour trying to make a 20 cent tax savings on an orange mocha Frappuccino that you had on the weekend than risk that concern and anxiety that might come from being audited.
3. And most importantly, focus on the biggest bang for your buck!
Book in to TEST DRIVE AN ACCOUNTANT – a 15 min rapid fire Q & A session with an Inspirational Accountant.
Imagine you’ve got an amazing business that is trading through a Trust.
You take out some profit to feed yourself, feed your family, put the kids in school and live comfortably.
But you still have some excess profit left over!
If you take it out, you’ll have to pay up to 49 percent tax.
The purpose of this company is to receive a distribution from your business.
It’s a distribution of profits of your business.
So here’s where the tax savings come in …
Individuals pay up to 49 percent tax, but companies when they’re receiving a distribution from a trust, they only pay 30 percent tax.
So paying that profit to a company instead of an individual will save you 19% tax – 49% minus 30%.
Important: You can’t just do this distribution ‘on paper’.
Then you can use that money to invest in anything else like commercial property, residential property, you can invest in shares with the money in the company.
You may know these company structures by the following names –
I like to think of it as your “Family Vault”.
It’s a smart place to store the profits your business AND reduce the amount of tax you’re paying.
Book in, to TEST DRIVE AN ACCOUNTANT – a 15 min rapid fire Q & A session with an Inspirational Accountant.
One of the biggest killers of highly profitable businesses is the ‘One Sale Wonder’.
Now we’re all in business to serve our customers. So we must believe that we provide value for what we do.
And from that logic, you should be safe to assume that any additional services you’re able to provide to suitable customers are a good thing for those customers.
Not only is it that you will better serve your customers, but the easiest ways to increase revenue (and ideally profit!) is to increase the number of times or dollar amount that an existing customer buys from you.
So how do we transition from a ‘One Sale Wonder’ to a business that serves its clients to the best extent?
Really, it’s any business with a strong focus on:
The first businesses that come to mind are:
Yes, of course. I get that customers sometimes want the bare minimum or only see the value in the initial ‘bump’. But we must strive to serve our customers to the maximum that our businesses can.
For this, let’s take the digital agency as an example.
What about changing the whole focus of your business; your marketing, the language you use, the sales process – all to focus on the ongoing value of content creation vs reacting when a prospect asks for a website?
It may take a bit of education with your market on your behalf, but the rewards of this will work wonders for your recurring revenue.
Look at the table below. Which quadrant do you think would be the easiest to sell to?
Of course, the answer is the bottom left—selling services you already have to clients you already know.
But businesses often focus on selling to the bottom right quadrant instead. Take our advice, and stick with what you know and who you know.
And if you don’t have existing services yet, do get into product development mode and work with your team to identify the needs of your clients and if you’re in a position to provide them.
Working with partners who provide the ‘logical next step’ to your customer, or who provide the step before needing yours.
They can provide the leads for your business (if they are the step before needing yours), or you could negotiate a referral agreement or partnership with customers that you send (if they are the next logical step after you).
|Digital agencies who focus on the build of the website||Focus on the ongoing content creation, campaigns and development of the site|
|The painter who just paints a house||Come back every so often to clean the surface and add a coat of paint|
|The mortgage broker who sorts out a home loan||Keep in touch with the home owner for car finance, second property etc|
|An electrician who installs solar power systems||Implement a maintenance contract to clean and repair the panels|
|An audiologist who sells hearing aids||Replace batteries and offer upgrades on a maintenance contract (similar to a mobile phone?)|
|The cleaning company who work primarily for end of lease bond cleans||Partnering with a party hire business – in the hope that the parties may need a cleaner…|
|Even cafe’s with meeting rooms for hire||Follow up each hire with a coupon or deal for catering as an incentive to return|
Whether you think precision shooting (or “sniping”) is an art or a sport, you soon learn how much technical skill is involved.
You also learn how much difference there is between a skilled shooter and a beginner.
Like most things, the more you practice the better you get. But in this case, you can learn a lot just from what happened with your previous shot.
And it’s the same with determining what to target with your business.
If it’s your first time at the range, you’d probably aim the crosshairs directly at the target. After all, that’s what you’re trying to hit, right?
Unfortunately there’s a good chance you’ll miss completely.
Why? Because there’s a good chance you didn’t factor in wind speed, heading, bearing, angle, elevation, target speed, and so on. Each one can affect the outcome, and unless you change your aim to compensate for them, you’ll keep missing your target.
And it’s the same with aiming for profits in your business. They should definitely be your target, especially if you want your business to still be around in a few years. But they’re not always what you should be aiming for.
Just as precision shooter compensates for everything that will affect the bullet’s path, you should compensate for everything that can affect your profit. This could include things such as:
Average transaction value
Number of transactions per client per year
Number of new leads
Any other indicators that affect those numbers.
In the book, The 4 Disciplines of Execution, co-author Sean Covey clearly explains the difference between lag and lead indicators. And profit is definitely a lag indicator.
Lag indicators are end results. Lead indicators are the activities that create results.
Unfortunately, a lot of business owners don’t plan how to get there: they fail to identify the lead indicators that produce the lag indicators.
For instance, revenue comes from converting leads, getting these new clients, and helping them with relevant products.
How do you know where to focus? How do you choose your lead indicators? This will be dictated by the challenges your business is currently facing.
If you’re team isn’t very busy, and there’s not a lot of profit left at the end of the month, your indicators may well be acquiring and converting customers. On the other hand, if you’ve got too many clients to keep up with but no money in the bank, focusing on your average transaction value (i.e. putting your prices up) could be the key.
Thinking about where you’re aiming instead of the target won’t be easy to begin with. After all, you’re in business to make a profit, so it’s natural to make it your main focus.
But by thinking less about this lag indicator, and more about your lead indicators, your business will soon be hitting your targets. With consistency. And precision.
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