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The Principles of Profit

The four principles. This is what we're gonna cover today, asai, saying sharing earlier, what I learned about the health industry has taught me a lot about the health of a business, and how this came about was when I was going through that period, uh, the reason will be whacking nowadays is I got to make up for a long depressed period I went through, so I like joking around. I was watching those infomercials, and what I found was interesting is all the infomercials require these quick, intense fixes. So there's the thighmaster system. But there's e the aban doctor, have you seen this thing's like an electrical? You'll electrocute you every five seconds, he suppose to get ripped from this thing and then there's like p ninety x and these other intense programs was fasting is always the before and after picture and the after pictures like amazing, like these people transform their bodies if they're not doctored photos, and I suspect many of them are very real. But then one day after watch...

ing my hundredth informer, so I flipped the channel. And on came another kind of fitness expert was on the public network and he's a saying, you know all those things you're watching the abductor and the p ninety x program those people they really should show the before after and then the after after because what happens is in donna was teaching us those is that people have returned to their normal habits you see intense change like p ninety x it's great program at work's sticking with it for the eternity of your life is very hard. So the question is how do we capture habits that we can leverage and this guy I know whose name was went on to explain how we can leverage our existing habits to become physically healthy I was like, wow, this stuff translates into becoming financially healthy so that's what we're gonna do in this session my intention is to give you tons of notes and tons of information so you can execute it by the end of the session and uh if you have questions we move along I want to throw in my way. So here we have three old before and after and there should be the after after actually most people when it comes to weight loss put on more weight than they originally had what they originally lost because again it required such a dramatic change in who they were um the in the way industry uh lauren this in the physical fitness industry this expert said the reason he's don't work is because habit change, he says, but there is one habit that we can leverage and what it is is the size of the plates at our house now if you rewind back to like the seventeen hundreds that george washington's days plates were perhaps this size about half the size of the plate fifty percent of whether plate sizes today our plates have doubled in size, so when you see pictures of george w he isn't rift because he's got wouldn't pay that, you know, I heard him to eat he's ripped because his plane was small he did put a little bit on this plate and it was on his plate that human habit of philip your plate and eat has been around forever our plates have expanded the fight just to carry on the history lesson here. The funny thing is, uh do you know who invented the by focal? Benjamin franklin, benjamin franklin living george washington's days true ish story truest story benjamin franklin sitting down how he invented by focus is absolutely true is he looked at his get his dinner guest and could see this dinner guest clearly he looked down at his plate and couldn't see the food clearly so he said, whom I need to any invented by folk als a glass that could see distance and closely uh at the same time the ish part of my truest story here is when he looked at the plate he said damn, I'm in the food and he expand the place eyes and played starting around then started getting bigger and bigger I don't know if ben franklin's the inventor of the big players but just just work with me here uh but played start getting bigger from the seventeen hundreds have grown even more I mean you can see the place here when we had lunch to this size it's the natural tendency to fill up and consume everything is on that's our natural habit what he said in uh when it comes to fitness is we need to channel our existing habits if the existing habit when it comes to food is to consume everything is on the plate put the guard rails of a smaller plate and you can continue to behave the way you normally behave felt the plate see what's on it and you'll eat less calories because you felt this more plate that makes sense. Okay, how about you guys as their habits you have that you just do out of routine when it comes to fitness or anything, any kind of habit so you can think of that you just follow a process because that's what the process he always had maybe is working against you surfing the web right you just get into that habit and routine yeah, so could to regard realize you could be in place sure okay. And that might break the head check my email like one today twice a day you know, don't check it all the time. Well, you could that's what you want to dio now the challenge is if you don't check your email it requires willpower and something donna was sharing I thought that was pretty powerful will power is like a muscle, right fatigues so you can tell yourself and I suspect maybe you even have, like, don't check my email, but often well and the thing is to most of the e mails I get, they're not important. I would say ninety two, ninety five percent of the emails that I get are not business related or something that's urgent right there just show up and I'm like, oh, I have to check it right now, right, which you don't write and so when I am being disciplined and say okay, I'm not going to check it right now then it's I tell myself I'm like, um I'm going to really get something that I have to take care of right now no, right? And so then when I think about it that way, then I'm able to, like, put the phone down or close the laptop or whatever and do the other things that I need to dio said I'm not constantly focussed on what I can yes or hearing is it is fascinating is you're putting michael guard rails in place so you so you could say I'm just not gonna look at the email, but sounds like you take an extra step you remove the phone or so you're not distract my phone, you close the laptop cto see it that's why I called guardrails is where we taken action specifically to prevent habit from occurring or being triggered because with the laptop closed, you can't look att email it's inconvenient and so forth and that's what they suggest with plates. Well, we came with this fitness expert says we can sure get the same size plate, you can fill it up and you can tell yourself you're not gonna eat it, but good luck instead just gets more plate and therefore if you try to fill it up as much as you want it to go off the side, you can't carry it, you're going to eat less and we also have habits like that, like habits that you were just ingrained in. Yeah, yeah, great I I'm a cyclist, so one of things I notice is if I go cycle every day, I can go the fifteen, twenty miles but if I just do the fifteen, twenty miles and nothing really happens I just stay in the same shape, right? But the minute I push it even five miles more my body begins to react to that and it begins to metabolize quicker, interesting. And conversely, if I only go ten to fifteen miles, I have a different reaction too, because now I advise going well, wait what's going on here, you're supposed to go twenty interesting. Yeah. It's very interesting to watch what happens to your body, you know, physically when you back it down and push it forward. Yeah, it's because you bring to a very conscious level where you're aware of what's going on in your own head and then you kind of observe yourself in that behavior and our their guard rails or systems you put in place so that you ensure that you do the extra push. Sure, I mean, like every other day or so I will say, ok, this is a push day. This is a pullback day and what it does is actually helps you in your cardio number one they also helps you and your strength and your muscles to go yes, this is a push daeso really go so I put the guard rule that says this is that push day yeah, gotta push I love it I love and it's kind of something I've kind of started to do in my business as well what's going to be the push day of the week and what am I gonna do that push day okay business yeah no, I love it and j k I would love to hear from the community out there is watching in I was asking what of their bad habits? We got a cheeky reply from fresh start he said they're about having you staying up all night to watch creative life that's good, very cheeky. Very very so yeah so great examples and with the really thing that's important realizes we all have and plates is this a great example? Um so with small plates the habit when we realised is that we eat what's on our plate fitness let's sin has been to reduce the plate size to set up a smaller plate. Um the parallel and business is this when we look at this checking account here this's the one plate think about thanksgiving dinner for example if you if you celebrate everyone here price always thanks giving it some of our international folks visiting and price celebrate thanks giving her variation of it when you celebrate thanksgiving and your family or friends or seeing around the table and the turkey is put down on the center of the table, you don't tell your family friends oh here it is dig right in just just read it off the serving tray cheeses are you carve the turkey and you a portion you hand out portions to each person there right? But in our business account this's the equivalent of just a big serving tray we have the realized our natural habit we have to be this massive plate here and we're just eating and gobbling up everything off of it. So the fitness industry told us this technique reduced the place size a portion the plate size and eat off of a small play instead of one massive serving tray and then take take that one former serving tray and break it into different plates with different account responsibilities it's have one big checking account let's set up multiple accounts that are signed two different responsibilities so this is what we had uh have currently in our businesses and this is what the makeup oh's office room here's one proposing is the new setup for our businesses I suggest we set five accounts and everyone watching right now on creative live you can literally do this today and everyone in our studio audience here if we do this today our business will start changing today if we do this today this is where I guarantee my commitment back here on the checklist of ah of a simple system and uh and my big bang of making a profit starting today why won't you do is set up an income account what I mean by this it's a checking account worsen the label income you do this very simply you go to your bank and say I'd like another checking account and they say find they set it up you don't even tell me the name of this account I'll explain what each one does I want you to have a profit account it could it should be it could be a savings account it could be a checking account with your bank I want you seven owners pay account I normally a checking account a tax account for your tax responsibilities and then operating expenses which is also a checking account now what's just you your reaction like they talked our live audience here john for example when you see this do you can you have a better sense of what's going on your business in this set up for in this set up? Which one gives you a better sense of what is available to your business? Obviously the second one yeah get next or seven thousand dollars what is that extra seven thousand seven thousand yeah. You know, it's I snuck that in there with thirteen after twenty you got more money but you can tell what your money's available for right what we're saying kirsten so much more confusing looks more confusing, right? I mean it lived just logically it's not I mean, that totally makes sense but like like, oh, but now I have, like, five accounts rather than like just one that I have to, you know, worry about and all that kind of stuff so it's seems seems, well, no small affair so now that you volunteered there and ask some questions in this setup here, how much money is available for profit in this business, would you guess their savings? I'm assuming they're putting their safe because there's a thousand dollars a veil or thousand thirty thirty hundred? How much money is available to pay the owner and this one? Did you say, you know, our taxes taken care of here? Your taxes are not being here, you don't know how much money is available to buy new supplies and stuff twelve thousand dollars, right? Right? And so I don't know if any of those answers air right in most cases they're wrong. I assume twelve thousand is not available to pay expenses. I don't know if this is really profit if this is just money, they're wired into this account. I don't know what it's available for in this set up when we label different accounts with difference possibilities this is the responsibility this account this income account is on ly for incoming money income profit accounts on ly for profit, so I know the business you were right. Thirteen uh seven owners pay I know exactly how much money thinking allocated to the owners of the business. If you're the only owner during this amount taxes, I've reserved this much money for taxes, my tax responsibilities available and no, there isn't twelve thousand there's only six thousand dollars available for expenses by breaking into these different plaits this's like grandma's old envelope system was telling you about earlier my grandma get a hundred bucks in and five bucks for rent ten bucks for the community and so forth. This is the exact same set up the exact same setup, but now for our business, this has been the number one question we've had asked today, mike moneymaking millennials actually posed about nine people actually voted it a favor question they wanted asking because they wanted to have experience, they've heard that you need to pay yourself as an entrepreneur, you need to play yourselves this elvis is and how you have those additional counts. Thanks for covering this, but victor is joining us on victor saying wherever I think thinking, maybe outside the u s but regardless his banking is not free, so having all of these accounts is adding additional expense to his business? Yeah, I love these questions, so banking isn't free if you don't ask it for you for to be free so that's what common feedback I guess even like if I said five accounts I have a minimum balance of five hundred dollars or thousand dollars per bank account I have enough money to do that they charge these fees my first response is have you talked to the bank manager? Do you tell him what you're doing here? Have you said I don't want to be charged fees it's negotiable secondly there's a thing called other banks and if your bank isn't going to do it you have all the rights to go to another bank. Um I found this is maybe my circumstance I went to a federal credit union and had a wonderful experience I have I think this too what is called the advanced level stuff we'll talk about in the different session but so I took to the advanced level I have maura counts of about seven or eight accounts no fees no nothing. I just worked with the bank that doesn't charge fees for this so you could do that? Uh, yes. Giant question from my standpoint is entrepreneur and I go back to your grandmother's philosophy. What she did, you know, puts him in separate envelopes. The difference is when I look at the screen here she never had all those envelopes open in front of her and was looking at all of that money collectively like I'm doing here right? Because if you know if I'm if I'm going to do this is entrepreneur I don't want to get to this screen on my I don't want to see them all right? You work is wonderful undermined you want t twenty thousand you want to see that or you just want to see that everything yeah, just the mine's available, but I lose you instantly looked at the bottom line. Great point. So that's called temptations something we'll talk about it a little bit when we see it all available to you when we see all available our mind, we go right back to it. So the first step in profit first is setting up these plates so we can see what money is for. But we're going to protect ourselves from ourselves. Yeah, one of the things that makes that simpler is I don't have it set up like this, but there's things that I'm saving for I don't want it in the bottom line your bank lets you pick and choose which folders you see most of the time, right? Somebody's gotta hide account right? So I the stuff that I don't wanna have factor into my bottom one I make disappear that's excellent that's excellent. I love that you read us something yeah, about the operating expenses could you then take that small plate and turn it into like an appetizer plate or ah bread plate there's something like that, you know yeah like that yeah and then break it down from there for different types of operating expect good you could so you could break this operate expense account to say well, one common expense I have a supplies so you could have supply expense and then you could have payroll maybe have employed payroll that could be one so you can absolutely add more accounts the objective of these small plates is to see instantly where our money is a sign and was assigned to now the um yes yeah income account though should that mostly be a zero? Because aren't we supposed to be sure we're already yes it should be a zero now we're gonna get into that was called rhythm and so forth but ultimately the the income accounts intention is to simply accumulate money it does not disperse money from their meaning you don't pay bills from here you simply accumulate money then on a periodic time you're gonna allocate money thes different accounts from here bring this back to zero it spreads out, spreads out and we'll explain that process all but that's a great question so the income is the tray the incomes is the tray but no one's eaten off it or now taking a slice we put the prophet slice here slice there here's these four accounts in addition to income why I believe every business it's mandatory every business has him first chance profit why? Because every business should be profitable and we've no excuse I don't care if you're in business for six months if you're making five thousand a year you got profitable I mean and you can be you can be I don't care if your brand new business people approach me say I'm just starting up maybe I like the weight until I start doing this no do it starting immediately getting this this process immediately I don't care if you've tons of debt and we'll talk about it, we're going to vote a whole section of their training we're gonna go through debt, lots of businesses so lots of people have dead I don't care if you're dead, you're still going to set this profit system um why these four accounts profit is again to start reserving a profit for yourself this account alone turns that cash eating monster we're talking about frankenstein earlier how our business controls us to something different where that monster's that masters now a cash generating machine it's a cash cow right every quarter we'll talk about that to your businesses and start giving you money it's going to restart rewarding you, you're going to build a great relationship of your business? Does anyone here have employees hey, one john does howdy boys, you have nine nine who's your best employee lisa okay? And I say you're wrong I'm sorry, lisa, I think you're about some point I should know you're the best employee because you own the business business owners are the best employee yet your response, john is no different than what I hear from everyone. We always identify someone else to be the best employee and I'm not lisa, if you're watching, I suspect you are exceptional, amazing by suspect even lisa isn't as driven as you is as devoted as you doesn't sell as well as you doesn't have the energy for you doesn't compromise holidays and family like you do for your business you are literally the best employer business can have, and that is true for every single person, this room and every single person watching if you own a business when no one is this caring about your business as you so why is it that we treat ourselves like we were a secondary citizen? Now I suspect john that if money's tight lisa so she's your best best employee she's still getting paid right? I mean no matter what and you'll sacrifice yourself, I suspect if if lisa needs a little time off to take a vacation personal thing, I suspect you find ways to make it happen have recovered I hope you do because that's what we do for great entre nous will do that for their employees they always forget that they themselves have we taken care that you have to be taken care of well the area we compromise herself most in is our own pay our own pay we don't pay ourselves who here is being paid less than they would if they had a job elsewhere right now one two three four five six seven okay one for isn't so almost all of us in here and I suspect almost every watching online is actually compromising themselves I don't need to do that he shouldn't do that because you're starting to build resentment for your business we imagine lee so imagine going elisa and saying listen here's the deal we're not gonna pay this week you're great we're not gonna pay you know education wanted take sorry you gotta come here and uh if she celebrates christmas guy work christmas day sorry but you're great we love you and doing that to repeatedly it be absurd lisa would get up and leave but we do it ourselves relentlessly and how do we expect it to fall in love their business if we're treating herself that way you are the best employee we need to do it it's guys start with pay next resistance I guys like ah wow if I pay myself I can't keep lisa onboard or I can't do things maybe that's true maybe that's true uh but if you don't take care of yourself there's gonna be a day where you throw your hands up in psych can't take anymore I'm done I'm going to go look for a job right? I'm just gonna I'm just done we gotta start paying ourselves first we have to allocate money to ourselves and take care of ourselves if you have multiple owners in your business owners pay is for all the equity owners in your business now these are for what I call employed owners and businesses there's also was called silent partners owners these people have invested in the business but they don't have a non operating role they're going to benefit from the profit distribution owners pay that they're not getting payroll so I don't get this some people have a very small piece of the business may one percent or less their business they're getting money from here but they're not sharing the prophet because they don't have much of the equity in most cases I assume ever in this room I was ever in watching we are owner operators they call it we own the business so we're gonna get in the profit distribution we also operate the business so we're going to owners pay okay next counts tax account every here's tax responsibilities we end up paying our taxes and typically here in the u s is april fifteenth and I don't know if you experience is like mine that one particular day or it seemed to happen more often than and I want to remember where I get the phone call from my accountant saying, dude, no tax taste last days and your taxes and and there's this panic to find this money like I gotta borrow from friends and family to pay taxes, we shouldn't even be paying it. We've built a business to care for us. We built a business for financial freedom. Wouldn't financial freedom also be have freedom from paying taxes from your pay? Your business should be allocating money on your behalf, his owners for you, for your tax responsibility and the corporate taxes and so forth. Well, if you take this stuff out or these elements out, what remains is operating expenses the money that's truly available to run the rest of your business and you wanted a paradigm shift, john, I think that's what you said we said paradigm shift around expenses this is where it happens you see in the prior slide uh as kirsten was pointing out looks like twelve thousand dollars avail for expenses and that's the normal right response it's called parkinson's law something we went over what's available we use in its entirety the resource is used in its entirety now when we see it this way here's, the resource that's available and we'll find a way to spend off six thousand dollars that's sitting here, but we'll spend six thousand seven twelve and the other money will be allocated. Okay, and shame on may. I mean, this this, uh, balance here thirteen thousand twenty was not intentional. I should have just taken the same money and broken it out. But I think you get the concept right. Any questions around that? You got great presence coming online? Yvonne carlo put this question, but seven people have voted up there saying, obviously you or do you recommend that the profit goes into a savings account rather than a checking account? It should go into profit in the process. Should probably go into a savings account rolled on. Checking it. Looks like that's how you've done it. Yeah. Okay, so let me explain the differences between savings and profits. So on checking account checking account is a transactional count. Letters like inbound outbound savings is typically less transactions. Quite frankly, if your business is doing less than ten million dollars in revenue, I found very little benefit of a the difference between checking and savings. Savings is supposed to give you some more interest the end of days, like, you know, ten dollars, or something. Simply set the accounts we're going to have enough transactions occur so if if in doubt checking is the way to go because most bank set up you can do unlimited number of transactions, savings is often less now the thing is and we're gonna get to in a few minutes with profit and your tax account you're touchy so infrequently that savings account is going to be appropriate andan other viewers asking do you divide the money every time money comes in? Or do you just write once a month? Once great question so we're we're told youto answer that so I'm going to force that viewer to stay online with us for the next twenty minutes just dig right into the exact question and it is it is a very important thing yeah, so right now I haven't just been checking and a savings and I'm is the profit like my savings because I am having trouble like finding something where I have like money saved because for me a prophet is like money saved that I can use, but so this is your setup right now basically, I don't know if the numbers are but you have a checking and savings yes oh my savings though like I rarely touch and with the other one you're saying that the prophet is money for you but you can touch it yeah, I explained how um the answer is I don't know what those things are you just have to serving plates, right? And so in our mind we say this is this is here's how made most contreras behave this is my profit this is going to be stuff for me at some point or if there's a panic and I need some money or if this is just low one day in a borrowed from that I mean, it has always different rules so basically it's clumped together um when you set up this way profit is something that we're going to distribute to ourselves on a regular basis for the exclusive benefit of you the owner it never is gonna go back into the business. So one challenge that people have they say we'll have a profit the end of this year quarter I see the actual money my account I'm gonna plow this back into my business that's won the popular terms to use I'm gonna reinvest in my business and buy more supplies and so forth and that's where you start unwinding this whole system once the money is allocated, you need to stay where it is but was it explain the hot so where we all understand we're talking about I was kind of thinking with travis there that the prophet was sort of were you kind of but also use back into your business at some point which would be right here which is not which is not profit if money goes back into the business it's not profit profit is whiskey is distributed to the owners at the end uh at a certain point is for the owner's purposes okay so why do we separate the prophet in the owner's payment? Because pay is what you're living off of profit is your room word uh like your bonus is a bonus here's like you know support your lifestyle here's go on a great vacation here is you can pay today's rent here is you're going to disneyland I like what you would use for your own like personal expenses for your own like like your lifestyle yeah, my job and I had to have my business support our family that would be what I would use my owners pay for your honest pay is to support your lifestyle however you define it but this is your regular income it's me is your salary okay? We want this to be a nice healthy sound a salary yeah in the owners pay once we get into this uh shortly we'll get into the rhythm of distributing your get a paycheck from your business every two weeks yeah profit is gonna be distributed we'll explain a little bit but on a less frequent basis that's gonna come out as a reward it's an above and beyond hey here's next a couple thousand bucks party so what did you have any other points say mom okay, john uh this this may be a question for profit first professional, but when you look at the taxes have hispanic tax account okay? Yeah. Is that sales tax used tax income tax payroll tax great question, tex what tax? So I'll take that one. I think this is for the tax responsibilities of the owner and the overall corporation. So there's some corporate tax responsibly, but pay the tax the owner if you have sales tax, that will be a separate account when you have sales tax in your business you are actually all are but you are an agent for the government. The government says in new jersey sales tax is seven percent if I sell this this great plastic gun for, say, one hundred dollars I have the charge seven dollars sales tax I have I am responsible by the government as it's agent to collect seven extra dollars from you. So I take one hundred seven dollars then I think that seven dollars a sales tax out and put it into a sales tax account as an agent for them and I'm responsible to turn it over to them immediately. The income tax is a separate type of tax and so is your personal income is going to covered by this account sales tax is definitely broken out separately so your payroll tax obligations, that sort of thing those would probably all come out of operating expense account you employ me, right? Yeah so it's two types of pay rights you're getting owners pay and you're gonna take that depending on type of corporation you have I know we're going to attack you here but if you're an owner of a in the u s and l, l c or some foreign partnership or sole proprietorship you're taking distribution which simply means your company every so often gives you a chunk of money a raw check your company distributes a thousand dollars you get thousand dollars right into your pocket that's what's called a distribution then the government comes knock on the door every quarter says took a thousand dollars where's the taxes us that's going to come out of here if you as an owner of the business are on payroll and s corp c corp there's other kinds of corpse you actually don't get distribution you get a paycheck so your company send you a check and taxes already taken out right? So you get a check for a thousand dollars for your company but ray takes out say two hundred bucks of taxes so you get a net check of eight hundred dollars in that case, this tax account at the end of every quarter reimburses youfor the taxes you pay the government the comings and storing it away. But you've really been taking it out of your paycheck automatically. Your company gives it back to you, says here's. All the taxes you paid, we have it covered. Your company makes sense. So let's say, you're taking a second one. You're taking your ticket salary. Okay, uh, taxes come out. Taxes that the entity, the business entity has that responsibility to pay those taxes in government at some point of time. Correct? Are those taxes in that tax account in or are they paid all the operating expense account? You say taxes that are going to be taken out of the paycheck, right that the company holds? Yeah. Okay, do those go into that tax account? All taxes go into here, except for sales, tax and employee payroll that you as the owner payroll. But say you that you have nine employees, he would also be embed into their opry expenses. In the advanced version of this, we're going to have another count called payroll account for your people. We transfer money, they're not great expense. We moved in there, and companies have, uh, now you employees have to pay their own income tax, but a company will have a surcharge on top of that so that's kind of heavy stuff, but