Getting the Instant Assessment Done

Getting the Instant Assessment Done

Crunching numbers is scary and intimidating.  Worse is if you don’t know where to get those numbers.  On day 2 of getting Profit First Implemented, Annette will go into the nitty-gritty details of the number’s crunching game and will guide you where you can get those numbers from. 

Getting all those numbers together is an important step in shifting your mindset around your business's finances from how you might be operating currently and how to gain optimal performance in your business.  

Here are a few insights you’ll hear in today’s show…

  • What is Instant Assessment and how do you calculate it?
  • What is the ideal period of time where you can look up data?  (...What do you do when you don't have that much data available?)
  • Where do you get the Top Line Revenue data for this exercise?
  • In what ways does Real Revenue have the same number as your Top Line Revenue?
  • What do you do when you don't have an accounting set up yet? 
  • Why is the profit in the Profit Box not the same as the profit that you see at the bottom of your Profit and Loss account? 
  • What is the Owner's Comp and where can you easily get those numbers?
  • The Tax Box, what goes in there and what's not included? 
  • Why is the Operating Expenses one of the boxes that is hard to complete for this exercise?


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Welcome to Day 2 of Get Profit First Implemented Sprint. I hope you are well today. I hope everyone is having a wonderful day. And I hope that most of you manage to sort out that banking setup that we spoke about yesterday in terms of getting Profit First implemented into your business. Now, if you are tuning in, give me a hello, in the comments, let me know that you are here, let me know that you are live with me today. I would love to know that we have some people watching and then I'm not just kind of speaking into the Facebook abyss, hopefully, and Facebook has notified some of you that I am live because, you know, sometimes it does. And sometimes it doesn't. And it can be a little bit funky. So I'm hoping that some of you have started to get notifications that I am live and that you are able to tune in and watch today. So do give me some likes in the on the on the stream, if you are watching, because again, that pushes it out to more people and makes sure that everybody knows that we are here, and that they are able to watch us today.

So today what we are speaking about is the instant assessment, the instant assessment is part of the profit first implementation steps. And in all honesty, it's usually the step that most people get a bit scared of because it's the step where they have to start crunching numbers. And it can be confusing knowing where to find those numbers, how to do it, what to put in. So we're going to be covering that off today. And if you have any questions about your own business, you know the systems that you use where you might find your numbers, please, please do ask me. You can ask in the comments to this video, or if you feel like you've got a bit of a longer winded question, then feel free to just post a post into the group. And I will happily answer where you can find things how you can pull out those numbers. Because this is actually it may not seem like it. But this is really an important step inProfit First. It's an important step in, in moving your mindset around your business's finances from how you might be operating now, to how the optimal performance is for your business when it comes when you have that cash flow management under control. So during this stage, although it is a very tempting split stage for many, many businesses to miss out, it is actually an important one. So let's make sure that I can hold your hands through that today. And like that you feel like you are able to tackle this stage. Now, by all means you're welcome to do this on this session, that kind of as we are going along, if you want to make sure that you can pull up your numbers and do that then you absolutely can. In the description of this video, I've also included a template for your incident assessment. So feel free to use that Google Sheet. Excuse me, you just need to fill in your name and email address and the link will be sent to your email. If I've done the tech right, which I did just before this session. So I hope that it all works. But you should receive that then to your inbox, you'll be able to copy that Google Sheets template and make use of that to do today's exercise. So if you're struggling with this, if you don't want to do it on pen and paper, you can just do it as it's talked about in the Profit First Book, there is a table in there if you are in the this edition of the book, then it is on page 62 of the book. If you are on the previous edition of the book, I don't have that marked actually, I'm wondering if I can just flick and find that for you. Yes, I can. If you are in this edition, the previous edition of the book then that is on page 45 for you. So that's where you can find those in your in your book as well. Elaine, I can see that you've popped your email into the comments, if you can just click your click the link in the description to this video. And that's where you need to put in your, your email address to get the to get the link to the Google Sheet. So if you can pop it in there, let me also just pop it in the comments too. So there we go. That's the link that you need to go to. It's completely free. I know it says checkout but it is completely free to get the copy of that a template for you to fill in. Like I said, there's no requirement for you to use that you can absolutely do it just on pen and paper. Or you can even write it in your copy of your book, if you are one of those people that writes in books I am, but I know some people really hate it.

So the instant assessment, like I mentioned, that can be the piece that people get quite frightened about. So we're going to go through it, I'm going to share my screen, we're going to look at each stage individually. And I'm going to show you how to complete it and how to fill it in. So let me share my screen now with you. That is, of course, if I can actually work out how to share a screen on here because I actually haven't done a screen share on, I haven't done a screen share on Facebook Live before when I've been live and switched to screen share. So let's just check to make sure we can switch to screen share. If not, I'm going to talk you through it without sharing my screen. And we can still do that. So don't worry. Don't worry too much. We can still figure that all out. Okey dokey Funny one does know how to flip between screenshare and camera when doing a Facebook Live do let me know in the comments. So that so that I can do that because I'm not sure I actually can. So I'm going to have to talk you through it without the screenshare. And what I will do is after this, I'll record a quick screen share of it as well so that you've got both so that you can watch watch the video. afterwards. I wonder if I can do graphics Oh no, that's not what I need to click on. Okay. So the table, I will show you the table in the book so that you can see how the table looks like for calculating your incident assessment. So here is the table here. And what we have is we have these various columns along the top, we have our actual which is where you're going to put in your actual profit first. So your actual numbers that you get from various sources, I'll talk you through where you get them from your top, that stands for your target allocation percentages. Those are the Profit First percentages that we want to hit. And in this version of the book, they are on page 68. So they will depend on your business's current level of revenue. Now, of course, in the book, we have dollars in there, ignore the dollar sign, pretend it's a pound sign and use the numbers in that way. Then we have the Profit First number in mind, we have our delta and then we have our fix. Now I have set up in that link I've shared with you. In the template spreadsheet I've shared with you I have set up a calculation. So this will calculate automatically for you. So you don't actually need to get your calculator out. But if you're doing it on paper, you will need to get your calculator out for you. But I've tried to make it as easy as possible. In the sheet I've shared with you as well, I have a second tab in there called target allocation percentages, which replicates this table so you can see it quickly and easily and and do it quickly and easily. But the the boxes that we want to fill in right now are in the actual column. So in the actual column, we have top line revenue, we have materials and subsistence we have or sorry, and subcontractors, we have real revenue, profit owners comp, tax and operating expenses. Now, it's important to know when you are completing this, if you are VAT registered, you actually even though we're dealing with cash, you actually want to do this excluding VAT, because otherwise it's going to start messing up your numbers. And it's going to make you think you're more profitable than you are when actually you're collecting money for the VAT man. So you're VAT registered, you want to exclude VAT from these numbers, even though we're working with cash, which makes it a little bit funky. And it makes it slightly more challenging to find the figures. But I'm going to talk you through how we do that. So a top line revenue that is total cash collected into your business from sales. No, this doesn't include any loans that you might have in there or any money you've put in. This is top line revenue. This is sales revenue, and if you're VAT registered is excluding VAT. Now this is on a cash basis because we are working with cash for Profit First remember Profit First is a cash management system. Therefore we are looking at cash here. That therefore means that you know where do you get your top line revenue number from. Well if you have have QuickBooks or Xero, or something like that that you're using for your bookkeeping, what I recommend to get that number is to run a profit and loss account because that will exclude VAT, if you're VAT registered. Run a profit and loss account, but select the box that says cash basis. It usually will be defaulted to accrual basis, but you want the cash number. So you want to take the box that says cash basis. And that will very quickly and easily give you this top line revenue in your revenue number. If you are not using a online bookkeeping package that you can get the cash basis number from then if you are running your VAT on a cash basis, you can add up your VAT returns.

Now, one thing I haven't covered actually is what period of time do you do this over. The ideal period of time is to look over the last 12 months. But if you don't have that data available, please do not let that stop you. If you only have the last three months' data available use the last three months don't get stuck on this exercise. Because you don't have the information available, you can't get to it, it's too hard. Use the time period that you can, ideally 12 months but if you have to use less than that, that's okay too. Let's get some numbers on this so that we can get the right mindset around it.

So as I said, your top line revenue that for most people is typically the easiest number to find. Because it's a one liner in most instances. So you should be able to get this like I see from your bookkeeping software running a cash, p&l appear a profit and loss account. And then selecting the profit and loss account on a cash basis should give you this number. If you are doing your bookkeeping in Excel, for example, then typically most people would do Excel bookkeeping on a cash basis anyway. So it would be a case of adding up all your sales entries to get the total on there as well. Sorry, my, that's my husband just calling me I'm just going to There we go. So that so that is how we get the top line revenue number. Now, good morning, Becky HIA. Many businesses probably won't have materials and subcontractors. This is really only for businesses that do have cost of sales. Now if you have cost of sales, you're going to want to put your cost of sales number in this box. Most people that follow me tend not to have but you may be one of those people that does and therefore your materials and subcontractors box. This is anybody that you subcontract in to do work on behalf of your clients, and any materials that you use. So for example, tradespeople have quite large numbers in this box. If you run a restaurant, you might have very large numbers in this box. But if you are, for example, a business coach, you're not gonna have anything in the materials in some chapters box at all. If you're not sure whether you have materials and subcontractors in your business, ask me in the comments, and I will let you know whether you need to put anything in this box. But again, this is excluding VAT. So how do you find this number? Well, the easiest way to find it and the closest to it is again by running a profit and loss account in your bookkeeping software and selecting cash basis. And looking at the cost of sales section. It's not entirely 100% like for like but it's a close enough enough approximation for this exercise to give you the data that you need for it. So that is what you want to look at there.

Now the next line is your real revenue. This is just a calculation of your top line revenue minus your material and subcontractors. So for many businesses, your real revenue is going to be the same number as your top line revenue if you do not have anything in that materials and subcontractors line okay. Is everyone with me so far? Please let me know if everyone is with me so far. I don't want to lose people give me some likes, give me some hearts. Give me on okay, I'm with you in the comments so that I'm not losing people because I do not want to lose anyone at this stage with it. So do let me know if you've got any questions. If there's anything coming up for you that is funky, is weird, you don't know what's happening. You're confused by it or you're somewhat with me Becky, if you have questions that I can clear up, please please ask them please let me know.

As I mentioned, if there's anyone hopping on now, I do have a template for this where you can fill in these numbers on a Google sheet that I've already set up for you. I've already set up the formulas. So there is a template available, you just need to go to the link that's in the description, I've also included the link in the comments. And you'll get that to your inbox that Google sheet, you can then copy, do not try and ask for edit permission. If you ask for edit permission, and I give you edit permission, and then you start editing the document, everyone's going to see your edits. That's why you never want edit permission, you want to copy the sheet. And then you can use it to your heart's content with no one having access to it and you not messing it up. So you want to click on that link when it comes to your inbox and, and copy the sheet and then you can use it and enter your information. Like I mentioned, I have already done the calculations in there. So once you put in a few numbers, everything will calculate for you, you don't need to worry about getting out your calculator. Clive is giving me a thumbs up. So hopefully, Clive Clara's got it as well.

Becky says they don't have an accounting system yet just write stuff down. Okay? In which case, Becky, what you will be doing is on a cash basis anyway. So you're gonna have to get out your calculator and add up the stuff you've written down. So for your top line revenue, you're going to have to add up your sales from what you've written down and put the total sales in that box. If you have materials and subcontractors, you're going to have to add up what you've written down, then come under those headings and pop it in that box. So yours is going to be a bit more manual. If you're doing everything, when you see written down, I don't know if you mean in Excel or physically writing it down. If it's physically written down, you're gonna have to get your calculator out quite a bit in order to just get the numbers in here. So yeah, so that's going to be what you'll have to do Becky for that. So like I said, now we're on the real revenue box, the real revenue is your top line revenue minus any materials and subcontractors that you might happen to have. Now, it's where it gets a little bit more funky.

The next box that you have to fill in is profit. But that profit box, if I were you, I would be leaving that to the end. Because the easiest way to do this profit box is via a calculation. Now, I have not included that in the template because not everyone will want to use the calculation with that profit box. But it is what we typically would do. And the reason is that the profit here in this box is not the same profit that you see at the bottom of your profit and loss account. Because the profit in this box, what it means there is it means cash profit, exactly Becky leave the profit box to the end. Because in there in this table, profit means cash profit, it doesn't mean the profit that you see in your profit and loss account. So leave that for now. And I'll come back to it.

The next box is owner's comp. That is the money you have taken out the business. That is the money you've taken out regardless of whether you've taken out as a sole trader, regardless of whether you are a limited company, if taken out via salary, dividends, whether you have taken out of your Directors Loan Account, it doesn't matter. This is the amount of money over the time period that you've decided to look at that is physically landing in your personal bank account. So you can get this number. Probably the easiest by going to your personal bank account and adding up that those numbers adding up the amount that's coming into your personal bank account for that tally. That's probably the easiest way to do it. Because if you look at any bookkeeping software that you have, you may be classifying that differently for tax purposes. Therefore, the easiest way to get this owners comp number is look at your personal bank statements and add up what you have put in to your personal bank account from your business bank account over the 12 months if you're looking at it and over 12 months or a shorter period of time if you're doing it shorter. Becky says I haven't paid myself anything yet. In which case Becky you put a big fat zero into that owners column box in there.

The next box is tax. Now this tax box what it means is corporate tax if you are a limited company, plus any personal tax liability, or if you are a sole trader or a partnership, this is going to be the amount you've paid in personal tax. Again, this is cash out the door so the easiest way to know how much cash you paid out in in those is again to look at bank statements and see Tax payments, this tax box does not include VAT payments, and it does not include any national insurance or PA ye payments. This is purely corporation tax plus personal tax that goes in this tax box here. Again, if you have been lost making, you may not have paid either of these, in which case you would put a zero again in that box too.

And then operating expenses. So along with profit, this is one of the harder boxes to complete. Because operating expenses is going to be the other things you've spent money on in your business. So the natural tendency might be to run again, a profit and loss account on a cash basis and add up those expenses. But you can do that, but you're gonna have to add in some other stuff. Because, for example, if you are making payments loan payments, let's say that you are repaying a bounce back loan, then those are going to go in this operating expenses box, as well. So if you have, you know, a loan for equipment that is going to go in this box, too. So you will have all your payments, then go out your profit and loss account. But you may also have some that you only ever see in your balance sheet. So this is going to be a little bit of digging around to get this operating expenses number. Alternatively, you can also run a cash report. If you have a cash flow summary a cash flow report available in your bookkeeping software, that is going to be the easiest place to get this number, yes, you'll still have to do some adding, but you'll be able to see the cash movements in there. So you'll be able to add up the lines that you've not included yet. So basically anything that is not materials or subcontractors that you've included, anything that's not payments to you that you've already written down now, and anything that's not tax payments, you could add those up and get the total for that operating expenses box. The more painful way is to add up everything that is being paid out through your bank account, you could do that that might take you some time. But you absolutely could do that it might be easier. If you have a CSV download, you can then just pull out the costs that we've already discussed that we've already covered, and then add it up that way.

Now, again, if you have any questions about how to get that number, if you're not sure if you're using a different system, please do let me know. And I will cover that off. I will answer any questions that you have on this because I really do want to make sure that you get this sorted.

So now we're going to move back to that profit box. Because that profit box is essentially what is left over. So in most instances, the best way to calculate this will be your real revenue, minus your owners comp minus your tax minus your operating expenses. And I mentioned I haven't put that formula in. But you know what, I think I probably am just going to quickly do that. Because I think that's actually going to be the easiest for everyone involved. So I'm going to do that right, this second, I'm going to put in that formula in to the sheet. Because I think is going to be easier if you have that in there for most people to calculate that. So I've just added that into the template just now. So if you've already downloaded the template and gotten a copy, just go back and copy it again, and it will be in there now. And that will probably be easier for you. I want to make this as easy as possible for you to complete. Absolutely Becky profit is what is left over because this is cash profits. And we're just thinking about, Okay, what cash is left. So the next column that you have we filled in all the actuals No. The next column that you have is called Tap standing for target allocation percentage. And this is basically the percentage that you want to try and hit when you are implementing Profit First, like I mentioned, you can find that on page 68 of this version of the book. I also have included it in that template on the second tab that I have in there. So you can pull the numbers from there and depending on your level of revenue in your business. Now those numbers are annual revenue in your business. The real revenue range, depending on what your annual revenue is depends on what you put in the box for the target allocation percentage for profit owners pay to tax and operating expenses, by the way, I often call that owners comp owners pay owners pay owners compensation is the same thing. Here, I often just refer to it as owners pages, just so you know, in case there's some confusion there. Now, the next column is the is it says P F, and in the book, it has dollars in my template, I obviously have pounds there. And that basically is saying, okay, under Profit First, how much should you be spending on each of these areas? So again, if you use the template that's pre calculated formulas for you, but if you don't, what you want to do is you want to say, Okay, so my real revenue is x. And I know my target allocation percentage formulas. So what I need to do to work out how much sang profit I should have, I need to multiply my real revenue by the percentage that is applicable to my business for profit to get what I put in the P F, lb. But box, and you do that for each of the headings. Okay. Again, like I said, the template has this calculated out. So it's probably the easiest thing to do if you are not comfortable with working with calculators if you're not feeling that confident with doing the percentages. Yeah, exactly. Thank you. Thank you so much for summarizing in the chat. I highly, highly appreciate it. It's always great for people when they're coming back to see this when they do have do have those summaries in the chat. So in the comments, so massively, massively. appreciate you helping out with that, Becky, thank you so much for doing that. So then the next column that we have is the delta. That's the difference. What is the difference between where the business is now and where we want to get it to under Profit First? What is the pound difference between those two situations? So let's say that at the moment in our business, we work out that our actual profit is 1000 pounds. And let's say that under our target allocation percentages under that profit, first pound amount, it should be 5000 pounds, the delta is the difference between the two. So the 5000, less than 1000. So the delta is 4000 pounds, that means we're 4000, short, on profit from where we ideally should be. And the box that feeds off of that is the fixed box. So in this instance, we would say, Okay, we should have 5000 profit, we've got 1000 profit. So the fix is to increase the profit. And that's what goes in the fixed box. Again, this is all pre calculated in the template for you. So you can absolutely make use of that.

And that is how you get your Profit First Instant Assessment formed on. When you look at this, it really helps with the clarity and understanding around what needs to change in your business in order to become more financially healthy, in order to, as Mike says, transform your business, from a cash eating monster to money making machine. This is a big, big part of it. And I know that this is an area that people really struggle with doing themselves. So again, if you have any questions when you sit down today, to plug those numbers in, please do ask, please make sure that you ask either in the comments to this video, or in a separate post. If you feel like you've got too much to say for a comment section. I will loop back and answer those. I will be coming online again later today to come back and answer any questions as I am going to be all this week to help and support you get this in place in your business. I am so so keen to make sure that each and every one of you by Friday feels like you really do have things going in the right direction in your business when it comes to implementing profit first. So it may be as you go through this, that you end up with loads and loads of questions. It might be that every single box are like I don't understand, I don't know how to do please ask please just ask. No question is stupid. No question is silly. No question is dumb. And in the entire likelihood is that if you have the question, you are not alone. There is going to be someone else that has exactly the same issue as you or a very similar one and they can learn from it. reply as well. So do make sure that you do that. That is what I am here for that is the entire point of this sprint this week.

So I will be back again tomorrow, same time, same place for doing your profit first sprint getting profit first implemented in your business. I hope that you can join me for that, like I say any questions in the meantime do ask in the group. I think that is everything for now. So unless anyone has any questions today, please do ask them in the comments. If there is anything that you are wondering anything you're not sure of. I will hang on for a 30 seconds or a minute longer just in case anyone is busy typing with any clarifying questions that they need just now. Please do ask those. Please do make sure that that you make use of me I would really love for you to do that. So make sure that you do I can't see any questions coming in. You are welcome Clive no problem at all. And so I will sign off now. But I will I will be in the group later checking to see if we've got any anyone that needs my help my support. And I will speak to you all again tomorrow. Take care everyone

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About the Author

Owner of Annette & Co. - Chartered Accountants & Certified Profit First Professionals. Helping online service-based entrepreneurs find clarity in their numbers, increase wealth and have more money in their pockets.

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