Money Leaks: Finding Them and Eliminating Them
In getting the proverbial light and delivering your owners comp and profit to your business, it is important that you thoroughly examine if there are money leaks in your expenditures.
Day 3 of the sprint in implementing Profit First in your business, I talked about money leaks and how it is absolutely great to allocate your time to find, assess and eliminate money leaks in your business. Here I will teach you an exercise that needs to be done on a regular basis because businesses change over time.
If you are listening to this on a replay, you can still send in your comments and questions and mention “replay” and I will still go over your comments and questions.
Here are a few insights you’ll hear in today’s show…
Listen To The Episode
Listen to the episode on the player above, click here to download the episode and take it with you or listen anywhere you normally listen to podcasts.
Subscribe To The Financial and Lifestyle Freedom for UK Business Owners Podcast
Welcome to Day 3 of getting Profit First implemented in your business, I have been so incredibly excited to see everyone who is implementing, who's got their bank account set up and who has done their Profit First instant assessment. I know that is such a scary area for so many people to actually pull out those numbers, work at, work with the numbers and get them into that sheet. So I am so so pleased to see and hear of so many of you managing to do that. And for many people really looking at the numbers for the first time in their business. So there's, there's just lights me up that this is happening this week. I am so excited for you because this is how we get control of the cash and the finances in our business. This is how we get clarity on how our business is doing. Becky, nice to see you, Eloise nice to see you. Oh amazing Becky! Becky is saying she has done her instant assessment. I am so so happy for you Becky, it is so amazing to see everyone who is getting that ticked off this week.
So today, we're on day three. And that means we're going to speak about money leaks today. Now money leaks is really not something that's covered in depth in the Profit First Book. But money leaks is basically the main reason that we have seen over eight years in being a Profit First certified, over eight years in helping clients to implement Profit First in their businesses. Money leaks is the absolutely main reason why people try Profit First, and they fail. It's why people start moving the money around putting it into the various pots and then they have to kind of steal it all back for their operating expenses of their business. So making sure that you fine address and eliminate money leaks in your business, is absolutely key to getting profit first working for you. Like I said, it's really not mentioned much in the books. It's really not covered in depth. And that is why I want to cover it today because it has been absolutely core in getting profit first working in the hundreds of businesses that we have worked with at Annette and Co to get profit first implemented and support people in getting profit first working for their business. So amazing! Oh, Becky says posted yesterday. But didn't see your post I have to go through all the posts from yesterday, Becky still. So I'm going to be doing that for sure. Becky's saying money leaks, I want to deal with this. Yeah, it's absolutely paramount in your business. So if you've been around me for any length of time and seen and heard my content before, you may have very well heard me speak about money leaks. It's one of those things that I do buying on about quite a lot. And that is because it is so incredibly fundamental to getting this stuff working in your business, getting profit first in place, and getting a robust cash management strategy working for you.
So what is a money leak? Well, a money leak is money that is going out of your business that is either one, not 100% necessary to keep the proverbial lights on in your business, or to is not delivering you a return in terms of money, or time. So I'll say that again, a money leak is money that is being spent in your business that is either one not 100% necessary to keep the proverbial lights on or to not delivering your return in terms of money, or time. So how do we actually find these money leaks? And how do we get rid of them? Well, that is exactly the exercise I'm going to talk you through in this session today. And you will need to set aside a little bit of time in order to do this. It might be an hour even in for some people. If you've got a lot of transactions in your business, it may be even longer, but it's absolutely a great use of your time to find, assess and eliminate money leaks in your business and this exercise that I'm going to talk you through as well today. If you've heard me speak about it before and you've done it before. I highly recommend that you do it again. This exercise is something that you really want to be looking at every quarter in your business, because businesses change and morph over over time, and something that was not a money leak three months ago, could very well now be one if you have morphed your business, pivoted, change strategy at all.
So what do we need to do this money leaks exercise? Well, you need to gather together all your business bank credit card, Pay Pal statements, anywhere where money is being spent from your business or for your business rather. So gather together all those bank statements, all those credit card statements, wherever money is being spent from, you need to gather those together. And ideally, you want to do this for the last 12 months in your business. Now, if you really can't do 12 months, you can do three months or six months, but the ideal is the last 12 months. And you'll understand why in a second. So gathering all those together, now, I'm going to describe this exercise as if you have the physical paper copies, because personally, I like to do it on the physical paper copies. But you can absolutely do this with a CSV and adjust what I'm telling you to do that with a CSV download or something like that. So you want to do this again, also, actually, from the bank statements, either the physical copies or the CSV, not from like your Xero or your QuickBooks, okay, because you're not gonna be able to see things as well in there, it's not going to be as obvious to you. So you want to do this, you know, physically with statement copies, rather than from your accounting or bookkeeping spreadsheet, or from an accounting or bookkeeping system, because we need the gland granularity for this exercise. So you're going to gather together all those statements, and you're also going to gather a highlighter and a red pen. And again, if you're doing this electronically, of course, you can use the electronic versions of those. And what I want you to do is get that pile, get your highlighter in your hand, and go through every single item of spending every expense item on those statements. And for every single line, ask yourself this question, is this expense 100% necessary to keep the proverbial lights on in my business, not a nice to have not 80% necessary, 100% necessary. I could not run my business without this, it would not be possible. It's just isn't, just not able to run my business without this expense. That's going to include things like taxes and insurance costs. Okay, not able to run without them might include members being a member of a professional body that you have to be a member of, for example, as well. So if the answer is yes, 100% necessary, then you're going to highlight that transaction. And you're going to go through every single line item of expenses, every single page, every single month, every single item you go through and you ask yourself that question. Now, in some instances, you will have things that you pay for monthly or even to weekly. It's okay to ask yourself that question 12 times or even 24 times, it's okay. Because sometimes, after the fourth or fifth time, you might think, Well, maybe it's not 100% necessary, maybe isn't nice to have. So ask yourself that question the 12 times when you're going through those monthly statements, page by page, line by line, do this part first. Don't try and merge the two bits that I'm going to talk about you together, because people will try and do that to cut corners and be a bit quicker. Please don't please focus on this one question first, 100% necessary to keep the proverbial lights on in my business. If the answer is yes, you highlight that spending. And once you've got oh, excuse me, once you've got to the end of the pile, you're going to flip it back over. And you're going to pick up your red pen this time. And this time around, you're going to ask yourself, Is this expense delivering me a positive return in terms of money or time? What that means is, the money I am spending on this, is it delivering me more money back to me? That's a return on money. So more money that I'm spending, is it giving me more back? You ideally would have that if you are running ads. So let's say you're running ads, and you were spending 100 pounds a month on ads, you should be able to directly link more income than that back as a result of the ads and in which case it's giving you a positive return in terms of money. And a positive return in terms of time is slightly harder to assess. But you should ideally from your team be getting a positive return in terms of money and time. So for example, a member of your team should be able to help you be bottom line positive in your business, you should be able to get more money back from your team's wages than you're paying in their wages. And it's the same with time. So let's say you take on a salesperson, they should be returning revenue, but they all should be freeing up some of your time, so you can be revenue and profit producing as well. So it's only in that situation where the time being given to you is able to be spent on profit producing tasks by you. Okay? You're not getting a return on time, if they're just taking stuff off your hands, and you are not doing profit producing things. Yes, you deserve free time, and you need free time and all that kind of stuff. But we want to make sure that you're getting a return. Okay? So if the answer is yes, I am getting a positive return in terms of money or time and you circle it if you're not sure the answer is no. Okay, so you don't circle it. If you're like, oh, no, no, no, the answer's no. Okay. So yes, I'm getting a positive return, return on money or time you circle that. And again, you go through every single page, every single line item every single month. And sometimes you have to ask yourself this question more than once. And that's okay. The reason that we do this for 12 months, as well as your annual costs in there that happen, and if you do it for 12 months, then you can see by going through every single item that you're going to catch those annual costs that happen as well. So now that you've been through all of your statements, all of the spending that's happening in your business, for the last 12 months, some of the items will be highlighted, some will be circled, and some will be both, and some will be blank. The blank ones, the question is, what is the purpose? Because they're not 100% necessary for your business, and they are not delivering you a positive return? Therefore, why do you have them? Now, in most instances, the answer will be they're nice to haves. Some of them will be Oh, it's things I forgot to cancel or downgrade, and I don't really use anymore. Most things will be nice to haves. And the question is, do you really need the nice to haves, because the nice to haves in your business, they are usually the things that are taking money away from you and your family. They are usually the things that are pure money leaks in your business. And they are usually the things that mean that your owner's comp and your profit are lower than they should be. In your instant assessment most most people 99%, now I'm going to say 99.9% of people, you're going to have that you need to increase your profit and your owners comp as your part of your instant assessment. Eliminating money leaks is how you do that. It is a big, big part of how you do that. Yes, you can increase revenue, but you need to control the costs and eliminating money leaks as part of that. So my homework for you today is to do this exercise is to find those things in your business that actually you're not using and you can cancel or that you are not getting a positive return on and you need to stop or that are nice to haves and are actually not doing that much for your business at all and you can downgrade or eliminate.
Now some things you are going to be in contract for you're not necessarily going to be able to cancel them today. And for those things that you are in contract for, you can diarize for when that contract finishes, and you can make sure that you then are able to cancel it at that point in time. And by the way, there are people in your business that are working with you, you need to put them through this lens as well. Whether that be an HR consultant, a PR person, your accountant or bookkeeper, all of these people should be able to give you a positive financial return. If they are not, then that needs to be assessed as well. So every member of staff should be giving you a positive financial return, they should be bottom line positive, and in most instances, also giving you a time return as well. So it's not just about the pure spending, the subscriptions. It's about looking at every single item.
So that is your homework for today. I would love for you to let me know in the comments thread today if you have managed to eliminate some money leaks in your business, because this is a big, big part of getting profit first working. The reason is that if we don't actually really examine our costs in our business and really examine our spending, all that goes, that happens then with Profit First is people go, Oh, okay, great, I'm gonna move money around to the other bank accounts, and it's going to fix everything. But it doesn't fix everything, because you're still overspending on OPEX, on operating expenditure. So if you're still overspending on operating expenditure, all that happens is you put money to the other bank accounts, you have to take it back to spend the money in operating expenses, because they've not been addressed. And for 99.9% of businesses, you will have decreased operating expenses as your one of your things in your instant assessment. So addressing that, and making sure that that is under control is one massive key to unlocking the other parts for you. So that is what I tasked you with today. I know for many of you, if you are uncomfortable with numbers, uncomfortable with figures, this again, might feel a daunting task.
But really looking at your statements. And your spending, again, gives you massive clarity on what is happening in your business, I bet many of you will look and you'll spot subscriptions that you didn't even know you were still paying for, or things that you just don't use any more pieces of software that you're paying seven pounds a month for that you haven't logged into for the last year and a half. I know that I did when I first did this exercise, there was loads of that stuff. And I do this exercise myself every single quarter because things change. Because the tools that we use the subscriptions that we get value from, all those things change frequently in our businesses. We might be testing something over here that hasn't quite worked, and we've not canceled everything. Yeah, Becky says domain names you don't want, oh my goodness, Becky, I used to be the biggest domain name junkie you have ever come across in your life. I bought hundreds, literally hundreds of domain names, hundreds of the things. And I never ever used them. Basically, anytime I had a great idea, I would buy the domain name. And I had just such an insane number of domain names. So absolutely, I turned off auto renewal on all the ones I didn't use and didn't need when I did this exercise because I just didn't need them. So that's a great example Becky of, of something that people may have lurking in the background of their business.
So that's your task for today. I hope this session has been useful. As always, any questions asked me in the group, I am popping in a few times a day just to make sure that I catch everyone's comments and everyone's questions, I really want to make sure that I'm supporting you fully during this sprint because I am so passionate about you guys getting this in place in your business. So I will try and make sure that I'm able to see all the comments. Of course, sometimes Facebook does some funky stuff. But I will really make sure that I do my very best to, to do that. Do make sure if you're enjoying this series as well. You'd give us some likes some hearts, all those good things on the video, some reactions to the video, so that it makes sure that Facebook puts this out to others in the group who may not have spotted that this is happening yet as well.
So I thank you for joining me today. I hope that you have an incredible yet rest of your day. It is a beautiful, beautiful day here in the Scottish Borders. So I am going to spend some time working outside today. As long as I don't get too hot. I need to put sun cream on though because my my incredibly pasty skin burns very, very easily. So I will be doing that. But I am going to do some work in the garden today and enjoy the incredible weather that we don't often get north of the border here. So I hope you all have an incredible day as well. You are welcome Clive. Thank you for joining me as always everyone, you're watching the replay, remember and hashtag replay me as well. And I will speak to you all again, same time, same place tomorrow, we're going to start looking at those allocations tomorrow. We're going to kind of tee up the system to make it really simple and easy for you to do your allocations into your profit first bank accounts every week or every two weeks. That is what we're teeing up tomorrow ahead of doing an allocation on Friday. So thanks again. You're welcome, Becky, thank you for tuning in live. Thank you for those who come on the replay as well. And I will see you all really soon. Take care, everyone. Bye