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Show Notes

Ever wonder what happens behind the scenes that actually translates to increase profitability and more money in my client’s pocket?

If you’ve ever wanted to get a backstage pass on what we ACTUALLY work on and how it translates to more money in the bank and profits, you’ll want to listen to this episode.

In this episode I walk you through the entire process with a client case study and how this client ended up being able to pay herself more, reduce her working hours and increase her revenue by 60% in just 5 months.

We discuss:
– The challenges this client was facing before we started working together and what was going on in the business
– The initial analysis and how it revealed there was a money leak in her business
– The inital work we did implementing the savvy cashflow process of Profit First
– The exact projects we got to work on to improve the operations of the business and increase profitability.

If you want to know what this process looked like and how you could translate this into transforming your business, tune in.

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Episode Transcript

Hey, and welcome back to Prosper and Profit. I’m excited to be chatting with you today and to walk you through this really cool client case study so that you can get an idea of what is possible in terms of change in your business, and what we actually do to make that change in your business.

So let’s dive in and share this with you. As always, I’m excited to hear your thoughts and your feedback on this episode.

This client case study is one of my clients who managed to reduce her hours, increase her pay and profit, and also saw revenue increase by 60% in five months. Now, these are pretty incredible results. Obviously, everyone’s business looks different, and the results that everyone achieves in their business are different. But I wanted to talk about this because it highlights what the financial information can really translate to in terms of projects.

And it gives you an idea of the projects we actually worked on in the business that were informed by the financial analysis and that obviously flowed on and changed the financial results. What’s important to say is I’m going to keep this fairly vague in terms of specific details of this business and this person because I don’t want the person to be able to be identified, and it’s not about the specific business, but it’s more about the levers that you can pull in your business to create these kinds of results.

Now, this is a fairly established business, had seen a big season of growth, and even then we saw a 60% increase in revenue in five months off, a fairly already high base. You know, sometimes it’s easy to grow 60% if your income is $2,000 a month. But this client is significantly more than that. It’s five-figure months, and we saw an increase by 60% because of some of the things we worked on.

So, what I want to show you in this case study is what exactly it looks like to work on projects that improve the financial performance in this business and meant that my client was able to reduce her hours, to pay herself more, and she started paying herself superannuation, which is really exciting. That is the Australian equivalent of retirement savings. She wanted to put that in there. And she’s also seeing the business grow.

So, this client came to me with a question mark about one of the lines in her business. She had different service lines in her business and she had a question mark about the profitability of one of them. She just kind of said she didn’t really understand what was happening, whether it was profitable, whether it wasn’t. And so that was one of the questions we wanted to answer in the high-level review that we did. So obviously, I took her through my process, which is a goal-setting session, so I can understand exactly what she wants to achieve. I then did my detailed financial review of her business using all of the reports that I asked her to provide to me. I gave very clear instructions to my clients on how to go and get those. So it’s not overwhelming. I walk them through. And I did a detailed analysis to answer that question of is that service line profitable and then what’s happening overall and how did we achieve her goals? Because her goals were she wanted to reduce her hours. She wanted to pay herself more and start paying super. And she didn’t want to have to be the one always working in the business to do so.

When I did my analysis, it showed that one of the service lines that she had the question mark over actually wasn’t profitable at all. It was making a small loss. So other service lines of her business were subsidising that business. And when you took all of the business together as one, which like Xero reports just spit out your entire business, but I broke it down into the different service lines and analysed each one independently. It showed that this service line wasn’t profitable. It was costing more to run than it was bringing in.

So one of the first things we wanted to do was an expense review because remember, the challenge was that most businesses can find a way to cut costs by 10% overnight without an impact on the business. So we did that in her business, and I’m going to be honest because I think it’s really important that we share both sides of these things and what happens in running a business. She had a couple of tough decisions to make that weren’t easy. And in all of the projects we worked on, she had to go and have a couple of difficult conversations with suppliers and people in her business and all of the things. And that’s not necessarily easy. And obviously, I coached and supported her through that as well, having difficult conversations, how to communicate changes, all of the things. So the first thing we did was an expense review. And we found things that we could reduce straight away. She was running her business fairly leanly. And it wasn’t, there was a huge amount to reduce here, but we did find something that is taking out about $15,000 of expenditure per year out of her business straight away. So we did that and we looked through as well and found other things. Because as well, sometimes it’s just the compound effect of a few small things that add up as well. So we did the expense review and we found some savings to be made there. We found one good chunk that was really good to move the needle. And we found some smaller, incremental things that would make small changes, but this wasn’t the place that delivered the biggest bang for the buck, right?

And this is why traditionally when you go to an accountant, and I’ll record an episode about this in another episode, but your accountants really tell you to pull two levers. If you want to increase profit, they’re going to say increase revenue or reduce expenditure and kind of not looking at the nuance that sits behind it. So we did find expense savings and cost savings, but this was only one of multiple needle movers that we found in her business. Right.

The second thing we worked on was a capacity increase. Now, what my review showed me was that the operations of the business were not being maximised to their full capacity. What does that mean? Let’s think about a beauty business that maybe has four rooms available to deliver services in them. Ideally. The way to deliver the most capacity is to make sure that all of those rooms are being utilized for all of the opening hours. And that the staff are fully booked and we want to be targeting having our staff, if you have staff, ideally, we want them at like 80% of revenue-generating work. In the health and beauty space, there has been a big swing to having rooms and chairs available for rent. So your business may have other assets. Now your business might not sit in either of those, but just think about what is the capacity you have. It may be simply your own time. Right. You may have assets in the business like chairs or rooms that you can rent out beds. Right. And you may have staff. And we want to look at maximizing those. So with this client, we looked at. Capacity increase and getting that up all of the time because what I found and what I broke down for this particular client was I looked at what does it cost per hour for the doors to be open? Now, this is easier to do in a bricks and mortar business, but if for an online business, you might look at what does it cost for your to be running for you to be doing the marketing, for you to have the computer on, for you to have the lights on in the office, all of those things. So we looked at what does it cost per hour for the doors to be open? And what does it cost per hour to have staff? And we identified the gap between what she was currently doing and what she could do. And it was significant. There was a lot of room for her to increase the amount of money she was making without having to increase her expenditure. And so this is the second lever that we pulled in the business to create an increase in her revenue without increasing her costs.

The next thing we did was the detailed costing review, which I mentioned. Showed the cost that it was for the doors to be open every hour.  And the cost of different services to be offered. And what became clear straight away was that there needed to be a price increase. So the input costs had risen, the cost of having the doors open, had risen. And so this client put through a price increase again, another piece that we worked on the communication we worked on. How much the price should go up by all of those things. And that was another pace that contributed to this result and that the detailed costing review showed. 

The fourth thing that we did. Was start looking at a new revenue stream with a industry specific staffing thing that was available for this client. I know that’s vague. But again, I want this to not be identifiable but what we looked at was a new revenue stream. The reason we looked at this for this particular client was she wanted to reduce her hours and her hours were mostly spent. Delivering the service to the client. And what we wanted to do is be able to reduce that and have the business pick up more of the hours, right. Or like the business subsidised her hours is probably a better way to say it. So we needed to look at well, how can we build out streams of the business that replace your income that are still profitable? 

So we looked at some of the existing assets where we looked at the capacity increase. , we looked at that expense side of things. We looked at the costing and therefore did a price increase, which means. She could see, slightly less clients and make the same amount of money. That price increase flowed across two different services within the business. So we put a price increase through our different service lines within the business that in this case, in this business, the different service lines generate income in a different way. So there was a service line that was related to her, delivering the service.

There was a service line around the assets within the business, and then we also added a new service line where we looked at an industry specific staffing arrangement, which like, if we think about like labor hire in the construction industry, and this is how a lot of businesses work even trades. I always, I often go to trades because my partner is a tradie. So I’m across those businesses as well. You have an apprentice as a tradie. Who you charge out at a certain rate? Which is less than what you pay them. So I’m going to completely make up numbers here, but just say your apprentices being a paid the equivalent of $28 an hour, but you charge them out at $40 an hour. You take a margin on their hours. And that translates across into like any business that has staff. If they are revenue generating staff, because our staff can do two things, they can either deliver a service and therefore they add revenue and they add profit into the business. Staff can be more administrative that support the business and give people time back but they are a cost to the business.

So most businesses can grow their business by bringing in staff and opening up a new level of capacity. And then the business owner obviously charges a rate of the service to the client that covers making profit, the input costs, including the staff costs. So they make a margin off of that. So with this client, we also did that. It was a change up to how she thought about her business but she went ahead with this and that was a big contributor to the uplift that we saw in revenue. So you can see over the course of four or five months, there were quite a few different moving parts.

We worked through each one like sequentially so we weren’t doing multiple things at a time. We tackled one thing after the other. So we tackled the expenses first. Then we tackled increasing the capacity of the business assets. Then we tackled a price increase. Then we tackled the new revenue stream. Then we actually tackled a second price increase for the second line of business. So you can see, we worked on one thing after the other, but all of these things. Things stacking together. Right. We’re making sure that profitability was coming. Up and the client’s salary was being subsidised by more passive work in her business where she didn’t have to deliver the service. So, you know, that idea of people [00:16:00] trading time for money, kind of thing, where they’re the one delivering the service. 

We were starting to look at ways to replace her, having to predominantly deliver all the services to generate her salary and her profit. And all of that together is what created this result. So what she saw was that she was less stressed and overwhelmed. That happened as a result of, implementing Profit First. So Profit First implementation is done in the first month after when I talked about at the top of this episode, the process I took this client through. When I deliver the report back it explains what’s happening in the business. The next step is we implement Profit First. We set your process for you. We set when you’re going to do your profit first allocations, we open the bank accounts. , I give you a calculator so that you can input how much money came in. And it tells you how much to move to each of the bank accounts based on your current percentages. 

So we set that all up, so in that first month, basically she had less stress and overwhelm. And felt really comfortable that she was starting to understand and know what was happening in her business. Right. She went from, I don’t know if this thing’s profitable. I don’t really know what’s going on. I tend to avoid this. I know it’s time to look at it, but it feels really hard. To I know what’s coming in. I know what happens to the money. I understand how it moves around the business. I’ve got a really savvy process set up for myself. I know how I’m going to pay myself. We had all of that set up and straight away, she felt less stress and less overwhelmed, which were two of the key challenges she brought to me when we started working together. She was also from this process of having an understanding and awareness of how things happen in her business, some of the tasks that she felt overwhelmed by and that she couldn’t do, she actually had the realisation that it made more sense for her to do them. Right because she, she was more in touch with the business and she saw how stock was moving through the business. So there were certain things in terms of stock orders and things like that, that she felt the confidence to take back and she could do in less time. And more efficiently. 

So again, she was able to take some tasks back, which freed up time from someone else in the business and what usually happens is either then we can reduce the administrative hours that we’re paying for, or that frees up time for, a revenue generating staff member to see another client. So she had that happen. 

The second result that she saw was that she was able to consistently pay herself. 

She knew she was paying herself the right amount, she had been paying herself consistently beforehand, but she was always worried, is there enough? Is there not enough? That kind of thing. And annual leave was a challenge because obviously when she took annual leave, she personally wasn’t seeing her clients and often annual leave meant she didn’t have the money to pay herself. 

So it was kind of unpaid leave, which many business owners are going to raise their hand and feel me on that. Like, that’s very common, but it doesn’t have to be this way. So we reverse engineered the amount that we were setting aside so that it was building up a buffer for if she was ever sick and couldn’t see clients and for annual leave. So the idea was she could consistently pay herself the same salary every week of the year, whether she was seeing clients or she was sick, or weather she was on annual leave. So straight away that was an increase to pay because traditionally she hadn’t been paying herself annual leave because she didn’t have this savvy cashflow process in place, which is Profit First.

She also started paying herself superannuation which was a goal that she had and so she incorporated that into her processes and now pays herself her superannuation every week. So you can see how game-changing that is suddenly my client, she feels less stressed and less overwhelmed. She’s building up a buffer so that she can pay herself on annual leave. So that she can pay herself if she’s sick. Right. There’s so many flus and things going around that knock people out for three or four days. She knows if she got sick, she can still pay herself. And that is such a game changer from I don’t know how much to pay myself and I’m not being able to pay myself and as soon as I stop, you know, being on the treadmill of seeing the clients, there’s no money to pay myself. 

We changed that. And now the other lines of her business that we are working on are subsidising her salary. So her salary is no longer just coming from the work she does in the business. The other parts of the business that aren’t her working on providing client services, are starting to contribute to her salary. So you can see how that then reduces her need to work all of the time. That’s how she reduced her hours because other parts of the business are now subsidising her salary because we increased the capacity. We got them running more efficiently. We put through the price increases. And those things are suddenly able to fill up her bucket, so to speak of owner’s compensation. 

Her cash profit increased. Right? Of course, because we had a business line that was unprofitable and the other lines of the business were subsidising that we turned that around. We started with break even. And we are starting to move more and more to increasing the profitability of that line. These things can take time to work their way through. Pricing increases can take time by the time we notify people, right? Put the contract in place, make the change. These things can take a bit of time to work through and some cost reductions can take their time to work through, getting things fully booked in at full capacity can take a bit of time to work through. So we’re just at the point now where that is moving from break even into increased profitability. So, what that means is there’s still more profit cash available because the other business lines are no longer compensating for that unprofitable line, that unprofitable line has gotten to break even. 

So the profit is increasing and the profits going to increase further. As that that line of the business moves from breaking even to increasing profitability.

The revenue increase has come as a result of multiple things. It has come from the result of increasing capacity. So if capacity is at 60% and it gets to 80%, that is obviously more revenue generating because there’s more payments coming through. For either the client services or the assets that you have available in your business. Like we said the rooms in a beauty room, if they were occupancy was 50% and you got them up to 90%, that’s going to be an increase in revenue without you having to do any more work. So that came from increasing the capacity. Increasing the pricing and the new revenue stream that was brought in. 

This client also had some business debt, which again, a bricks and mortar business, this can be very normal. I don’t want to say everyone has it. But bricks and mortar businesses require big rental commitments, fit outs, these things are really normal that require larger amounts of cash upfront. So say for example, I’m just going to give a completely different industry to highlight this. A cafe. They have to fit out the cafe before it can open and set it up to be at cafe. So they need to upgrade the toilets, they may need to build the bar, build the servery. They need to get all the plates, chairs, and tables. Like they need to set up an entire cafe and fit it out. And even sometimes they, they come preexisting, but they need to make changes to it and all of the equipment and things, the coffee machine, right? The ovens, all of the things that go in there that all is the fit out and commonly, this is funded through business loans. So this client had a business loan as well. And what we are doing is we’ve created a pathway to pay that off faster, because that’s a goal for her is to pay it off sooner than the length of the loan and so we are using the increased profit to do debt reduction. Now we are already, she’s already making the required debt payments out of her operational expenditure. And that is all of the work that we did is making sure that set aside, understanding the split of that.

We even created additional accounts for her, so usually profit first we use five accounts. That’s a starting point. For this client, the rent, electricity and the debt repayments are all separated out from the other day to day running costs of the business. So what this now means is she is using some of her quarterly profit. Distributions. To pay down the debt. So every quarter she’s making another hit on the principle of the debt and it’s reducing faster.

So all of that has come from this work with profits. And I really wanted to highlight this to you because I always talk about the financial data revealing the operational work that we need to do, but I wanted to illustrate to you what that actually looks like. And this case study gives us a really good example. We’ve got, kind of four, different key areas that we worked on. We’ve got a whole bunch of incredible results, but we’re also being real in that it required some difficult decisions. It required doing some things in a way that she thought she hadn’t wanted to in our business, but actually came to the realisation that it was going to be better. 

So it wasn’t just a straightforward pathway, I suppose. That’s not even the right word. It wasn’t, it didn’t come without its challenges. And I, I have to be really honest with that. Because making change in your business and increasing profit, and if that’s something that you haven’t been having in your business, you’re probably going to have to make some difficult decisions. Or have some difficult conversations to make change and this client had to do that, but she took them all head on. It’s been such an incredible growth phase for her, and I can see how much this process has increased her confidence. Changed the way that she views her business and really shifting her mindset from what was potentially more of a traditional employee mindset into a business owner mindset.

I can see this is going to set her up for success. For years to come. She’s now confident with managing the money in her business. She feels confident in bringing ideas and asking questions and knowing where to get the answers. She doesn’t need to know how to get the answers, but she knows she’s got somebody in her corner that she knows how to go and get the answers. And she just views her business in a broader way, in terms of it being a way to support the ultimate lifestyle that she wants to create. 

So I hope this has given you some ideas of, things that might be applicable for you in your business. Things to think about. These exact things that we spoke about may translate into your business. But they may spark ideas for different ways for you to think about your business, or they may showcase the kinds of work that I do with my clients beyond the initial profit first, because if you’ve been listening to this podcast, you probably have a good idea, I mean, there’s still so much to talk about with Profit First, but we have a bit of an idea about the bank accounts and the cashflow management. And how to get started with that. But then how does that information actually translate into increasing profitability and what actually happens behind the scenes in the business so that in three months or four months or five months time? How are you starting to reap more financial reward? Profit first and that cash management process that we’ve spoken about is kind of walking through the front door and then there’s this whole bunch of work that we do behind that to facilitate increased financial reward. 

What I was hoping today was that this case study of what a client came to me wanting. The results that she got and the work we did to get there, gives you more of an idea of the kind of consulting coaching work that happens behind the scenes, to create that improved business performance and how the financial data reveals the business performance improvement projects to move the needle. And I hope you may be able to see how those two are connected now and how yes, we use financial data to inform operational business improvement that will translate into further financial award and increased profitability and moving towards that ultimate vision that you have. Whether it’s reducing your hours, growing your business to where you want it to get, to paying yourself a six figure salary, whatever that is. 

These are the kinds of projects that we work on behind the scenes. And I hope it’s given you at least a little snapshot of how I guide my clients through them and the kind of work we do and how I support them through all o that. So. I hope that’s been helpful as always. I’d love to hear your thoughts come and tell me what you thought. If you are interested, I could do a case study, in a similar way for a client that made transitions in her online business. Today we’ve walked through a bricks and mortar business, which means you have a traditional business that has a physical space and works in that way, where clients come into a physical space so that those businesses and online businesses have similarities and they have differences. But I have case studies in mind about how we improve the performance of some online businesses. 

So if you want to hear that one, come on let me know, because if there’s enough people expressing an interest in that one, I will circle around to that sometime in the near future as well. So, hope this has been helpful. I hope this has given you an insight. I hope potentially it sparked some ideas for you around the leavers that you may be able to pull in your business to help you improve profitability. And I hope as well too, if this just feels like, you know this is the work you need to do but it’s too overwhelming, you don’t know how to do the analysis to get started, you’re not sure which projects are going to move the needle in your business. Please come and talk to me. Book a discovery call. We can talk about that because this is the exact work I do. It is not just about making more money, that is a part of it, which I love, but it’s also around getting your business operating efficiently, maximising it, getting it to a place where it can compensate you without you needing to work. 

These are all things we can work on. I know for many business owners being guided through the process is exactly the thing they need, they want and it’s so much easier having someone guide you through the process and coach you through making some of these difficult decisions or having difficult conversations so, anyway, I hope that’s given you an insight today. 

I hope that’s given you ideas and yeah, I hope this has sparked something in you today that you might go away and think about in your business to increase the profitability, to grow your profitable revenue, to reduce your hours to get more of what you want out of your business. So I hope it has done that. I’ll talk to you soon. Bye.