Introduction

Dave 0:01

Welcome to the Business Inscripted Podcast. We're here to share real life insight, practical strategies, and the added lessons that we have learned from our own state. So whether you need help with operations, capabilities, financial knowledge, sales, maybe just getting your mindset right. We are here and it is the right spot with no fluff conversations and tools. So grab your favorite cup of Joe. Let's jump into the show. Let's jump into the show, ladies and gentlemen. And it's Dave here, and we are here for another Friday morning business unscripted episode. Today is episode 76. Crazy to think we've gotten three-quarters of the way to episode 100, a little over that now. And as you guys can see, it's just me today. So Duarn and I have been burning pretty much the midnight oil almost every day. And so he was kind of burned out today. Obviously, as you know, he's if you've watched the show before, if you don't know, my co-host who is here generally with me, um, he's in the Philippines. So he's about 12 hours ahead of us. So it's about 8:30, 9 o'clock over there on a Friday. And so he was taken today off. So I want to get some rest, my friend. I know we got a lot of big things coming together, and I'm looking forward to it. But with that, if you're a business owner or you're an aspiring business owner and you're looking for a show that you want to listen to in the background or you know, watch live, this show is for you. We help you through kind of sharing our struggles, things that we've gone through, things that we've overcome in our business, things that we're helping our clients with. You know, I have over 20 years of uh corporate world experience in finance, executive leadership, and management and operations. Warren has a lot of marketing and development and automation, same as the same as myself now. So we're here to kind of help you learn from the things that we've done so that you don't have to do them yourself. And so in today's show, a little bit different, I think you know, I was trying to really figure out what I wanted to do since it was just gonna be a solo show. And obviously, we are about 15 minutes late today. So if you're watching live or you're waiting for us live, I uh apologize for that. But I got caught up in obviously doing a lot of development of our own and looked at the time and I was like, oh,

Why Today Is A Solo Q&A Episode

Dave 2:20

it's almost 8:30, let's jump in. And so today's episode is gonna be a lot of questions that I've been asked in the past from whether it's prospects or connections from my network, clients, different things like that. The the questions and the answers that I would give today, you know, with what we know right now. And I'm gonna start by kind of prefacing that that if you've maybe asked me one of these questions six months ago, the answer today may be a lot different than it was six months ago because things are changing that much and that quickly in business. So feel free if you've listened to one of these, or if you're watching live and you're like, oh man, that's a good question. Like, here's a follow-up. If you're watching live, drop it in the comments. I will um answer the questions live as well. It doesn't have to just be from the stuff that I put together for preparation in today's episode. Or if you're watching the replay, or maybe you're listening on Apple or you're listening to the audio version, which we don't do live, feel free to drop a comment in the you know, the comments, the feedback, anything like that, or my our email addresses down below as well. So feel free to drop any questions that you have there if you're thinking afterwards. So just kind of gonna start off.

Making Money But Still Feeling Broke

Dave 3:39

One of the questions that I that I hear a lot, right, is you know, hey, I'm I'm making money in my business, but I still feel broke, right? Or I don't know where my money's going. And a lot of times when I when I dive into situations like this, it's because there's no good system. You know, we're not taught a lot of these things in school. We're not we're not taught how to manage business finances, we're not taught how to put a structure in place. You know, we're we're taught, you know, in our personal lives, you have a bank account, and when money comes in, you kind of pay your bills and you spend it, and whatever's left you have as discretionary. And a lot of people as human nature, we don't have a lot, we're not good at thinking forward and and planning, in the most part. I speak from truth on that. But a lot of the support for this comes down to having a good cash management system, having a good purpose for every dollar that comes into your bank account. Because for the most part, especially if you're a service business or you're a business that has direct costs related to earning the income, some of that money that comes in isn't yours because it's already been spent by you earning that dollar.

unknown 4:53

Right?

Dave 4:54

So if you have a direct labor cost, you have materials costs, those things need to be set aside before you even touch whatever's left. Now, from there, you have to have a good understanding of where you should be splitting your money and what's the purpose is you should be giving your money when it comes into your bank account. First and foremost, you know, as I've always mentioned on this podcast, you know, I am a profit-first certified firm, which is a book that was written by Mike Mikalowitz. And it's it's about having a good cash management system in your in your business. Love you, honey, too. And the first thing that we we talk about is always allocate, like people say, I'm not profitable or I don't know how to be profitable. Well, it all comes down to the money that's coming into your bank account. So even to get started, take one percent of every cash deposit that gets deposited after direct costs and put it into a profit account and don't touch it. Now you're gonna be guaranteed to at least have one percent profit at the end of the year. Okay, so that's step one, right? Build a profit account. Now, step two is what a lot of people put last, and that's owners' pay. Right? You are your business's number one employee. You're the one that worries about bills getting paid, you worry about servicing the clients, you worry about finding the next client, you worry about the strategy, you worry about everything in your business. Yet, so many business owners that I talk to and have worked with treat themselves as the last employee to ever be considered for compensation. And it's the wrong way to think about yourself. Like you are your most important. If you can't take care of yourself, if you are stressing over cash or you're stressing over like taking some money out of the business because you don't have a strategy, you're going to cause yourself to go insane. So set up an owner's pay account and understand obviously you're not doing this yet. Start with small dollar or small percentages, 10% of cash that comes in, it's allocated to the owner's pay. Next, the other one that a lot of people don't like to think about is the tax man. The tax man doesn't care. You know, if you have money left in your bank at the end of the year, if you were profitable, they want their money no matter what. And a lot of business owners, they pay the taxes for their business out of the money that they've already kind of taken out of the business for themselves and they just pay it on their personal checking account. Well, that defeats the purpose. Your taxes should be paid by the business itself, no matter what form of business you are. That's the goal of having a good structure you can allocate an appropriate percentage so that the business can cover any sort of tax payment that you owe out of your business. And then last, and in a general sort of initial setup, right, would be your operating expenses. And so this is the percentage of money after direct costs, so we call that real revenue, that you have to spend to operate your business. So this is for your subscriptions, your rent, your overhead, your you know, office admin support, things like that. That's the operating expense account. Once you begin to actually have a purpose for every dollar that comes in, you're gonna stop feeling broke in your business because you're gonna know, hey, I got a $10,000 deposit, $4,000 of that is not mine. So I'm putting it in another account. I now have $6,000 and I know exactly where it's gonna go and know exactly the purpose that it needs to be in. Now, as you begin to evolve or you work with somebody like myself or another profit first professional, the goal is that you're you're setting up strategies for the goals of your business. So for some businesses, some clients of mine, they want or need to buy new equipment. So we we have an equipment fund. So that at least the down payment is set aside when they need to buy that new equipment, where they have a repairs and maintenance that needs to be done because they're utilizing their equipment a lot and they have a big repairs and maintenance. So we decide to start setting money aside for that. That's the beauty about when money's coming in and you know where it's going, you don't necessarily feel broke once the system gets run. In the beginning, it may still feel that way because you're working through, you're building the habit of giving purpose to every dollar that comes in and then allocating it and then staying within that budget. That's the biggest, hardest part for a lot of people, too, is realizing, okay, I only have a thousand dollars in the bank. I can't pay that fifteen hundred dollar bill right now. So what do you do? And I get this question all the time what do I do? Can't I just borrow money from like my profit account, put it into the operating expense account so I can pay that bill? Because I mean, I I don't know what I'm I don't know what I'm gonna do. And and the answer to that is always no. Because what happens when you start borrowing from one account for another is you're you're never gonna pay it back because it's always gonna be a cycle. And again, I talked about this because the first time before I was profit first certified, I read the book about three years ago, maybe four years ago now. And I started running it in my business. And I did that the same exact thing. I started with you know, profit tax, owners pay, all of that. And I had money in in my profit account, in my tax account, and I was like, a bill came in or an opportunity came up, but or both, depending. And I was like, Oh, I'll just borrow it from the tax account, I'll pay that back when I get my next invoice paid. Well, do you think that happened? No. And so eventually, after about six months, I stopped following it because I was like, well, everything's just going in my operating account anyways, why does it matter? And so I stopped following it. And so I over the last year and a half have rigidly followed it. I do not borrow against my tax account. I do not borrow against my profit account. If I take money out of my profit account, it's because it's a profit distribution at the end of every quarter. Now, the goal is you don't take the full amount out of your profit. The goal is that you leave half of it in. But you use it for ways and things outside the norm. You don't just use it for your lifestyle expense. But we're diving way too much into the profit first side here. But there's I could go, I could talk profit first for an entire hour if we really wanted to and give you scenarios, different things. We're not we're not here to do that. But just know, if you're making money in your business and you feel broke, it's probably because you don't have a good system around money management. And you're trying to just by the seat of your pants, pay your bills as they come in. So to go back and we'll wrap this up to the

Profit First: Give Every Dollar A Purpose

Dave 11:34

the one scenario. So if you have a $1,500 bill come in and you only have a thousand dollars in your operating account, what do you do? Well, a couple things. One, if you have nothing else that's coming out, you can pay the $1,000, and when you have more money back in the operating account, pay the rest of the $500. Or maybe negotiate with that vendor because depending on what it is, you probably signed up for whatever it was before you started managing your money more. And so if we're changing our habits around money management, we also need to change our habits around spending, which means maybe we need to renegotiate, get a lower scope, cancel the service, whatever it may be, and then we can negotiate a payment plan to pay off the $1,500. It's really scenario by scenario, but these are some things that, you know, instead of just saying, Oh, I have to pay this because you know the vendor expects me to pay it, right? But think of think of what you do for a lot of people when they owe you money.

unknown 12:29

Right?

Dave 12:30

If they come to you and they say, Yeah, hey, I can't pay the full invoice right now. Can we break it up? Yeah, pay me half now and pay me you know half in 14 days or something like that. Great, we can do that. Well, I can work with you on that. You can other vendors are gonna do the same for you. They just want to get paid. And so as long as you're not saying, oh, I'll pay you in six months, but you're like, hey, I can pay you $500 now, and I can pay you, you know, $500 and then every you know for the next you know in two weeks from now and then another two weeks from now, I'll pay, and then we'll be paid off. We'll be paid full. Great. But you have to think, you have to start thinking of those scenarios. Like, how do I how do how do I negotiate instead of just saying, oh, I have to pay this bill because it came out. Now, some bills you can't, I understand. Don't get me wrong, I'm not saying you can do that with every bill, but you have to start being mindful of your money. And and and part of that is is the planning

Build A 13-Week Cash Forecast

Dave 13:20

and the forecasting. Right? So a lot of people don't look forward, they'd look at their bank account today. And then so another question that I get is how how do I plan better? How how do I understand what's gonna happen in my business? And the number one thing I say for that is, well, you know, at least develop a 13-week or you know, three to six month cash forecast, right? The best way to do this to create a cash forecast for yourself is pull the last three, six months of bank statements, understand all the expenses that are coming out and when they come out. Because that's the biggest thing about a cash forecast, is you really need to understand what comes out in the first week, second week, third week, fourth week, fourth week. Because that's where you're really going to be able to feel the pain of some of these cash crunches in your accounts. So pull your bank account, and if you if you use AI on a on a frequent basis, or if you have a local model or something like that, or you you trust you know the model that you have in place, then just drop those into your AI and say, hey, I need you to summarize the the activity of expenses going out by vendor, but also by you know days of the week. So you know, days one through seven, days eight through 14, days 15 to 21, and 28 to the end of the month, right? Give me that information so that I can you know create a cash forecast. And this is if you just want to do it yourself. We we help others create this, but you can easily create this. And this is why I say a lot of the stuff that we tell you on the show or I give advice for are not things that you couldn't necessarily do yourself because you're smart people, you're in business, you're a smart person. But it's do you want to save the time, right? The anxiety and the stress around it. That's why you potentially look to have somebody help you do it. But in your AI, have it summarized three to six months of the expenses going out by week of the month, and then you can take that and you can create a forecast. You're just about to start a new month. So maybe if it's something that you haven't done, maybe here's your goal for September, October, November. Throw in December too for good luck. So have it break down, and then you can see all right, I know your clients, right? You know when your money's coming in. So you know, okay, this client pays me, you know, these clients pay me in the first week, these clients pay me in the second week, third week, fourth week. Perfect. Put that money in as inflows, put the expenses down below as outflows, and then you have your ending cash for that week, right? You start with the beginning. So let's say right now you got you're gonna end the month of August with destroying monies out there, $5,000 in the bank. Right? That's top of week number one of August or September. Then you have all your inflows, so all your clients that pay you during that typical week as a projection. Let's say it's another $5,000, okay? And then you have all your outflows. Let's say that's $7,000. So you have $5,000 plus $5,000 is $10,000, minus $7,000. You have $3,000 left. That's your projected balance in your cash for operating expenses at the end of week number one of September. So then that ending balance becomes the beginning balance of the projection for week number two. And then you do the same thing. And now for that three, four months in the future, you can see, oh, I'm projected to have a negative cash balance in my operating account in week three of October. What do I need to adjust to make sure that doesn't happen? Maybe you need to add a new client. Maybe it's a good time to ask for a price increase. Maybe it's a good time to renegotiate a couple of expenses that you can see or cancel some things. And now you're able to play with that forecast and really begin, right, to plan and be proactive, right, in your business. So many people want to be and end up being reactive in their business, and it doesn't help them, right? You're just you're just trying to, and if you feel like you're fighting fires all the time, which is another question I had on you, that's probably why. Because you're being reactive to everything happening in your business. You're not being proactive, you're not thinking ahead. That's how you stop feeling like you're always fighting fires. So number one thing you can feel of you know getting an understanding of what's going to be happening is to build at least a three to two four months cash forecast to understand where your bank balance is going to be in your operating account or your main account if you only have one account. And in there, put in your distributions or your wages. Like all of that needs to be in there. Debt payments, right? Credit card payments, all of that should be part of your cash outflow in order to really understand where your money is going. That's the most effective piece. Let me take a look at a couple other questions here. And again, if you're watching live or if you have a question or you have something on a business that you want to you bring up, whether it's AI, operations, finance, whatever it is, feel free to drop it down below. And if you're watching this on a replay, you're more than welcome to do that as well. So drop it down below there. Let's see. Here's a question. I I I guess it doesn't necessarily just be here how I initially wrote it, but you know, I get asked a lot, like, when do you

When To Hire A Bookkeeper Or Fractional CFO

Dave 19:16

know it's a good time to hire a bookkeeper, accountant, fractional CFO, etc. And I think this, you know, my answer to this is kind of always been the same. And it it really comes down to you need to buy your own time back, especially in your business. If you're the only one in your business and you're the only one doing everything, so you're doing the invoicing, you're doing the accounting, the bookkeeping, and you feel like you're overwhelmed, or you're don't know how do I grow? Well, it's because you're doing too much, right? You're trying to do everything yourself. And in reality, right, where are you going to find the time to go out and find new clients or find new prospects? You can't because you're already doing all these other things. And so it does come down to like when you feel like you're at a, and I would say even beforehand. So like plan this out. Like you can start doing all this stuff. But when it starts taking up hours of your day that could be used to actually help grow your business, that is a good time to start thinking about what next step you want to take around those admin type activities. And I had a conversation with a new client of ours, and you know, it's it's multi-owner, and we were reviewing a fractional type support agreement. And one of the questions was, well, why would we need fractional when we have what when you know all three of us are really capable and we want to be like doing some of these activities? And the best answer to that is like, well, what are some of the things that you started the business for that you want to accomplish? Because if you're spending 40, 50 hours a week and you can't get away, and the business can't continue to run with you, then you're not ever going to be able to accomplish those things. So it's not saying you're incapable if you hire support to do that task. Everybody's capable. You're you're capable, right? You're smart, you're in business, but you're capable of doing bookkeeping. Like bookkeeping's not hard, but is it the best value of your time? Like if you can go out and sign a new client and that is worth $15,000 a year to you in your business, is it really worth five hours a week for you to spend doing the bookkeeping because just because you can't? And then five hours a week, how many of those $15,000 clients can you sign over a year if you had that five hours a week back to put into actual sales and outreach and marketing? Say five, say six, so what you know, you're at $75,000, $90,000 a year in an increased impact to your business. When if you outsource some of that, it may only cost you somewhere in the neighborhood of like $10,000 to $20,000. So that's a good return on your investment to have a good bookkeeper fractional type support. So really think what where is all my time going and what can My time be best used for? And is that use worth more to the business than me spending these hours just because I'm capable to do it? That's when you know it's probably a good time to start thinking through what do I, what is what is outsourcing some of these activities look like? And it's not always just bookkeeping or fractional CFO, COO operations, you know, workflow efficiencies. I mean, it could be sales, right? Maybe you're not good at sales and you want to bring somebody in and instead of you trying to do it all. Well, that's also another time to start looking at it. But don't wait until it's too late. Don't wait until you're already spending 80 hours a week. Because I say this to everybody the first 30 to 60 days of any sort of new engagement is going to require more out of you because you now have to train or talk through your processes specifically with whoever you're bringing in. And it is going to require, it's going to feel like it's slower, but in the end, you're investing, right? To build it more efficient long term. And so be willing to, you know, Alex Rosey said it the best, but anytime you go to make a change, you know, you may feel like you're flat, and there's going to be a dip before it actually goes up. And so you have to account for that dip. So if you're already working 80 hours, can do you have 10 more hours to give because you know, the first in the first two months, because you're going to need to. And so that's why I said like always think about it ahead of time. Like put a plan together. Like maybe you're in a spot where you're like, oh, I only have enough clients right now, I can I can manage it. But maybe if you had two more clients because of the hours those clients take from you or the projects that you're doing, maybe that's the point of all right, now once I get two more clients, now I'm gonna start looking into or looking into the process of how I can outsource X, Y, and Z. And so just putting that plan in place is great. A lot of people don't have that. So looking at your operations, where you're spending your time, and then putting that in place of like, okay, when I get two more clients or when I hit $15,000 a month in monthly recurring, then I feel like I'm in a good spot. I'm not at capacity yet, and I'm in a good spot to start looking at what these different sort of services look like. And so, and then once you're once you're actually you know kind of evaluating, like the biggest piece that you can do is obviously interview, right? Talk to people that have worked with them before, talk with other clients. But make sure it's somebody that like you get good feelings about. And then be willing to you know have conversations and make sure they make you feel comfortable as well. Like you're you're the you're the ultimate owner of the business, right? So you should be able to feel comfortable reaching out to that person if you have questions about whatever's going on. And so if they turn you down for that or if they they make you feel like that's not something that is part of their service, then you should probably continue looking. Because I can't tell you how many times I've answered questions or been able to just respond at any time when a client has a question, even if it's just like, hey, let me look into this for you, I'll get back to you. Or at a football game watching my kids, can I call you tomorrow? Right? Those are the things that add value to a relationship that keep people coming back. And so if if you don't get that feeling from the person you potentially want to work with, then you should probably keep looking because that's the number one thing you're gonna be able to do now. And I've said this a lot, you know, when you look at bookkeepers, I feel like bookkeeping

Why Entry-Level Bookkeeping Is Going Away

Dave 26:23

is going to go away in terms of the entry-level service. And this is another question I had is like, what do you think about bookkeeping? And the reason why is obviously we've talked about this, you know, on the show, and we're building you know, kind of engines and things that can kind of help us kind of do the daily work that uh a person used to take a few days to do. Now we can do those every single day with reporting. Because AI is that advanced where it can handle those simple, mundane, routine journal entries and categorization that you don't have to have somebody do, right? So standard bookkeeping is gonna go away. So, what you're gonna find is a lot of these bookkeeping firms that are just bookkeepers, the bookkeepers, if I can talk, get some water, mouth is dry. What you're gonna find is these bookkeepers that just do bookkeeping, if they don't evolve and they don't start offering some additional level services, support, advisory, different things that that add value to the business owner, they're ultimately gonna go by the wayside. And services like you know, TBS or any other type of advisory services, you know, pretty much I don't price based on the bookkeeping anymore. Bookkeeping is kind of just included in our main package. The the main services is a lot of the advising, the support, the forecasting, the things that like the typical accounting software is not gonna do or a bookkeeper is not gonna do for you. And so find somebody that goes above and beyond, they don't, they're not just like pricing you for bookkeeping because you are gonna get like if you think about it, you know, you may talk to a bookkeeper and they may say, Oh, it's $400 a month for bookkeeping. But that $400 a month you could pay, you know, a $50, you know, AI to potentially, you know, in your business, if you wanted to build it for yourself, you could possibly do that. But again, you're still not getting any sort of like what do the numbers mean? You know, talking through, you know, what's the last time you change your price, right? How do you work through a pricing change? How do you work through a contract negotiation and making sure that you're pricing the contract appropriately to make sure that you know it's not an overly priced service or product, but you're also making the margin that you need to, right? So there's a lot of other things that you need to probably be paying attention to from an advisor and a financial side than just hey, can you do my debits and credits and reconcile my bank statement? Like that stuff's the easy part now. And then when I, you know, the biggest thing is, you know, a lot of people confuse bookkeeping and accounting together. And while the majority of it is, when you think of like a CPA or an accountant, that's your benefit around, and that's where you should really fit focus and pay attention, you know, for like your taxes. Like your CPAs are the people that you have in your corner that are going to help you when it comes to tax time with tax return creation, tax estimate planning, all those different types of things. Those are the people that you that's when you want to like think of an accountant versus an advisor. So there's you know, and and you have a team ultimately, you know, think of big companies, right? You have teams, departments of different areas. It's not just one person. And so an accountant, if you're talking to an accountant for your taxes, uh, again, vast majority of people, you know, there's a vast range of different types. Your biggest goal is to find somebody that, again, you're comfortable reaching out to. They allow you to reach out and they meet with you during the year. A lot of accountants are just, we'll talk at the end of the year, give me your stuff, we'll file your tax return. Well, that doesn't help you, right, in July, when you're debating on do I lease or do I buy a new piece of equipment? Or do I buy or rent a building? Like that's where you should be talking and be able to talk with your accountant so that you can actually talk through those types of things. So make sure you have a good accountant that you have the ability to meet with quarterly, that you could also email questions and get answers and things like that. But be patient when, you know, essentially seven months out of the year, they're they're pretty much slammed and busy because they have tax returns, you know, are just for a lot of accountants. Tax returns don't just happen in January through April for a lot of accountants, as much as a lot of people think. A lot of them go on extension. So then not only are they busy at the beginning of the year, but now they're starting to get busy right now, August through the end of October, because that's the the S-corp, the corporation type extension and partnerships are due around the 15th of September. And then you have your personal extensions that are due on October 15th. So these are all busy times for an accountant. So give them a break around the busy time, unless you have an actual like tax question and they're working on your return. But you know, sometimes there may be times where it might take a little while to get an answer, so don't be pushy. All right. So yeah, a good question is a lot of people ask, like, what do I automate or what do I what's the process that I should do first? Like, where should I focus my attention first? And I got this when I was doing an AI

What Should I Automate First? The Two Lists

Dave 32:19

presentation, but I also get it a lot from just general conversation in our alliance meetings, et cetera. And so we've talked about the two list model, and this is the first thing I tell everybody to do. So on the first list is all those things right now that you are doing manually. Invoicing, onboarding, outreach, social media, whatever it is that you're doing manually right now needs to be on list number one. What's the approximate number of hours that you're spending on it? And what are the approximate number of steps? And when was the last time that it was reviewed? That's list number one, everything manual that you wish could be automated, more efficient, etc. List number two are all the things that you want to be doing, know that you should be doing, or would like to do more of, right? But you can't because of everything on list number one, all your time's taken up with list number one. And on list number two, some of these things may be, you know, why you got into business, right? I want to spend more time with my family, or I want to take weekends off. I don't want to work 70 hours a week, whatever it is, like that can also go on list number two because it is important to you as the business owner. And so what you want to do is take a look at each one of those lists, and you're gonna pick like two or three things. And whatever is gonna have the most impact from list number one on list number two that could free some stuff up, that's probably something to consider. Or what's something on list number two that could also be potentially automated or turned into a process right now that you could start doing without changing anything on list number one? So that's why having these two lists are important because it's gonna help guide you, it's gonna give you that roadmap of where do I want to go next and what do I start with. And I implore you, don't try to do everything at once. Start with one, two, max three. Because what you're gonna find, especially if you're trying to do it yourself, it is a learning curve. I I mean, I tell people all the time, you're don't try to be like Warner Eye or any of the other if you watch other videos on YouTube, right? Though everybody that's there has been in AI and and learning it and playing with it and using it probably daily. For us, we're I mean, we're in it literally 12 to 14 hours a day, six days a week. I like the ticket off. Right. And Saturdays are less. But so you don't have like, don't compare yourself against me, don't compare yourself against YouTubers. Compare yourself against yourself yesterday. So start with one because you're good, is if you're doing it yourself, there's gonna be a learning curve. You're gonna have you're gonna have trial and error. So don't try to do seven things. It's like, oh, I need to do all these things at once. Let me drop each one of them into a new session in my chat and and have it start, you know, going to town. Because then you're you're gonna get overwhelmed. And what happens when you get overwhelmed? You end up stopping the process. And so start with one, I highly suggest one or two, max three. That's it. And then from there, once you finalize something and it's working, now you can add something new. But don't make sure you just forget it. Like you got to go back and check it. I've had a lot of conversations with people that once they get a process up, whether it's a prospecting skill or an automation or a commenting, you know, they're like, man, it just I don't I don't know what it's doing. Well, when's the last time you checked on it? When's the last time you looked at the results? When's the last time you gave it instructions to correct it? Like you've audited it. I've never done that. Okay, well, now you got to do that. Because things are gonna change, things are gonna update, and things might break. And if you're not checking on it, then what's the point of having the process in the first place if you're not going to help it improve? So these aren't, again, these aren't setting for at set it and forget it. And I'm not trying to deter you either, but a lot of things, this is why I say like AI is always gonna have some sort of human oversight, and that's the beauty of it. Like you now can truly become like an executive of your business and run it because you can have all these different employees, but you still have to have some oversight, you still have to manage the workflow, manage the output and the direction. That's what your role is as a business owner. It's not necessarily doing all the nitty gritty, you know, kind of design work and copy creation, especially if that's not your job, right? And that's not your expertise. So that's why um I always say, when when if you're like, what do I start with? Bake those two lists. That's what you start with. Make the two lists, and once you're done with the two lists, review the list and then figure out what what's the thoughts, what can make the biggest impact on my life, but also my business. Give me back the most time, start with that. But also make sure that you actually have the system in place, right? A lot of you can't put automation or AI on top of a broken system. All it will do is is exponentially expand what's broken. So if you want, let's say you you pick

You Can't Automate A Broken System

Dave 38:01

an onboarding process, and you don't really have an onboarding process yet, and you're like, hey, I want you to turn this into automation, go around and do it. Well, what does that look like? Do you have onboarding documents? Do you have an electronic signature that you need them to sign? Does every client sign an agreement? You have to develop it first. That's why I say there's going to be a lot of for the first two months, three months, a lot of extra time spent on whatever you decide, because you have to build that out in order to efficiently build it into an automation or some sort of you know AI supported process and agent-run system. But if you don't have it built out, what's it supposed to follow? Think of, think of, you know, that's like basically bringing in an employee to your business and saying, Oh, I want you to, I want you, you're responsible for sales, but you have no idea what your projects are, what your programs are, who your ideal client is, anything. So you do you think that employee would be successful, or do you think that employee is going to fail? Employee is probably gonna fail. So you have to do you have to think the same way with AI agents and AI automations. It has to be given a good system. So think through the system itself, the steps, and now you can get the assistance in building the automation, building the workflow with the agents, etc. So it's not just as simple as dropping in a prompt into your your Open AI or your Hermes or your Claude or whatever, and saying, Oh, I want you to turn, you know, create me an onboarding process. It's not that simple. And and just think, like, you know, and I say this, I've used this example. One hour a week is 50 hours a year. So that's a week and a half that you get back just by saving one hour a week. What could you accomplish in a week and a half extra in your life, in your business? Now multiply that by 10. Now you basically got almost half a year just by saving 10 hours a week. Or adding 10 hours additionally to your day because you can do more with less time, right? Adding a social content engine into your day doesn't necessarily mean you work less, but it means you're doing more with that time. So it's like adding hours to your day. That's also the beauty of when you start thinking of automation and AI and these workflows, it's like not always about how do I stop working 12 hours. Sometimes that's your goal, but initially it could be like, how do I do 20 hours of work in 12 hours? Then it becomes how do I do 24 hours of work in 10 hours? You see how it works? It's beautiful, isn't it? And it it's part it's part of the fun as well, is part of it. But you may not want to. Like I tell there's a guy in my office that I talked about all the time, Brian. And he's like, I know I want to start doing more with AI, but I don't want to know the nitty-gritty. I don't want to know what you built into the back end in terms of like each individual step. You know what I mean? I want to, I want to, I want to know the high level, I want to give the direction, but I don't want to know the nitty-gritty. And so that's perfect. There's people like exactly like Brian out there that loves what he does, knows he wants to start doing more, but doesn't necessarily want to have the stress and the anxiety around trying to figure it out. And that's perfect. So for yourself, you know, make sure that you're kind of figuring out where you're at. And do you want to be somebody that's loves this stuff like and and is in it 100%? Love it. Like, let's let's let's have a conversation. I can point you in the right direction. I have a couple clients like that right now. We're you know, live coding, they're vibe coding, and we're kind of helping out that way. Like there's a lot of different ways that you can get the support you need and to start doing. And it's just crazy to think, like I said, you know, this sort of co-work space from like Claude. And I know Hermes and OpenClaw have been open, but like really, like the Claude co-work space has really only been, I think, since like March. You know, it's what we're talking six, five to six months, really, that this stuff has really been out in full fledge, and you see how much has even changed since then. So you're not behind. You know, I I've I've a couple of the data points is like 10, I think roughly 10% of business owners are really utilizing at a regular basis in their business in some sort of process. So you're not behind. You know, 80, 85% of like used AI in some shape, way, or form, but only 10 or 10% or less are actually fully utilizing it in their business to be productive. So, how do you get started? Build the two lists, decide what's going to be the most impact on your business, and go from there. Let's find another good question here. And again, if you're if you're watching live and you have a question, drop it in the comments. I should be able to see them here on our software that we use. Or you can email us anytime after the show if you're watching the replay or you're listening to the audio. Appreciate you guys being here. If you can do me a favor, give this a like and a thumbs up, all the fun algorithm stuff. I would appreciate it if you're finding some good value. Or if you just think I'm a cool guy and you like the sound of my voice, that will help a lot as well. Uh, let's see. That is a good question that I want to answer. Oh, so here's um I get asked a lot like, how do I know where to spend my attention in terms of clients, products, services, et cetera, in your business to know what's the most profitable?

Which Clients And Services Are Actually Profitable

Dave 43:58

And the first thing I have to say is one, do you have the data? Because if you don't have the data, you can't obviously then determine what is profitable and what isn't. And so generally in a QuickBooks type situation, if you're not paying, I think it's like $125 a month to be able to actually track things by product or service, you're probably not going to have like your accounting data. But a lot of the times, what you could do is start doing an analysis of it where it's like, okay, I know these clients get X, Y, and Z services, right? So these are our products, and we can kind of start grouping them that way. If you do utilize the products within QuickBooks or services within QuickBooks, you can route them to a different revenue line. That's another way to start tracking the revenue by different service line. That's a good start. So now you can actually break out instead of just having one sales line or one revenue line, now you're actually seeing what's actually coming in from each different service. Now, on the expense side, it's a little bit harder if you're not tracking it within the system, but you can start making estimates, right? Of you know, I think of my my drunk calling client. Uh well, you know, typically all the the fuel and everything in the winter months are is going to go towards snowplowing. And we know all the fuel and everything in the summer and spring, fall is going to typically go towards hauling or bin rentals, et cetera. And so at that point you can at least have the totals and then you could start looking at you know a different sort of assumption model. Maybe it's percentage of revenue of that group. Right. So let's say if let's say we're looking at the summer months and let's say junk junk hauling was 65% and bin rental was 35% of the revenue. Well then we would you could potentially just allocate the expenses 6535 to get started. And then from there you can build out a different system model depending on what you want but this is a good first initial estimate. The other way is is looking at do you actually have a good pricing estimator that you know is reliable to give you the gross margin that you need a lot of business owners just kind of price it as a whim right or they they have prices that they haven't touched in years or even looked at. And so these are the the first steps of understanding like what's profitable because if you have a if you have a service that you know three years ago you priced it a thousand dollars and it has some direct costs that have been associated with it and knows have gone up but you haven't changed your price you may be at a break even and not even know it. You may still be thinking that you're making money I had this client a couple years ago they were janitorial and we were going through her pricing and the biggest thing that I found was she was like oh I got this $10,000 client. I'm like okay let's break it down what do you what's what does it require you to get that $10,000 client per month? Well I need to do you know X amount of hours of cleaning per week which you know in a minimum of two people all right so we started adding in the cost we started adding in overhead we started adding in taxes and benefits and what do we find out well we found out that that is actually going to cost her $10,500 a month in expenses. So now to get $10,000 of revenue she'd have to pay out $500 every single month. Does that make sense? And so we went back to the table tried to renegotiate they didn't so we actually walked away so in reality it feels like oh my God I'm losing a $10,000 contract. But in reality she was saving herself $500 a month. So if you haven't looked at your prices in a long time and actually broken it down even if you're an advisory service like mine like there's costs associated right so it's like your time like you know what you roughly want to make hopefully right per hour of service. So you have you have that time you have maybe direct costs of some maybe subscriptions or if you are utilizing some sort of support service like a cash flow forecast there or you have a you know a platform that you use every client costs you a X amount of dollars like those things have to be built in to know what your profitability is gross profit wise of that service line of that program. And if you haven't looked at that and you haven't broken it down and you aren't doing that regularly then you may be making less money than you think and it kind of goes back to the first question on that you know also why am I making money but I still feel broke? Because you're probably not priced appropriately or your scope isn't priced appropriately. And so these are the things as a business owner you should be spending more of your time on on your business versus in your business. And the only way you can do that if you feel like you're swamped is to free up your time. So that's how you would basically break just think the basic level breakdown, right? Figure out what's the gross what are my direct costs associated and what is the gross margin that I'm making versus what do I want to make and then compare that to your industry average. Well now you have to you know you don't want to just be average either maybe you want to do better than average. You want to be above average you want to be at 65% whatever it is. Well you have to either cut costs to get there or increase price. And I know price you feel like your price is so sacred and you feel like people are going to leave if you just say hey I'm going to increase my price 10% when in reality people get price increases all the time. You've gotten price increases and never fought it from your your vendors. So why you know people expect it and as long as there is a value they see you as a valuable service they see that what they're getting is at least five to six times more valuable than what they're investing they're not even going to question it. You have to believe in yourself first. If you don't believe in yourself price increase isn't going to matter anyways because you're not going to believe in what you're saying. So look at those things and I'm going to leave it with this because I realize it's about $940 when you're pricing don't there's a difference between a markup calculation and gross profit calculation. Markup is taking the cost and adding a specific percentage

Markup Is Not Gross Margin

Dave 51:28

okay so let's just say you had a thousand dollars of cost and your goal is to have in your mind your goal is to have a 40% gross margin. Now what a lot of people do is just say okay I'm going to invoice $1400 because I'm just going to take 40% and I'm going to add it onto the price and I should have a 40% gross margin, right? When in reality if you take the 400 because that's your your your 1400 minus the thousand leaves you with 400 of gross profit gross profit calculation is gross profit divided by revenue right so in this case you would take the 400 divided by 1400 you're actually at 28 and a half percent so you if you're if this is how you're calculating it or anybody that I've had conversations with right they're like I don't understand I can't figure out how to get my gross margin I want 40% I add 40% on top of every one of our expenses why am I why am I only at 25 to 30% right you're only doing a markup that's a markup. Now if you were looking to get an actual 40% margin on a thousand dollars of costs right you would take costs divided by one minus the gross margin that you want right so in this case if you wanted a 40% gross margin as a decimal you would take you would do a thousand divided by one minus 0.4 so you do a thousand divided by 0.6 and you would essentially be invoicing 1667 right so it's an extra 267 doll that you would be invoicing. Now let's do the same calculation 1667 of revenue we're going to minus our thousand dollars of expenses leaves us with six hundred and sixty seven dollars just six hundred and sixty seven divided by one thousand six hundred seven is exactly 40% so make sure when you are building an estimate or you're you're right you're running through the pricing of your of your programs and services that you're do using the right calculation to price them out not doing a markup versus gross profit. There's a big difference as you can see here it's it's almost a 11.5% difference in terms of the actual percentages of gross profit versus a markup so make sure once you determine where you're at and this is why again having good numbers good accounting numbers you can see your gross profit classifying and I guess I'll leave you with this tidbit as well you need to make sure that your expenses are classified correctly in your accounting books or your bookkeeper or your accountant is doing it right whoever's doing it. So the easiest way to classify between cost of goods sold direct costs versus all other operating expenses is this if to earn the dollar of revenue it requires you to spend that money it is a direct cost of goods sold. So for example if you sell something and it comes with a subscription cost that is a cost of goods sold expense if you sell a service and you have staff or you have you know outsourced labor that goes directly with that service as a cost, that's a cost of goods sold if you have shipping to ship anything to them that's a cost of goods sold right so it's it's the simplest way to think about it is if I earn money do I have to spend this expense and if the answer to that question is yes or it's a cost of goods sold expense. If it's I have to pay this no matter if I make a sale or not then it's an operating expense so for like rent right office wages insurance they don't necessarily care if you make a dollar sale or not. Those things have to be paid so those are operating expenses. So that's the biggest quickest difference to really understand and to under and to make sure you're looking at your right gross profit that you have in your business for your services. And if you aren't tracking that that's the first change you can easily make in your accounting with your with your bookkeeper as well is hey we need to start tracking actual cost of goods sold I need to understand what my gross margin is because what your gross profit tells you then in and and we go back and we'll circle all the way back to the beginning with your forecasting the gross profit then tells you of all the money that you expect to come in how much is actually for the business right so if you know your gross profit is 50% and that's been your average and that's been what you price all your services at, then you know that when you have a $100,000 contract for the year come in that only $500 of that is technically for the business because $500 is going to be spent just to earn the 100 so now you can actually now you're starting to think like an actual business owner CEO because you're now understanding that when money comes in it's not just for the business. There's direct costs related to that and so you can start putting that stuff aside giving your money a purpose when it comes into your bank account to begin to feel like you're now in control of your business. So with that I got to jump got a client session but I hope you guys got something valuable out of today I think I like these sessions where we kind of do some of these QA's so maybe I'll throw more of these in when Duan's not here. So if you have questions or anything like that, please don't be afraid to reach out like if you have the question I'm sure a hundred other people had that same question. So it's not a dumb question. There's

Why The Money In Your Account Isn't Yours

Dave 57:10

no dumb questions we'll bring more of these to the shows and the episodes in the future again I appreciate you guys being here do all that fun algorithmy stuff for me. You know like subscribe make sure you're following along we do this every single Friday morning roughly around 8 30 sometimes you know for late it'll be 845 like it was today so I apologize for being a little late got sidetracked with some some development work. But yeah I appreciate you being here don't be afraid don't be a stranger if you're watching you're creeping on us out there I love it but we love you I hope this uh made some impact to you and uh we'll see you guys in the next one hope you have a good one enjoy your weekend see you everyone