How to Put Profit First

 

James [00:00:02]:

You have found authentic business adventures, the business program that brings you the struggle stories and training successes to business owners across the land. Downloadable audio episodes can be found in the podcast link found at drawincustomers.com. We are locally underwritten by the Bank of Sun Prairie. Today, we’re welcoming slash preparing to learn from Rocky Lovanni, owner of Profit Comes First. And I gotta say, I’m excited with Rocky on the show because when he reached out to me and mentioned this book, Profit First, I’m like, that is an incredible book. So Rocky, how are you doing today? I am doing awesome. Thank you so much for having me on. I’m excited to have you on just to talk about more of what you have going on specifically in regards to this Profit First and all that jazz. Cause I guess in the world of business, when you’re an entrepreneur, the goal, or at least 1 of the goals, is to have a little cash to be able to afford to do some fun things and to pay for your mistakes, I suppose, is a little part of that as well.

Rocky [00:01:01]:

Absolutely. That’s a big part of it. And honestly, I’m shocked at how many business owners don’t look at their financials. Oh my gosh.

James [00:01:10]:

Yeah. I was just talking with my accountant the other day, tax time. And I said, I like to think that my stuff is pretty organized, but it probably be a little bit more organized. But many, if not most of the other business owners that I’ve met and chatted with, coached, that are, I would say, sub 10 to 20 employees, they’re shoe boxes of paperwork. They don’t even know what’s going on. So I only, I just wonder like, if the IRS comes and says you’re audited, I feel like for some people, they’re gonna be like, good, you figured it out. Cause I have no idea what’s going on. I don’t think that’s how it works. OK,

Rocky [00:01:50]:

I think the IRS is going to say bring us to us in an organized fashion and get us all this stuff. And if you can’t, we’re just going to tax you. All right. All right.

James [00:02:01]:

But it’s interesting because I mean, so I don’t know. Fair, totally fair. It just seems like a lot of people, like you said, are somewhat oblivious to whether they’re even profitable or not. Money’s coming in. Money’s going out. People are getting paid. But to know if their business is successful versus just cash flowing, I don’t know that a lot of people actually know or even though there’s a difference.

Rocky [00:02:25]:

And that’s a shame. I think more often we see sometimes the opposite. You know, they say I’m profitable, but why don’t I have any cash?

James [00:02:34]:

That’s I said that my first year in business, I remember my accountant said, here’s your tax bill. Yeah. And I’m like, what am I getting taxed on? I don’t have any money. And it was, oh, my gosh, That first year, that first tax bill was a huge education. Oh yeah. Because then I’m like, I’m having to scrape up to pay taxes on money that is not in my bank account. I don’t even know where it is. It’s just. I spent it apparently. Yeah, I didn’t have a show for it, but.

Rocky [00:03:11]:

It was going it happens all the time, I think, And for me, it was a little surprising until I realized most people go into business to do what they love. And accounting wasn’t on the list

James [00:03:25]:

of things that you love.

Rocky [00:03:28]:

Fair. You know, for most people, it’s an afterthought. And depending on where you’re at in the business, you know, if you don’t have a good bookkeeper and you’re not paying attention to what’s going on and you don’t have systems to capture everything, or, you know, a lot of them are a mess that. Their personal life and their business financials get a little bit mixed up, so they don’t even have total clarity. What’s personal, what’s business, separate bank accounts, separate credit cards, all of that kind of stuff. If you don’t do that up front, you have a mess on your hands. Yeah, that’s very fair. Very fair. I was taught very early and I don’t even remember who taught it to me.

James [00:04:15]:

I guess there were some classes that I took before I first started my business that described the LLC and S-corporations and all that kind of stuff and said, keep everything separate because that way, well, they’re in their little pillars. I mean, you know how to keep track of what and don’t dare mix them because from a liability standpoint, that opens the door. Pierce is a veil, I think is the saying as the attorneys go. Sure. So, how did you get involved in this whole profit first jam?

Rocky [00:04:45]:

So, I’ve always been interested in building wealth. So I was always learning about money, learning about how do I save it, how do I grow it, how do I make it work. And I spent a lot of time on the personal finance side. And throughout that process, I was always like, why aren’t more people wealthy, because this isn’t that difficult. And I came to learn that most people don’t talk about money. They don’t talk about it as kids with their parents. They don’t talk about money in school, right? They don’t they aren’t taught how to build wealth. So that was 1 problem. And I was spending a lot of time there. And then during that period, it was brought to my attention that business owners weren’t looking at their P&Ls. I’m like, how do you run a business and not look at your P&L? How do you know if they’re profitable? And that’s where this whole kind of aha came of, oh, my business owners aren’t doing this. Here is an opportunity with the skills I have, what I really enjoy doing, and kind of partnering and making it work for them. And it was through that, and through that whole journey that I found Profit First. And when I talked to Profit First, I was like, I’ve been doing this my whole life. I separate my money as soon as it comes in and I put it in different places for different purposes on my personal side. And I said, this is great. I know how to do this. I don’t technically need the training, but I did. We go through like 6 months of that and taking tests and always making sure that we know how to apply it. But what Mike did was bring the language of pay yourself first, of give every dollar a job, of being disciplined with it from the personal side to the business side. And when I saw that there was a great opportunity to help people and do what I love, then it was a perfect match.

James [00:06:42]:

So when you said the personal finance side, were you in as a

Rocky [00:06:47]:

salesperson, essentially from personal finance side, or this was your own personal finances? It was my own personal finances because I learned very early on that most people who were financial advisors don’t know anything about finances, they’re salespeople, and they’re selling you crap that doesn’t serve you at all. Oh my gosh, thank you so much for saying that. That had to be said. Oh, that’s perfect. And I just, I refuse to be part of that. I didn’t want anything to do with it. And, you know, back then nobody was talking, you really was hard to get people to understand money, talk about it, learn about it, or even create a market where you can make money at it. So here’s the bottom line. I couldn’t build a business around teaching people personal finance in the sense that everybody wants to get rich this weekend, and they’ll give you all your money to do so. But nobody wants to learn how what Warren Buffett says is get rich slowly. And that’s the problem. And I realized that I had an uphill struggle. And even if I could build a business, the economics of it didn’t work with the way I wanted to do things. So, you know, you take it. This is comes down to basic business. If you can’t figure out your business on the back of a napkin and pencil it out, then you’ve got a problem. And Most people don’t do that up front.

James [00:08:18]:

Yeah, very true. Whether it’s pricing or volume that they have to push through or knowing what their expenses are or will be. Correct. Incredible. I wanna say It’s arrogance and ignorance kind of thing.

Rocky [00:08:33]:

I don’t know if it’s arrogance. I think there’s this mentality out there, if we sell enough, it’ll all work out.

James [00:08:40]:

Yeah, I guess you’re right, you’re right. Maybe arrogance is the wrong word, because I find myself if I have a new idea and I want to go down the road in my head, it all makes sense. Right? But when I start putting it on paper, a napkin or whatever, and you start doing some math, sometimes it makes sense. But a lot of times I’m like, oh, in my head that made sense. But now that I actually do some math, that’s a terrible idea.

Rocky [00:09:05]:

And it’s literally, I think that’s simple for most people is to sit down and do the math and realize what is it going to take for this to work, including the volume and time. So you can sit down and say, hey, I can sell this. How many of them do I have to sell to hit my goals or what I need?

James [00:09:24]:

And how much time is that going to take? I think we leave time out of the equation too far as well. Oh my goodness gracious. You hit the nail on the head there. I was teaching a business planning class and a woman was talking about opening up a retail store. And I looked at her business plan after a few weeks, she’d gone through the whole thing, whatever. And there were no employees in it. And I said, where are your employees? And she’s like, oh, I’m not going to have any employees. And I said, ever? No, no, no, no. And I’m like, you’re open 7 days a week from 8 a.m. To 8 p.m. Well, who’s going to work the store? And she’s like, I will Like 12 hours a day, 7 days a week. That sounds like a jail sentence. And then when I said that to her, she was thinking, I’m like, really? Is this, this is a life that you’re getting to choose to design. No 1 punished you with this, but you’re building it. And she had that little light bulb go off like, oh, I can’t do it all. And I certainly don’t have enough hours to do all that I’m assigning myself. So thank goodness you didn’t go down that road without getting employees in there. And then figuring out what she’d have to sell in order to pay employees because she’s like, I can’t afford them. And then I said, well, if you can’t afford an employee, what makes you think you can afford yourself?

Rocky [00:10:42]:

Like you got to eat too kind of thing. Well, and I think that’s 1 of the biggest things that business owners don’t realize is they create these businesses, but they’re not, they might even say, hey, I’m profitable. But then if you ask them the next question, which is how much did you pay yourself? They’re like, what do you mean? I was profitable. Yeah. But did you take a paycheck for the work you did? Oh, maybe not. And so in reality, you were unprofitable. You bought yourself a job. You did stuff that didn’t work out, and that’s a problem. Fair, totally fair. So, how long have you been involved with the business finance side? 3 and a half years now. Okay. Coming up, well, actually, we’re coming up on 4 soon. All right. And what are some of the common

James [00:11:37]:

problems or challenges that you’ve seen that people are trying to solve

Rocky [00:11:41]:

or maybe aren’t even aware of? Well, so I think the number 1 thing we hear from people is they don’t even know whether they’re profitable, not profitable. It’s for them. They find out a tax time. All right. You know, and the the CPA says, congratulations, you’re profitable. Here’s your tax bill. Same story you told. How do I pay that tax bill? Where did all that money go? So I think that’s number 1. Reversing that back is making sure they built a good business model. And We can sit down and very quickly, we can figure out the math of your business. And I think this is something that’s also not taught. Business is a math equation. And you’ve got to figure out your math equation for your business. So let’s just look at this real simply. The first question is, you need leads, right? You need somebody to say, hey, I’m interested in talking to you. And That’s the first part of the equation, which is basically marketing and advertising. How do people find out about us? And even in a retail store, like how many people walk in our front door? And then the next question is what percentage of those people convert and buy? That’s my close ratio, right? And now we know, okay, 50% of people who see me buy from me, what’s the average sale? Okay. And then are there repeat customers? Do I have customers who keep buying? What is the math of that? And when you just multiply that all out, you’ll figure out your total revenue, right? Let’s just say simply a hundred people walk in my door, half of them buy, so I have 50 customers. Each customer spends $100, so 50 times 100 is, what is that? 5, 000? $5, 000. And so now I know my revenue is gonna be $5, 000 by building out that equation. What does it cost me to sell that? So, you know, maybe I have cost of goods and maybe it’s 2, 500. And now what’s my overhead? And then how much am I getting paid? And so all of that, and then what’s my financing gonna cost to run all of this and what are all those types of terms? So when you just sit down and you just pencil this out, it’s all second to fourth grade math. You don’t even have to be smarter than a fifth grader, which is fine. And when you do it, you really realize, okay, this is what I have to do and it works or it doesn’t. But then you can start playing with the numbers. So let’s say I got a hundred people walking in the door and I improved my sales skills. And now just because I improved my sales skills, my sales go from 50 to 75. So now I can measure that and say, okay, it’s easier for me to do that. Maybe I can say, Oh, well, maybe I can offer them an add on. McDonald’s does that. You want fries with that? Now my sale goes from $10 to 12 or 14. And so these are the types of things that you’ve just got to sit down and play with and see what it is. And then keeping your overhead low, making sure, you know, too often business owners do the ya-ya. Ya-ya, it’s a business expense, right? And before you know it, your business expenses exceed your revenue. Oh, sure. And we get carried away with that. And so it’s constraining yourself to make sure that you’re keeping your expenses in line. And that’s what, so the whole profit first system is, instead of doing what we are told, which is sales minus expenses equals profit, Mike said it’s sales minus profit equals expenses. You pay yourself first. You take your profit first. And when you do this, you can actually look at the bank account and say, well, they said I was profitable and look, there’s my profit, cold hard cash. So can you talk about the mechanics specifically how that happens? Because we were talking before the show when I was taught, pay yourself first.

James [00:15:58]:

That just blew over my head. Because from my point of view, that wasn’t logical because I have a bunch of vendors that say that they’d like to be paid first. And if I tell them, wait, I’m going to get to you after I get to me, they would not be pleased, I guess.

Rocky [00:16:13]:

And I think this is there’s a lot of misconceptions about profit, whether it’s good or evil. There’s a lot of misconceptions about profit first, meaning, oh, I have to pay myself before my vendors. Not necessarily. All profit first does is say, every time a dollar comes into the business, we’re going to split up that dollar and we’re going to allocate it. And we’re going to put it in a particular place with its name on it. So if a dollar comes into my business, and I say I’m going to be 10% profitable, I’m going to take a dime and I’m going to put it in the profit account. Right now it’s there. The next thing I’m going to do is say, well, wait a minute, I deserve to get paid, I figured out I was going to get paid a quarter. So I’m going to put that quarter into my pay account. Now the IRS has guns and they come for your money. So we need to put money aside for the IRS. Maybe it’s another dime goes aside for the IRS. And Now we have what’s left and that’s our operating expenses. So we put the money aside for operating expenses and we pay our vendors on time as expected. But now you know where your money is going. And what this prevents you from doing is spending your profit. It prevents you from spending your salary, right? Cause we all pay ourselves last. Now it’s like, whoa, wait a minute. There’s no money in my OpEx. Am I going to take it out of my salary? Now you start to think twice about spending. And when tax time comes, the money’s there to pay the tax bill. So it, you know, we hate tax time, but we can stroke a check. It’s not a big deal. And you can handle that, that big tax payment. And now you know how much you truly have to run your business on because you see your operating expenses and you learn to constrain yourself. So all of this is based on Parkinson’s law. Parkinson’s law says, we will use up all the time and money allocated. Right. So whatever you have a project, the 2 questions are always what’s the budget? What’s the timeline? Whatever the budget and the timeline are, I guarantee you they will be spent and slightly exceeded. Totally fair. Totally fair. But if you say to somebody, well, I need this in a month, or you say I need it in a week, you’ll find somebody who will get it to you in a week. If you say my budget’s $100, 000, or you say my budget’s $10, 000, you’ll find a way to get it done for 10 grand. Instead of buying the a hundred thousand dollar truck, you buy the 10 grand truck, right? It’s just as simple as that. So by constraining ourselves, We stay within our expected spending. And when it’s not working out, we get an early warning signal going, hey, your business plan is not working. You’re not, you know, you’re not going to be profitable. You’re not going to get paid. Figure out what went wrong and do something about it. Entrepreneurs are very resourceful. They can figure stuff out. They have to be. The problem is they always say, just give me more resources, instead of saying, Hey, we’re gonna cut your resources, You figure out how to be more resourceful because you can be when you’re forced to be. We get lazy.

James [00:19:42]:

That’s yeah, are we but more than we can chew, we’re spinning 552 plates and somebody wants to put on 553 and we’re like, whoa, stuff’s gonna drop. I do wanna talk a little bit about the actual mechanics of profit first, because This is the part of the book that I really liked. Was the creating separate checking, savings accounts, whatever, and labeling them with what they’re for, taxes, payroll, whatever. And then dividing them up based on percentages of the money coming in. Because that to me, that was where rubber hits the road. That was the, this is how you pay yourself first. And it was very mathematical, very objective. It wasn’t just this unicorn in the sky, pay yourself first. It was this, like you go to the bank, you open a bunch of accounts, you name them what they are, you in the name of the account, you put the percentage of the revenue coming in that you’re gonna put in that. And then I wanna talk about 2 things here, 2 different types of businesses. Cause right now I’ve called answering service. We get paid once a month, essentially by all of our clients. When I first read the book, I had a copier repair company. So we had money coming in essentially every day. Some days were good, some days were not so good, But I found it easiest. I don’t remember if they talk about this in the book. I found it easiest to have a, essentially a holding account for all the money to come in. And then once or twice a month, I would shuffle it between the accounts.

Rocky [00:21:12]:

You absolutely do have to do that. So Mike recommends a minimum of 5 bank accounts. Some people might freak out about that. There are 2 extra bank accounts and those extra bank accounts are really depending on how much can we trust ourselves, right? Because if money is too easy to access, we will steal from ourselves. We’ll access it, yeah. We’ll access it, right? So that’s the thought process. All of your money comes into the income account. And so it’s clear, the only thing that account is used for is to collect money. So every time, first of all, most business owners, they don’t look at their QuickBooks. They don’t look at their accounting software. They check into their bank account every single day, sometimes multiple times a day to see how much money is in the bank. When you look at your income account, you will know exactly how much money has come in since the last time you’ve done an allocation. You don’t have to allocate very often. Like you said, the 1 business, all the money comes in once a month, you allocate once a month. But every month when you sit down and you look at your bank account, you’ll look at the account and go, oh, there’s 12 grand this month. Yep. That’s what I expected. 12 grand this month. 1 month comes 8 grand. Well, why am I missing 4 grand? What happened? And so now it causes you to go investigate When all your money is mushed together, you can’t see that.

James [00:22:34]:

Yeah. You know, it’s funny you say that because I had a, I was taking sales training from a guy, sharp guy, especially in the sales world. But he’s like, I never reconcile my checking account.

Rocky [00:22:46]:

And I’m like, what?

James [00:22:47]:

And he’s like, nah, there’s enough in there. And it blew my mind because I was thinking like, well, what if somebody just wrote a check? Great. I mean, the check is just numbers. What if they just wrote a check from your account and cashed it? You wouldn’t even know.

Rocky [00:23:01]:

I’ll tell you, I’ll tell you what happens 10 times worse than that. You sign up for some trial software and you don’t cancel it. Oh, and it just keeps taking, it just keeps taking and you stop going to the gym and you don’t cancel it and your cell phone provider doubles your rates because your contract expired. And when we sit down and we dig through people’s numbers, we’re like, Did you know this? Did you know that? Did you know this? And they’re like, no clue. And they’re just, people are taking hundreds, if not thousands of dollars a month out of their account and they’re clueless. Dang. Yeah.

James [00:23:46]:

Yeah, I like to think that I watch my money like a hawk, but

Rocky [00:23:50]:

that’s even software like software fees go up constantly like all of that or somebody accidentally double bills you by accident that happens.

James [00:23:59]:

I just had our internet bill went up 30% because the whatever promote the 2 year promotional thing was done. Yep. And I was like, wow.

Rocky [00:24:08]:

Oh, let’s fix this. But if you weren’t reconciling your bank account, you wouldn’t notice that. I have no idea. No idea. No idea. No. So all the money comes into this 1 account and then on a set rhythm. And so what is the rhythm? No more than once a week. There’s reasons to do it less than once a month, but Usually most business owners do it twice a month. Mike recommends the 10th and the 25th in the book. Some will do it once a month. You sit down at that time. And again, all your accounts are labeled. Like you say, you label them all. And Let’s just say it says 10% to profit. You open up the account, you put 10% to profit. You put the percentage away for your pay into your owner’s pay account. That’s so that, here’s the other thing about having an owner’s pay account. Many owners are like, can I take money out of the business? Can I pay myself? Can I afford this? By having it allows you to have a psychological low-k take the money out of the bank and to pay yourself. And then again, the tax account, so the percentage for tax, and then the last percentage goes to your OPEX. All of your spending occurs in OPEX. And if you run out of money in OPEX, you know you spent too much. It’s that simple, right? There’s no money in the bank account. Well, Was it a sales problem or did I spend too much?

James [00:25:34]:

You know, it’s interesting, cause I can tell you from me going through this process with 2, I helped a few other people, but I know for sure 2 of my businesses, we did this. And I started the percentages for the savings. I created a don’t touch savings account for the rainy day or the pandemics, whatever. And I remember I set that percentage. I think I started at 3%. And I knew I was making money when I saw extra cash at the end of the month starting to build up in the operating account. And so you bump that savings to 5 and then to 10. And you see like, OK, I can adjust these percentages based on the cash coming in. And it’s very interesting to watch where when I had those all in 1 account.

Rocky [00:26:21]:

No clue. No clue. Yeah. It’s like it’s like a bag of potato chips. You sit down in front of the movie, you got a big bag of potato chips. What happens? It all disappears. Right. Use it all. You know, with chips, you got you got a big bank account full of money. It all disappears. Mm hmm. But when you portion control yourself and you give it a purpose, it works. And here’s the other thing. A lot of people are listening, going, for example, when you first started out, you go, how do I do this? I’m barely able to survive. You start with 1%. So you just take straight, just do 1% to your profit. You’re not going to miss a dollar out of a hundred. Right? So start little and over time, just maybe once a quarter, you increase it by 1%. And the point is over a year, over 2 years, you start to become more and more profitable. It’s also changes the way you think in your business. And you start to say, hey, I don’t need to spend money to make money. Right. I can be a little bit more frugal in the business. And it’s a matter of frugal versus cheap, right? There is a big difference between those 2. You need to be frugal in your business. Can you elaborate on those? Well, yeah. So Cheap is you don’t spend money on anything, right? Or you cut corners on everything. Frugal is saying, okay, I’m going to buy things, but I’m going to sit down and I’m gonna look for the best opportunity. Maybe I’m gonna negotiate. Maybe I’m going to spend a little bit more because it’s going to last 4 times as long. Someone who’s cheap will buy the cheapest thing and replace it 4 times. Whereas a frugal guy might spend 25% more and keep it 4 times as long and win in the long term. Business gets too much excitement and people just chase after dollars a little too crazy. The other thing that this does is it allows you to sit down and then start asking the bigger questions. Like, have I appropriately priced my products? Because if there’s no money to spend, it could be, is it a lead generation problem? Is it a sales problem? Is it a pricing problem? And I think more often than not, business is under price. And if you’ve got multiple offerings, a lot of times you don’t know which offering is profitable. It all kind of gets mixed up. And so part of the whole process is to sit down and look at all your major offerings, trying to figure out which ones are the most profitable. And this is true for every trade. Like I’ve had a guy sit down with me and goes, you know, we do windows and siding. And I realized windows are profitable. They’re easy, they’re fast. Siding takes me forever. I don’t have the margin. So stop doing siding. Right. And Again, that may not be true for you. You have to figure it out in your particular field. But once you know where your profits are coming from, that’s where you put your efforts.

James [00:29:40]:

Fair. Totally fair. It’s interesting talking about this, especially with the pricing thing, because when I first started into the different accounts, the percentages, all that jazz, and I realized that I wasn’t really making a whole lot of money. I think I figured out I was making half of minimum wage. I thought, okay, we got to fix this. And you fix this by raising prices. That’s the quick and dirty way to do it, which a good way, because I was under pricing. But the interesting thing was I thought, oh, you know, at first you get that cringe, like I can’t raise my prices. But then I thought, well, the other option is working for 250 an hour. How are you at that? And so I thought, well, let’s raise those prices because I’m not doing this for much longer. And if I don’t raise prices, we’re folding. It’s just not worth doing anymore.

Rocky [00:30:33]:

So the risk was minimal. And I think people have to realize, again, it comes back to the math. You can actually raise prices, lose customers and make more money. Correct, correct.

James [00:30:45]:

And we did 1 with, well, with a call answering service was a year, 2 years ago, whatever. We raised rates, I think it was 20%. And the thought was, even if we lose 20% of our clients And the 80% stay at 20% higher. Um, I need less people then to do that work. And so we, we definitely come out ahead. Employees were, they’re always a challenge, but there were more of a challenge mid pandemic when people were, I don’t get paid to stay home.

Rocky [00:31:17]:

It was, but you know, and then take that a step further. If I’m running a business like that, where can I get efficiencies? Where can I automate? What are the different things that I can do to be able to do that? And, you know, what’s an acceptable hold time? And sitting down and figuring all of that out. And then if the particular client says, I don’t want hold time, well, then maybe you charge them a premium, right? So it’s sitting down and understanding all of the mechanics of your business so that you can think through them and make better choices. And I think this is the part most business owners don’t do. They don’t sit down and think about their business. They’re too busy working in it instead of on it. And they don’t put thinking time on their calendar. So what do you think that is? We get busy, we get overwhelmed. The calendar fills up. Life gets busy. You have to be intentional about blocking out the time of learning to say no.

James [00:32:24]:

You know, it’s interesting that you mentioned this because 1 of my first coaching clients years ago, I kept telling him, dude, you got to take your QuickBooks, take it to an accountant and have them help you clean it up. And I bugged him, we met once a month for 6 months and I kept assigning him that. I’m like, what’s the point of you paying me if I’m going to assign you stuff that you’re not going to do. So I stopped him and I said, look, well, actually, he said he didn’t want to be my client anymore, which is fine because I was going to say it to him. What’s funny, I said, OK, we’re not vendor client. There’s no relationship there, but we’re still cool. We’re still friends, whatever. Tell me why you wouldn’t just take your stuff to the accountant because even though we don’t have a business relationship anymore, it’s still got to be done. And what it came down to after a little bit of prying was that he was afraid what the accountant was going to find. And what he was afraid of is that the accountant’s going to find that he’s not making any money. So it was an embarrassment that he was, he knew it was going to happen. And so I’m like, well, you got to rip off that band-aid and just figure out where you’re making money.

Rocky [00:33:33]:

And so that was a big part of what I learned on the personal finance side. We all have money mindsets, right? You ask the question money is. And people are going to have different answers. Somebody might say money is evil. Well, guess who ain’t going to make money? Right. Think about this. You got to work hard. To make money. Well, if you got to work hard to make money and someone shows you an easy way to make money, you may like, no, I don’t believe that. Oh, all right. Right. So these are a lot of the things that we’re taught, oh, money doesn’t grow on trees. Maybe it does. If you don’t believe it does, it won’t. Right. Right. Looking in the wrong forest. You’re looking at the wrong forest. And so I think these are a big part of it is examining ourselves. The other thing is just like that, that person that you talked about. Most people are embarrassed by their money situations and it comes out, hey, you know, my business is bringing in half a million dollars a year but I have no idea where it’s going. To sit down with someone and make that open comment is hard for people. It’s embarrassing. There’s fear. There’s all of that that comes into place. And it comes back to where we started. You weren’t taught money in school, right? You go to school from kindergarten to 12th grade, 13 years. So you can get a good job and make money. Did they teach you how to do that? No. I have an MBA. They didn’t teach me how to build wealth. They don’t teach you how to make. Really? No. They show you, like, accounting reports and stuff, but they don’t tell you what to do about it. All they interesting. Like, I remember sitting in my MBA class and the 1 professor was mad because Walmart put his family out of business. I’m like, okay, but they figured out how to make money, right? They figured out how to do things, but they don’t really teach you that. It’s all theory. It’s not reality. Got it. Okay. And I think that’s the problem. They don’t also teach you how to conserve money. So if you think about accountants, accountants, here’s the dirty secret, right? What is really their purpose as a tax accountant? To make sure you comply with the federal tax code and that you fill out your tax forms and your books in such a way that we can fill out your tax return. Where in there is it to make you more profitable? It’s not. And so- Which it was, but no it’s not. Yes, no, I agree with you. But the point is, if the people you’re depending on, like your tax person or your bookkeeper to make you more profitable, don’t have that as their skill set or desire, then it’s a problem. And I’ll tell you the dirty secret with the accountant. He doesn’t want you to be profitable. You looked at me funny, you know, I did. I am. Let me ask you a question. On my mind here. Let me ask you a question. This happened with with 1 of the people who use profit first. It was the conversation with their tax person. If your tax person called you up right now and said, hey, James, you owe 100 grand in taxes, What are you going to do? Say, are you sure? Yeah, I’m definitely sure. You owe a hundred grand. Can you get me a check?

James [00:37:10]:

No.

Rocky [00:37:10]:

No. Are you going to be happy at this moment?

James [00:37:14]:

No, I’m going to be Googling other accountants. Okay.

Rocky [00:37:18]:

Now, James, you know, I know you’ve been eyeing that F-150. You’ve been thinking about it for a while. You know, if you go buy the F-150, we can write it off this year and you don’t have to pay any taxes. What do you think, James? I’m not normally a truck guy, but today I am. Today you are, but here’s the point. Now you’re not hiring another accountant. I didn’t lose my job. Right. I didn’t get in trouble. Just playing the game by the rules and you’re helping me understand the rules. Yeah. You’re playing the game in the CPA’s job. He doesn’t want to get yelled at. She doesn’t want to get yelled at. So the easiest way to solve that problem is to get you not to be profitable.

James [00:38:01]:

Oh, I see what you’re saying. Okay. Yeah. You know, it’s interesting that you say that because I just changed accountants because I asked my accountant that I’ve been with years, decade. I asked to meet in September, October, something like that. And I could never get ahold of him. And I never got a call back. And then November rolls around and I’m like, I wanna figure out where I’m at to figure out if I can make some moves before December 31st rolls around, it’s too late. And then I got a new accountant and we met January 10th. So I guess next year or this year,

Rocky [00:38:39]:

but I was trying to do that. Like, tell me what are some moves I can make and here’s the problem. You buy the truck, you don’t pay cash for the truck, you take out a loan, right? And so, okay, I didn’t pay the tax bill, but April comes around and I’ve got to make the truck payments. And that’s not easy. And if your business has a 10% profit margin and you bought a $100, 000 truck, you need a million dollars in top line revenue to pay for that truck. That is a crap ton of work to pay for that truck. You’re better off paying the 30 grand in taxes, 35 grand in taxes, keeping your 65 grand, not having cashflow worries come April, and actually having cash in the bank. If you want to do things, open up retirement accounts, right? You get the deduction still, and you keep the money. Do wise tax planning. That’s really the key, I think, for people to think about, is doing that. And unfortunately, I mean, just just the way the systems are set up. When you start to realize why people behave the way they do, you see kind of underneath, oh, OK, now I get it. Mm hmm.

James [00:40:00]:

Yeah, everybody’s got their education or experience, whatever that leads them to believe whatever it is that they believe.

Rocky [00:40:07]:

Yeah. Well, no, I’ll talk about the marketing people. Marketing people will come up to you all day long and say, hey, if I gave you a machine and you put a dollar into it and you got $2 back, would you buy that machine? Sure. Sure. Now here’s what really happens with the marketing people. I put a dollar into the marketing machine, I get $2 back, but wait a minute, I get to pay $1.50 cost of goods to sell that $2 product. So now I make 50 cents, most of which goes to overhead. And now I added a dollar to my marketing budget. And I’m wondering why I’m losing money like crazy. But it sounded so good. I put a dollar in and I get 2 dollars back.

James [00:40:47]:

Or sometimes you stick that dollar in, roll the dice. Maybe you get 3 back. Maybe you get nothing. Maybe you get nothing.

Rocky [00:40:54]:

It’s a huge crapshoot. The market is. And so that’s again, that’s another thing that we like to measure is talk to me about your lead flow, where your lead’s coming from, which ad brought your lead in, was it you, you know, was it social media spending? Was it, well, nobody uses the yellow pages anymore. Was it a billboard? Was it a flyer? And the more you can track how this is coming to be, that you can start to measure the spends to see if it’s worthwhile. Right now, I think for most of our clients, unless you’re really good on Facebook, with all the changes that have happened, most people are not getting a return on their advertising there. They put a lot of money on social media. They get nothing coming back. Fair, totally fair. And it’s measuring all of that and knowing, is it working, is it not working? And then constantly tweaking it.

James [00:41:55]:

Yeah, I remember when I first published my book in 2017, I was doing Amazon ads, paying Amazon to sell my book that they could make a profit on, which is interesting. But initially, I was working out the sales that I was getting in return for the investment, was working out, you had to babysit that every day. And I remember 1 day I made $7. I was like, yeah, I made $7. Then I thought you just got excited about making $7. That’s terrible. It I mean, it costs you an hour and a half. Screw that. Holy ads.

Rocky [00:42:30]:

Well, so I’ll be honest, when people talk about that platform again, if I buy something for a dollar and I sell it for 2 on Amazon, oh, I was profitable. Oh, wait a minute. You sell something for 2 on Amazon, there’s a good chance that they’re going to take about probably 60, 65 cents in their fees. So now you only made 35 cents in profit. Now you have all the overhead that you’ve got to do. And on top of that, if you had borrowing costs, cause you had to order the stuff from China and it took 6 months to get here and all your money is tied up, it very quickly goes south. But I was buying it for a dollar and selling it for 2. I thought I was profitable. That’s tough. It happens all the time.

James [00:43:25]:

Right. I guess that’s where the whole napkin, put your math down on there to make sure that it makes sense because up here, up here, you’re totally profitable.

Rocky [00:43:35]:

Right. So you get it in front of you in actual numbers. That’s fair. And we have these conversations with business owners all the time. And they’re like, but I’m profitable. I’m like, no, you’re not. When you look at the numbers, you’re not. You’re working really hard. And this is why there’s no money at the end of the day. Cause it leaked here, a mistake there, this there, over, you know, you bought a thousand of them, you sold 800. And now what are we doing with the last 200? Well, it’s all sitting there as inventory and you can’t unload it. It’s loss. You even see it with people in the trades. Go look at the plumber’s truck. How many thousands of dollars of little parts are just floating around at back because nobody bothered to put it back? Oh, little fittings and stuff like that. Little fittings, little this or that. That stuff adds up really, really quick. And If you’re not keeping track of your inventory and where it’s going and putting things back, at the end of the day, nobody wants to do that. No. No.

James [00:44:40]:

But that’s where all your losses are coming up. When I had my copy repair business, I had a ton of profit wrapped up in parts inventory. And then somebody doesn’t call you for that machine for 6 months, 9 months, a year, whatever that part is just collecting dust. And on the off chance that that part is no good, It only had a 30 day warranty that expired 9 months ago. So

Rocky [00:45:06]:

the copy repair guy took 3 parts in used 1 part. Hopefully he built them for the right part. And then he threw the other 2 parts in the back of the truck and we don’t know where they are anymore. Right. Yeah.

James [00:45:20]:

Inventory says we have it. Inventory says we have it. Pick a winner where it is. Yeah. Interesting.

Rocky [00:45:27]:

And you know what the other thing is, and this is this this one’s hilarious. You get business owners who don’t bill for their services in a timely fashion. They don’t, I can’t tell you like how many times I’ve had to call people up and go, I owe you money. Can you send me a bill?

James [00:45:47]:

I remember getting that call from a customer when I was, I didn’t realize when I first started my business, they had to do these things like send invoices and stuff like that. So I remember I got a call from a client and They’re like, hey, you were out here, whatever, a couple of weeks ago. Are you going to send us an invoice? And I remember I take care of the call. Yes. And you didn’t voice whatever. Take care of it. And I thought I never want to get that call again, because that is me just literally leaving money on the table when that customer had to take the time to make a call to say, hey, buddy, I want to pay you. Not every customer is going to make that call. Oh, my gosh, I felt so embarrassed, which I should have.

Rocky [00:46:26]:

And now you’re a bank. Now, right, right, Right. You’re loaning people money for how long, you know, invoice for 30, 60 days. That’s money that you could have. And the longer you wait to invoice, the less likely you are going to get paid. Which is the other problem, because that business owner struggles to. He’s like, I haven’t paid him in 90 days. What’s another 30? Right. That is the life of what happens, and I can tell you that I’ve had vendors that I’ve had to call multiple times, I call you 3 times, you don’t send me a bill, I’m done, all right, Well, 3 is quite a few. You’re pretty liberal with us. Well, I think part of the reason is because we we want to close out for tax time. We want to make sure this particular LLC is going away. I want it clean. I want it done. I want it. Right. And I was dealing with a small business person. I’m like, you know, you put the time in, you did the work. You should get paid. Right. We try and be fair.

James [00:47:33]:

Right. Try. Try. So tell me, speaking of marketing, Rocky, how do business owners, people, entrepreneurs find you to help them out?

Rocky [00:47:45]:

So I have a podcast called Profit Answer Man, and on there, we teach everything that we’re talking about here. We go into much more detail. I just tell people, you know, you wanna get to know, like, and trust someone first, go hang out and listen and see if what I say makes sense. The website is profit comes first, right? Simple as can be. Those are the 2 places to find me. We teach a ton because we really want business owners to survive and thrive. A lot of what we do, you can do yourself. There’s no secret box here. You know, you can read Mike’s book. I don’t get paid if you buy it. It’s $16 on Amazon, go buy it. Get it from the library, save a buck, be more resourceful. You can implement it yourself. I just find a lot of business owners go, you know what, that is a part of the business that I hate. I don’t want to look at it. You just do it for me and we’ll do it for you.

James [00:48:43]:

Fair. I see. Yeah, I see that a lot. Tell me you have an interesting story about when you came here to the States.

Rocky [00:48:51]:

On your website, I believe it said your parents had 25 bucks. Yeah, my parents are immigrants to the United States. So they were starting over for the second time in life, coming to America. We were, you know, living on the wrong side of the track back in those days. What happened though is that most of the people who would come over had a community group and they would all just talk about how to succeed in America. And they would talk about the 1 thing that most people find taboo. They talk about money. They talk about how much they were spending, how much they were paying for things, how they were getting deals. So we were always taught is first of all, when you come from other countries, the rest of the world negotiates. It’s only Europe and America that people don’t negotiate. Oh, really? OK. Yeah. Like you go to a bazaar in Mexico, you go to most Asian countries, everything is barter. Like you’re constantly negotiating over how much you’re gonna pay for stuff. This whole fixed price stuff is Kind of silly. And I will tell you something, I’ve negotiated with Home Depot, Lowe’s, Sears, Best Buy. You can negotiate in stores.

James [00:50:09]:

All right. I love negotiating.

Rocky [00:50:11]:

Do it. Yeah, well, most people don’t negotiate. But we were always taught, you can live a luxury style on a pauper’s budget. There’s ways that you can do things to do that. So I think it was those money conversations are what allowed me to build good money scripts, to build good money habits. And so like literally when I got out of college and I got my first job, immediately I signed up for the 401k, right? I signed up for the credit union. My dad gave me a brokerage account. There wasn’t much money in it, but they did auto withdrawals. And so all I did was I just started my money before I started spending it to auto withdraw everywhere and to start saving it. And that’s the same principle of profit first, before you start spending money in your business, auto, pay yourself, pay your taxes, pay your profit, and then learn to live on what’s left. Because no matter how much you make, you will spend it. Right, right. The million dollar business owner is griping just much as the $200, 000 business owner. I don’t have any money to spend. Yeah. Well, you spend too much. It’s a problem. So I rocket ships, right? Well, stop wasting money or know where your money’s going. So I think I slowly watch them and people around us learn how to kind of be better with their money, make the right money decisions, and move up the economic ladder. And so we got to watch that. As a kid, it was just normal. Looking back, I realize how abnormal

James [00:52:00]:

that upbringing was for me. Oh, my gosh. Yeah. Yeah. And my parents thought about money all the time. So my initial upbringing, the the knowledge that I what I was taught, what knowledge I gained, whatever, was that money was evil. Money is a necessary evil, but it’s evil. And usually evil things I don’t want to have hanging around. So it took me years to figure out that that is not the case. Money is a tool, a useful tool,

Rocky [00:52:31]:

and it’s fun. Do you know where the money is evil came from?

James [00:52:35]:

Uh, I want to say Bible, but I don’t

Rocky [00:52:37]:

know. So the Bible says the love of money, it is, it’s not the money itself. It’s your behavior towards money. So if you make money, you’re God. Then that’s where you’re going to get in trouble. Money is not right. Money is a tool. That’s it. Yeah. And in learning to have those types of conversations and do that. But you’re right, if with your belief, if money was gonna make you evil, then you wouldn’t hold on to money. Right. So yeah, thank goodness I got out of that little rut. But I, and I think everyone should ask themselves that question, what does money mean to you? Like what are those programmings that are going on? What are your earliest childhood memories about money? Are they positive? Are they negative? Did your parents fight about money? Was there embarrassment around money? All of those things have to be examined. Just like you have to work on your business, you’ve got to work on your mindset and how it relates to money. Absolutely. Yeah, When you said money is and then fill in the blank.

James [00:53:51]:

Oh my gosh. That was mind opening. Because it’s interesting to think if I look back every decade that I’ve been alive, how would I have answered that question in the past decades versus now? Different story. Different story. Consider now much more positive 1. Well, that’s good. You evolved a lot of people. Don’t. Oh my gosh. Yes. Yeah. I see. Um, yeah, I talked to a lot of people that I’m just like, Eh, how are you here? How do you not know this? Because a lot of the people you talk to, they’re smart people. They’re nice people. You hope or believe that they would be sharp enough to figure this out, because I think, well, if I figured it out, it can’t be that hard.

Rocky [00:54:32]:

So. It comes down to, it’s the way humans work, right? So think about it. I don’t know if you have kids and had to teach them how to drive. Not yet. Not yet. Harrowing experience, right? But think about it. Even the first time you learned to drive, it was difficult, right? You were so concentrated. Your hands are on the wheel, sweating and gripping it tightly. When you drove today, did you even pay attention to the car? No. So, second nature. Because our mind wants to be efficient. So, if you’re taught these money scripts as a kid, you start having these money beliefs, and you don’t examine them, they’re just second nature to you. So you might have been taught math is hard. Well, if math is hard, you’re not going to do the math in your business. It’s too hard. I’m not going to worry about it. That’s the accountant’s problem, right? And we talked about it. The accountant doesn’t want you to be profitable because he doesn’t want you to get yelled at. This is what happens. It’s not evil, it’s not bad, It’s just human nature. And when you start to examine that and you look at it under the microscope, you go, oh, that’s why that happened. This is why this happens. This is why I’m in this situation I’m in. I need to reprogram.

James [00:56:01]:

That’s all.

Rocky [00:56:03]:

So how do you fill in the blank with that money is you personally? Me for me money is freedom. It’s time freedom. All right. Money gives me the freedom to do what I want when I want how I want. So When I built this business, I reverse engineered it. I said, how much do I want to work? How much do I need to make? How do I build a business that does that? And how do I either, if it doesn’t work, we’re not building it. Now it took me a long time to get to that point. Whereas I told you I was on the personal finance side and I couldn’t figure out the equation. It never worked. And I realized that I started looking at it and going, OK, if I do the math here, this is not going to work. This is not a good way. So I got to pivot and pivot again, pivot again until you find the way to make it work and get the numbers that you want. Interesting. But yeah, for me, it’s all about the ability to live the way I want on my terms. And it’s not going to a certain amount of money will buy you happiness, but it’s the amount that makes sure there’s a roof over your head. Right. You know, the car is full of gas. The fridge is full of food. After you get that to a certain level, the additionals don’t make you any happier. Right. You get comfortable at whatever level you’re at. And that’s just what happens. Again, it’s human nature. So understanding the psychology of money and human psychology is big. And I think that’s an area business owners don’t spend enough time in, is understanding the psychology of their workers. You know, even from the fit, you know, does this type of psychology

James [00:57:47]:

fit the role of the job and the person that I need in it? Oh, my gosh. Yeah, definitely. I’m in the process of hiring and that’s a huge.

Rocky [00:57:55]:

It’s a huge.

James [00:57:56]:

Yeah. I can’t teach personality.

Rocky [00:57:58]:

You can’t teach personality. You can’t teach those things. So you’ve got to find people who are natural to that particular thing and then put them in that job. Too often we’re like, but I need this done. So go do this and they hate it. And then you wonder why they’re disengaged and you’re struggling in your company. Right, right.

James [00:58:19]:

Very true. Well, Rocky, we got to wrap this up here. So can you tell us your website 1 more time quick? Profit comes first. It’s pretty easy to remember. I love it. So profitcomesfirst.com. And then tell me the name of your podcast, because I had heard a different name. So go ahead with that.

Rocky [00:58:36]:

Profit Answer Man. So I have 2 podcasts. You do? Okay. Yes. Profit Answer Man is where we teach you how to be profitable. Okay. Once you’re profitable, the other podcast is called Rich or Soul. You got rich, now what? Oh, interesting. That is about, hey, money is not evil. How are you going to build your ultimate life now that you’ve built wealth? And literally what we do on that, we do have a lot of information for business owners and we talk about the softer side of business, the softer side of life, the mindsets around money, how do we become better leaders? How do we do you know, how do we create a life plan? How do we intentionally you have a business plan? You know, hopefully it’s written down. You’ve done some math. Do you have a life plan? Do you know the life you want to lead? Well, that’s an interesting question that I have to answer. No to. Okay. Well, I mean, literally, if you don’t have a life plan, how do you know how to live life? How do you know what you want? Yeah. You know, you’re not chasing shiny object.

James [00:59:44]:

Yeah. That’s a very interesting question. You gave me something to think about there because I’ve been myself and other entrepreneurial people that I know have been pushing so hard on the game of business that the game of life kind of takes a backseat.

Rocky [00:59:58]:

And the game of life is the broader reason that you’re in the game of business, I suppose. So it is. And if once you define it, it becomes so easy to achieve it. You know, if I get in a plane in L.A. And a pilot comes on, he says, we’re going to New York, I’m going to be at JFK in about 6 hours. That plane is going to be off course 99 percent of the time. But that pilot knew I’m going to JFK. He knew how much fuel we needed. He knew the direction he might hit a storm, But he deals with all of that, right? You might hit turbulence. Life is the same way. What if the pilot got on and said, hey, welcome aboard my aircraft. Not sure where we’re going today. Not sure if I have fuel. You coming along for a ride?

James [01:00:44]:

Get a parachute here.

Rocky [01:00:47]:

And yet this is how most people live their life. Yeah, totally true. Totally true. Define it.

James [01:00:54]:

Cool. I love it. Thank you so much for being on the show, Rocky. Thank you so much for having me, James. This has been Authentic Business Adventures, the business program that brings you the struggles, stories, and triumphant successes of business owners across the land. We are locally underwritten by the Bank of Sun Prairie. If you could do us a huge favor, give us a big old thumbs up, subscribe, and more importantly, share it with some of your entrepreneurial friends that need to know, are you profitable? Do you want to be profitable? Yes is the answer to that 1. My name is James Katieman and Authentic Business Adventures is brought to you by Calls on Call, offering call answering and receptionist services to service businesses across the country on the web at calls on call.com as well as the bold business book, a book for the entrepreneur in all of us available wherever finding books are sold. We’d like to thank you are wonderful listeners as well as our guest, Rocky Lovanni, owner of profit comes first And Rocky, I’m going to ask you for that website just 1 more time. So it comes from you. Profit comes first dot com. It doesn’t get easier than that. I love it. Doesn’t. Past episodes can be found morning, noon, and night. The podcast link found at drawincustomers.com. Thank you for listening. We’ll see you next week. I want you to stay awesome. And if you do nothing else, enjoy your business