“I remember in the depths of my struggles calling my accountant and saying, ‘I don’t understand this. Why is it saying I’m profitable on the profit and loss, but I’ve got no money in my bank account? What am I missing here?’ And the simple response is, income minus expenses equals profit, but that profit and loss isn’t showing you the drawings that you’ve already taken out of the business, right? So, we’ve been set up to fail. That is the honest truth.
Now, I cannot tell you how excited I am about sharing this blog with you. And it is something that I wish someone would’ve shared with me when I was starting my own business. And in this spirit of being authentic, I completely suck at math’s. And I was completely illiterate when it came to financial reporting. I would rather stab myself in the eyes with knives than go through a profit and loss report. And that was until one meeting with a financial advisor changed everything. He said something so shocking. I didn’t know what to say. I was gob smacked. He said, wait for it… You made a million dollars last year. I know. Can you believe he told me something so shocking? My response after recovering was, well, where is all my money? And he replied, well, that is where the problem lies.
Your expenses are actually exceeding your income. Meaning I had actually made zero profit even though I had generated over a million dollars in revenue. And that was the moment that I knew I had to stop being illiterate and start being financially responsible, which is something I’ll admit with all honesty again, I never was. And that of course goes back to my money story, the story I tell myself about money. And by the way, we all have a money story. And without boring you with too many details, my money story was that I wasn’t worthy of money. I was tight, if I had money, it meant that I was tight. It meant that I was mean and stingy. And if I only lived once, I was going to experience everything in this lifetime, I possibly could. If there was a trip overseas, I was in, if there was a concert to go to, yep, I’m in. See you get the picture. And I actually lived week to week for most of my adult life. And that mindset got super hard when I had kids and had more mouths to feed. And a back note, when I started my business, I actually had $0 in my bank account. And I had just lost my house back in the 2011 floods in Queensland, and I was lining up for food vouchers and government financial support to get me through that period. And luckily, I was one of the lucky ones, and my insurance company did pay up. But until that insurance money came through, I was literally living on generosity. So, I’ve certainly come a long way. And for me, my financial journey will never be easy because like I said, it just doesn’t come naturally to me. But now, as a single mum, I need to take control more than ever and ensure that I am building profitable businesses, not just making revenue. And now I am no expert on this financial stuff, like I said, but luckily for you, my guest today is Amy Bet, and she is the founder of Lady Without Limits and co-founder of a new Carver-based beverage company Drink Milow, a Profit First professional, and co-host of The Lady Without Limits podcast. Amy failed in her first business because of cash flow problems. And when she learned that more than 80% of business owners who don’t succeed don’t succeed because of a cash flow problem, she set out on a mission to reverse that awful statistic. As a Profit First professional, Amy discovered the only two numbers that matter in business and the formula for actually reaching financial freedom. And since she knows the financial struggles that business owners are facing right now, she’s not about to slow down teaching business owners how to effectively manage their money and master their mindset. She’s walking the talk and documenting her journey of creating her beverage brand with these financial principles. Amy is a wife and mother to three little ladies, and together they live at Barwon Heads in Victoria with their beautiful Border Collie, Frankie. Now I absolutely love this conversation and hearing Amy’s story from failing business to thriving, she also shares an amazing daily practice. I think you’ll absolutely love it as well.
CAN YOU TELL US A LITTLE BIT ABOUT YOURSELF AND HOW YOU GOT STARTED DOING WHAT YOU ARE DOING NOW?
“So, I became a Profit First Professional. I wish I could tell you that it started because I love numbers. I wasn’t an accountant or anything like that. No, I actually failed in my first business, and I was in real financial trouble. And that’s how, through my journey of getting out of that and hearing about Profit First and the Profit First Method is why I am here today talking about it. Because I just know how many business owners struggle with financial hardship. I live in Barwin Heads; I’ve got three daughters who take up a lot of my time. And they’re a fun bunch. But yeah, I became a business owner by mistake, actually, my husband suffered a brain injury right when I was about to have Annie, our second daughter, and I delved into business ownership because I had to. He wasn’t well enough for me to take care of, for him to take care of Annie. And I didn’t want to go back to work for five days with a newborn. I didn’t know how that was going to work. So, I used my event management skills to actually go and take on big corporate events here in the Geelong region. And it worked really well. I was able to secure big events really quickly for the likes of Cotton On, Country Road, David Jones, lots of big events, and it looked really successful from the outside. And I was bringing in decent money, but the expenses just kept rising and rising and I just had no idea how to handle the cash flow effectively and keep on top of my tax and all of those things. I’d come from a really privileged position, where I had access to big budgets previously, working for a big corporate organization, to then having to bootstrap it and really get a bird’s-eye view of what being a business owner is all about. And so, I really struggled, and I tried to find the answers and it was really difficult. And it wasn’t until I actually decided to step out of my business and lick my wounds and recover from that shame, I guess, that I came across the Profit First method, and everything really changed for me. Can we just pause that for a second? You said that your husband was seriously injured or had a brain injury that I’m assuming you’ve had to care for him as well. You’re about to have a baby and you’ve started a business, all three things at the one time you are Superwoman.”
TELL US HOW YOU JUGGLED EVERYTHING FROM WHEN YOUR HUSBAND HAD A SERIOUS BRAIN INJURY TO HAVING A BABY AND STARTING A BUSINESS?
“Yeah, to be honest, it was a crazy time and an uncertain time, I guess. We actually both worked for the Cardinal Group, and we had really stable incomes and we loved what we did. And so, for him to have his accident, he had post-concussive syndrome. So, he had a couple of bad concussions that took him out of his career and really had a huge impact on his life. And luckily, he has recovered to a degree now, which is great, but for a really long period of time, he was very seriously impacted, and yeah, everything changed for us. So, I think I’ve always had an attitude and a mindset of ‘we’ve got this.’ Like that was the mantra that my husband and I had before we got married, was ‘we’ve got this, whatever kind of comes to us we’ll find a way.’ And I think that’s something that my parents really instilled in us. No matter what adversity comes to us, we’re going to be okay. And so, I just was kind of like, all right, what are we going to do? And let’s just do it. I’ve always kind of been someone to take action and not really think about everything too much. And that does serve me, it also gets me into trouble sometimes because I commit to things, you know, every now and then that you’re big. But I was really lucky that I guess I have a great family around me as well, and we just decided to soldier on. And I think also my relationships with big corporates in DeLonge and the region really helped me because they already had worked with me at the Cotton Group, and they trusted me. So, they gave me events pretty quickly.”
SO, WHAT IS THE PROFIT FIRST METHOD?
“The Profit First Method was originally created by an entrepreneur over in America. His name is Mark Mcic. And he is this guy who actually, again, suffered with his own financial struggles and it was when he was in the depth of his despair that it just came to him a way of separating your cash flow and really finding a way to have visibility of your money at any one time and not have to keep your head in spreadsheets constantly. So, Profit First is a method where we open multiple bank accounts, so five key bank accounts, and we separate our cash flow out into those categories. So that’s your profit, your tax, your owner’s pay, operating expenses, and you’ve got a separate income as well. Therefore, you’re really taking care of all of the financial priorities in your business. And you’ve got clarity of how much money you’ve actually got to spend on expenses and pay yourself, and you know, it allows you to be ahead of your taxes rather than having everything lumped together. There’s money in the bank account, so you think that there’s money and you think you’re going okay, but then all of a sudden, you know, all of these expenses drop, you get a tax bill and you’re like, oh my goodness, what am I going to do here?”
TALK US THROUGH HOW BUSINESS OWNERS ACTUALLY GET CONTROL OF CASH FLOW?
“So funnily enough, it’s simple. So, I think a lot of business owners think that money’s really difficult and it’s really hard and you know, it’s above their head, but actually, there’s a really simple process to downloading your financial reports and reading the information that you need so that you’ve got an understanding of how you are performing. And once you’ve got that financial clarity of how much profit is in the business, what are my expenses, what am I paying myself? All those five key categories, it can really allow you to see what’s actually going on. And then it’s very clear if you need to raise your prices or if things are going as, you would like them to. So, the first step is actually just doing that cash flow analysis on your business and seeing how things truly are, and then opening up the bank accounts to then start managing it more effectively. So, we’ve got a process where we work by percentages actually, because percentages might seem really complicated, but really, its small numbers broken down by a hundred. So, it’s really easy to understand, okay, well my expenses are 60% of my business, I’ve got to put away 13% of my income in taxes, for example, or whatever those percentages are for you. It’s understanding your financial health, working out what your percentages are, and then, basically allocating it into your bank accounts so that you’ve got the right amount of money where it needs to go.”
WHY DO BUSINESS OWNERS STRUGGLE WHEN IT COMES TO MANAGING THEIR MONEY?
“It is the stories that we hold. It’s the stories that we’re told, or we’re telling ourselves that money is difficult. But also, we haven’t got great mentors. We’re often not told a really simple process of being able to do it. I remember in the depths of my struggles calling my accountant going, ‘I don’t understand this. Like why it is saying I’m profitable on the profit and loss, but I’ve got no money in my bank account. I’m like, what am I missing here?’ And the simple response is, you know, income minus expenses equals profit, but that profit and loss isn’t showing you the drawings that you’ve already taken out of the business, right? So, we’ve been set up to fail. That is the honest truth. And there are accountants and bookkeepers out there to this day that still recommend that you just have one bank account to manage cash flow. But then that’s so confusing because how hard is it to open your bank account and then just mentally separate all the money that you need in different areas? It’s difficult. It’s almost not possible. So, then we just go, and we think we’ve got more money than we do, and we end up spending our tax and all of those things. But there is a better way, and a couple of myths that come up. People get scared of multiple bank accounts because they think that they’re going to have to pay a lot of fees, but there are so many banks in Australia that have either low fees or no fees, and they also think it might be more of an accounting nightmare with a lot of reconciling. But you can just set up simple bank rules and that reconciling process is so easy. It’s not a barrier to having financial clarity and being able to protect yourself from getting into these financial situations. And it actually helps you to bring more abundance into your life as well because you feel more empowered with money. And then, if you do choose to go on the girl’s weekend away and have that experience, which I’m with you, I would do that too, at least you have the financial empowerment and you know what’s going on. So, you can pre-plan and how you’re going to get that money back or what you’re going to do. You’ve just got more control.”
CAN YOU TEACH ALL OF THAT STUFF IN THE PROFIT FIRST METHOD?
“Yeah. So, I’ve got this really simple program where I teach the Profit First method. I break it down into three steps: how to read your financial data, set up your bank accounts, and then how much money needs to be put into each bank account to get you on the right financial path. And we also talk about things like, do you need to change your pricing? We look at, do you need to cut some dead weight of expenses that aren’t adding value to your business? We go through some of those simple steps that will help you get back on the path of profitability if things aren’t working. And we’ve got an awesome community with lots of support.”
HOW DO WE MANAGE THAT INCONSISTENT CASH FLOW IF OUR PROPERTY MANAGEMENT EXPENSES AREN’T ENOUGH TO COVER OUR EXPENSES? HOW DO WE MANAGE THAT?
“Well, I love this because in my previous business, I also had inconsistent cash flow. I would get, let’s say, $30,000 from an event and then all of a sudden, I wouldn’t get paid for another few months. And so, it was such a rollercoaster up and down, like great, we’ve got money and then oh my God, we’ve got nothing to pay for nappies. It was tough, right? And that was a serious, that’s what I was going through. And so, what we need to do is we just need to look at our cash flow in averages. So, we look at a time period. Let’s say you’re looking at the last 12 months of what’s been going on in your business, and then you’re like, okay, on average, how much income came every month, and then what were my expenses? Which gives you a baseline of what your true income is because a lot of business owners really struggle when they’ve got a lot of money coming in and then there’s not much money. It’s like, what is my financial position? How much am I earning? And so, if we can just be like, okay, on average over those 12 months, I made 20 grand a month, whatever it is, and then my expenses are six grand a month or whatever. It really allows you to prepare and make sure that you’ve got enough money for those expenses. When you have those bigger months, you’re not going and spending it all. You’re putting money aside in, let’s say, a drip account to have that money sitting there to pay for those smaller months of revenue.”