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Profit First: Replace & Grow

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I’m excited to share a game-changing secret with you: how to replace yourself in your business and watch it thrive without your constant presence. We all dream of scaling our businesses, but who wants to work 80 hours a week to make it happen? The key lies in smart strategies, specifically, Profit First.

The Challenge of Affordability

The idea that replacing oneself would be financially difficult is a common barrier we run into. Take, for example, the owner of a print shop, working a grueling 60 hours a week. He desperately needed someone to manage the shop in his absence. However, when asked about the budget for this indispensable role, he could only afford $500 a week. It was evident that this owner wasn’t thinking strategically. To successfully replace yourself, you must embrace the Profit First system and its percentage-based approach. This way, you can work less and still boost your income.

The Power of Percentages

Let’s illustrate this concept with a personal story. Over two decades ago, I replaced myself in my dental office, transitioning from a 40-hour workweek to just 20-22 hours while increasing my income. Here’s how it worked: Initially, I operated at a 40% net income. When I brought in an associate dentist, I allocated 20% of their work to them, which meant I retained 20% for myself. Some might argue this isn’t fair, but it’s a reasonable split. After all, if they wanted a larger share, they could have shouldered the financial and administrative responsibilities.

The point here is that not everyone desires that level of responsibility, and my associate was more than happy with this arrangement. Furthermore, I continued to perform high-value procedures, earning my 40% on those. With basic math, it’s clear that this system can work wonders.

Understanding the Profit First Model

Now, let’s delve into the Profit First model. If you haven’t read the book yet, we strongly recommend it. The model breaks down revenue ranges into targeted percentages. For businesses earning between $0 and $250,000, the owner should receive 5% profit, 50% for pay, 15% for taxes (adjustable for your specific tax bracket), leaving 30% for running the business.

For instance, if your business makes $100,000, you have $30,000 to cover operational costs. Setting aside $15,000 for taxes, you’re left with $50,000 for yourself and an additional 5% profit, which is $5,000. Suddenly, replacing yourself seems feasible, right?

Scaling Up: Balancing Profit and Compensation

Now, consider the 250,000 to 500,000 range. Profit increases to 10%, but owner’s compensation drops from 50% to 35%, effectively a 15% pay cut. However, this pay cut doesn’t translate to a loss; it aligns with the increased profit. The extra 15% now flows into operating expenses, which rise from 30% to 40%. This extra 10% becomes your budget for your replacement. For instance, with a $400,000 company, you have $40,000 set aside for your replacement while still receiving 35% of the profits.

You’ll still be active in the business, just as I continued to work in my dental practice, but with more flexibility. I reduced my workdays from four to three and enjoyed more leisure time. This extra percentage was invested in my associate, who eventually became a valuable asset to the practice.

Dreaming Big: The 1 Million to 5 Million Range

Imagine having a million-dollar company. In this scenario, owner’s compensation drops to 10%, which might seem low at first glance. However, it’s $100,000, and you’re making 10% profit, another $100,000. Accounting for taxes at 15%, that’s a clear $200,000 in your pocket from a million-dollar business. Your operating expenses account for 65%, or $650,000, leaving you with substantial resources to hire your replacement.

In essence, it all boils down to running a profitable business while adhering to the Profit First percentages. If you achieve these benchmarks, you’ll find there’s enough financial room to hire a capable replacement. And let’s be clear; we’re not talking about hiring someone for a low wage. Your replacement might cost more, but with a well-managed, profitable business, you can afford it.

Reality Check: The Importance of Profitability

To emphasize this point, let’s talk about a conversation with an individual who wanted to hire a highly skilled sales and executive professional for a mere $25,000 per year. It was an unrealistic expectation, to say the least. However, this individual wasn’t running a profitable business, which made the dream of hiring a top-tier talent seem like a pipe dream.

The bottom line is this: if your business isn’t profitable and you’re not following the Profit First percentages, replacing yourself will remain a distant dream. It may take six, twelve, or even eighteen months to get on track, but the key is to start working towards these percentages.

Our Expertise in Profit First

At Matterhorn, we specialize in implementing the Profit First system and helping our clients hit those crucial percentages. The book may suggest a 12 to 24-month timeline, but our experience has shown that we can help our clients reach their goals within just three to nine months.

In conclusion, the path to replacing yourself and growing your business is rooted in financial strategy and the Profit First model. By adhering to the recommended percentages and running a profitable business, you can create the financial cushion needed to hire a capable replacement and scale your business while enjoying more personal freedom and higher income. Don’t let the fear of affordability hold you back; embrace Profit First, and the possibilities are endless.

How We Can Help

Visit now to access personal mentoring from our expert Matterhorn team. Complete a quick application on the site to get started on your journey towards success. See you there!

About Greg Wintereg

Greg founded Matterhorn Business Development to assist small business owners in growing their businesses and increasing profitability at the same time.
He was an internationally recognized lecturer, sales trainer, and management consultant who spent close to 30 years working with professionals and small business owners across the US and Canada.
In 2019, he authored his book “Fun at Work.”

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