00;00;05;19 - 00;00;25;29

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You're listening to the Profit First for Real Estate Investors podcast. This show is all about helping real estate investors and entrepreneurs bring clarity and structure to the financial side of their business. In these sole episodes, we focus on practical financial strategies that real estate investors and business owners can actually implement, whether it's profit, cash flow forecasting or mindset.

00;00;26;00 - 00;00;48;25

Unknown

The goal is simple to help you run your business with more confidence and less financial stress. Enjoy the episode. If you don't know your target allocation percentages, then you don't have a financial plan for your business. If you're like, what the heck are you just saying? So what? Our target allocation percentages. That's a fancy term for the percentages in your business that you're running your business by right now.

00;00;48;25 - 00;01;17;02

Unknown

And you're like, I'm not running by percentages. I have money in my account. Great. Like let's go. Let's do more deals. Let's do more sales. It's also a fancy terminology. If you've ever heard of Profit First, that book and that whole concept, that system, it's broken down by making sure that you know where every dollar is going in your business and making sure that, you know, if I have money in a bank account, how much should I be putting in that bank account based on how big I am as a company?

00;01;17;05 - 00;01;36;26

Unknown

So whether you're just starting out or if you're millions and millions of dollars, you're a multi 7 or 8 figure business. I want you to know exactly where your money should be going and how much you should have based on how big your business is, because all of this is a target allocation percentage is a goal percentage for your business.

00;01;37;00 - 00;01;58;01

Unknown

Because if you set a profit first. And I'll give you a little refresher here, whether you know profit first or you don't. It's all about the system is keeping more of the cash. Like that's the bottom line. I want you to keep more cash of what you're making. And there's a practical steps behind Profit first, which is setting up business checking accounts and naming those checking accounts so you know where every dollar is going.

00;01;58;07 - 00;02;17;03

Unknown

It is very reminiscent of the envelope method like Dave Ramsey's made very popular. So if you know that envelope method you're telling every dollar where to go. Profit first has certain bank accounts that you open up. Just as a refresher here, you've got profit. You've got owner's comp, you've got owner's tax. I personally call those the Golden Trio.

00;02;17;05 - 00;02;35;17

Unknown

If you haven't heard one of my videos before, it's because I call it the Golden Trio, because I believe those help you keep more just like heroes inside of a big epic saga movie. You got like, the golden trio of characters. I want you to have a golden trio of bank accounts, making sure your story has a great ending, and that you love that journey that you're on as well as an entrepreneur.

00;02;35;22 - 00;02;55;23

Unknown

So the profit account, the owners cop know what you stand for? Owner's compensation and the owner's tax account all help you keep your money or give you peace of mind. Like that tax account is a big peace of mind account. So that way you know that you have the tax money there. When the tax time is coming and you know you're going to have to owe taxes, so you don't wake up and say, where the heck is that money that I have to pay?

00;02;55;28 - 00;03;19;06

Unknown

And then you can't sleep for the whole month of April or September when you file taxes. So those are the first three accounts. The other ones are functional. The other two accounts, there's income and there's income and operational expenses. What comes into the business, what goes out of the business. So with a working understanding of those five accounts, because if you have one big account, you don't have very much clarity.

00;03;19;07 - 00;03;41;21

Unknown

I call that if you just have one big bank account in your business, that's a black hole bank account, that's when you're going to wake up and say, I make money but feel broke because there's no money left in that account, or I'm not sure where it all went. I don't want that for you. So that's why I tell you set up these bank accounts, name them specific names like profit owner's comp, the owner's tax income, and so you have the fundamental accounts.

00;03;41;23 - 00;04;02;27

Unknown

If you have those, the next logical question is how much do I put inside of these bank accounts. How do I know if I'm on the right track or not? No matter how big my business is, and this is where target allocation percentages come into play. This is where knowing those percentages and how much should go into there will really help you.

00;04;02;27 - 00;04;22;22

Unknown

Because if you don't have a plan on those percentages, you don't have a financial plan for your business. And why is a financial plan even relevant? Why would you want a financial plan? Well, here it is. Most businesses build their business on the Hope and pray plan. I hope I make enough. I pray there's some left over some time.

00;04;22;22 - 00;04;51;17

Unknown

At the end of the day, at the end of the year, maybe when I sell this all off one day in the future. And that's how they build their entire business versus with profit. First, if you have the bank accounts and then you have percentages of I know where every dollar is going and I know how much to put into the bank account that's building it off a plan that is getting you to financial freedom and out of your own rat race, not the hope and pray plan.

00;04;51;17 - 00;05;12;17

Unknown

It's the financial freedom plan that's really what profit first and the target allocation percentages are about. And off the top of my head, because I don't have the little I don't have my book in front of me or profit first in front of me. I'm going to give you some of the percentages. I remember, if you're a smaller business from $0 up to 250,000, the target percentages for the different bank accounts.

00;05;12;21 - 00;05;33;23

Unknown

So let's just say you've got the one big income account right now where all the money is flowing into, but then you break it out into those sub bank accounts like profit owner's tax and the owner's comp account. If you're just starting out and you're just newer to the entrepreneur space and you're making 0 to 250, what do you put towards profit?

00;05;33;26 - 00;05;58;23

Unknown

That profit account is going to be 15%. I believe that's about 15% where you put that into from. Like if you make, you know, $10,000 on a sale, then 15% of that or 1500 will go into the profit account. So if you're starting out, remember on this video right now at 0 to 250, that would be the suggested target, the target allocation percentage for the profit account.

00;05;58;29 - 00;06;23;25

Unknown

Now the owner's comp account, it's a pretty big percentage going towards when I'm about to say the percentage here, because if you're just starting now, you probably don't have a big team. You probably don't have a lot of the systems in place to a lot of the operations, a lot of the staff and payroll and marketing like. So right now I would do 50% pay yourself 50% because you're probably trying to get out of your W-2 or you want to start paying yourself consistently.

00;06;24;03 - 00;06;46;06

Unknown

So 50% is the target for the owner's comp account. And then the tax account owner's tax would be another 15%. So you're saying, wow, that's like 80%, David. Like because 15% going to profit, 15% for the tax is 50% to me. Like the owner's comp, that was just 20% for the operational expenses. But these are just targets. These are targets to pay on the size of your business.

00;06;46;06 - 00;07;10;20

Unknown

Because then when you get bigger than 250, those percentages change drastically. You're not doing as much towards owner's pay, but you're doing more towards the opex account and you're doing more towards the system building, because now you're going to be hiring people. You're going to be spending more money on marketing. You're going to be spending the money on the payroll like you're going to be spending more money on systems, maybe the online systems or systems in your office or you're buying an office now.

00;07;10;23 - 00;07;36;06

Unknown

So if you break that $250,000 mark, the percentages change and they change drastically. And then if you get to a million, they change again. But if you know the target allocation percentages and if you know them for the different sizes of the business, then you at least have a target to shoot for. But what I love about the targets, no matter your business size, you will always have percentages going towards guess what profit owner's cop and the tax account.

00;07;36;09 - 00;08;14;08

Unknown

Because there's never a time that I ever in your business, want you to reinvest every single dollar of your reserves into the business because you think like that's the responsible thing to do. Like, I just have to plow every dollar back or I'm not being a responsible business owner, right? No, you're not a responsible business owner. If you don't have something in these other accounts, making sure that you have something set aside, whether it's for a rainy day or whether it's to pay yourself, especially if you're growing, if you're growing and scaling, then I want you to make sure you have profitability on that journey and not reinvesting every dollar.

00;08;14;10 - 00;08;37;28

Unknown

But hey, what if you want to stay small and you don't have this big, you don't have to pay yourself as much. You can always tweak the percentages. There's a difference also between target allocation percentages and what is another terminology in the profit first world current allocation percentages of what you're doing today. So today, especially if you're listening to this video and maybe you're already a seven figure entrepreneur and you're like, good gosh, Dave.

00;08;37;29 - 00;08;59;01

Unknown

Like there's no way I'm not profitable right now. How could I even do this? Because I'm upside down. I'm spending more than I'm making. Start small. Start with what we call the current allocation percentages. Because if you're like that and you're upside down, you might have to start with 1% to owner's comp, 1% to the profit and 1% taxes, and 97% to opex.

00;08;59;06 - 00;09;17;17

Unknown

If you're like, well, I can't even do that because I'm upside down. Well, something has to change. If you're over 100%, something has to change. And this would force you to be able to go back to at least building a little bit of a buffer, even if it's that small, 3% like 1% to each of that golden trio of accounts, you're at least getting back on the right track.

00;09;17;17 - 00;09;47;06

Unknown

You're not spending everything. You're making because Profit first is not just some fancy thing with bank accounts. It's helping you build wealthy business habits. It's helping you build the habits of the entrepreneurs that go out there and actually break out of their rat race and into financial freedom. But knowing and having a financial plan like the target allocation percentages will help, you know, am I on the right track or am I veering off course if I literally have to start with 3% to this, what's my first goal like?

00;09;47;11 - 00;10;07;17

Unknown

Okay, can I get two in the next few quarters to be able to pay myself like 20%, like to be on a better trajectory rather than like just running and gunning it and just trying everything six ways from Sunday to be able to say, okay, where's the money coming from? How do I pay myself? But having an actual system, the the bank account and the money flow.

00;10;07;17 - 00;10;22;27

Unknown

But then from there, knowing how much of that percentage like am I on the right track? Am I on the wrong track? If you're wondering, David, I need those percentages. And because I don't have them right here, we have those available to be able for you to be able to see, no matter the size business. What are those target allocation percentages.

00;10;23;05 - 00;10;51;09

Unknown

And you can find those in the book or on our website. Simple cfo.com. But I want you to know exactly where you should be as a business owner cash wise. That's what the target allocation percentages are there a goal for you? It's not necessarily where you start. That would be the current allocation percentages, but the targets is a much better financial plan for you than that hope and pray plan that a lot of business owners have, and yet they wake up in cold sweats because they don't know where their money is and they don't have a plan.

00;10;51;09 - 00;11;11;23

Unknown

Once the money comes in, the door. This will help you as a business owner know exactly where those dollars are, but then you telling them where to go and how much should go, where and what you can realistically do right now. Whether you're a new business owner, you should have the percentages based on the newer business ownership, or if you're a if you're a seven figure business already, how close are you to those targets.

00;11;11;23 - 00;11;40;02

Unknown

And this would give you a good first goal cash wise to get towards of a dollar comes in. I'm able to split it out in a healthy manner rather than spending more than what I'm making. Thanks for spending time with me today. If this episode gave you clarity or a new perspective, be sure to like, subscribe, and comment below if you're ready to apply what we talked about today with real guidance and accountability, visit profitrei.com to schedule a free discovery, call with us to create your path to financial clarity and freedom.