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5 Things You Must Consider When You Set Your Own Salary

The two major ways entrepreneurs can take money from their business is through draws or by receiving a paycheck.  The type of entity in which their business is set up will determine which method can be used. In either case, entrepreneurs need to be careful not to shortchange themselves.

Reasonable Compensation for a Salary Per the IRS

For small businesses formed as an S Corporation and with plenty of profits, reasonable compensation is a term you may want to be familiar with.

Many small businesses have organized as an S Corporation form of entity. In many cases, the S Corp election allows a business owner to save money on self-employment taxes, especially if they are operating as a sole proprietor. S Corp profits, or distributions, are not subject to payroll taxes.

If you are a business owner taking a salary and contributing substantially to the operations of the business, you may think that you should just take the distributions and forget the salary. After all, think about how much you would save in payroll taxes. But this has already been tried and shot down by the IRS in the courts. And this is where the term reasonable compensation comes in.

The IRS requires that business owners who perform a substantial contribution to the business be paid a salary according to a number of factors. This is called reasonable compensation. You can’t pay yourself below the market and take a large amount in distributions.

The IRS has issued a fact sheet that describes the guidelines that can be used to determine reasonable compensation. They include employee training, experience, duties, time spent, history of distributions, bonuses, and many other factors.

There are also reasonable compensation ramifications for C Corporations as well.

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The 5 Things You Must Consider When You Set Your Own Salary

If you’re running a service business, it’s easy to initially think you can do well with a similar hourly rate that you earned as an employee.  However, think of the amount of time and energy you are putting into your business every day of the week.

Here’s a quick list of five elements that should be included in the salary of every entrepreneur:

Competitive Pay

If you were doing the same work for a company that hired you, what would your payment be?  Are you making at least the market equivalent or better?  A lot of times, as entrepreneurs, we tend to focus only on this piece of our salary when we set our pricing, and that’s a big mistake.  It’s only 75 percent of what our total pay needs to be.

Profit

As an entrepreneur, you take extra risks when you own your own company, and you should be compensated accordingly.  Your capital is tied up in your business and should be earning a good return in addition to your reasonable salary.

Benefits

Employees get vacations, health insurance, and bonuses; and you should too.  This should be part of your salary package as an entrepreneur.

Taxes

Although our individual taxes are not deductible as business expenses, we need to compensate for them so that we’ll have enough cash for our living expenses.  It’s a huge chunk too.  We work about three and a half months every year, just to pay for our taxes.

Retirement Plan

When you work for yourself, no one is going to fund your retirement for you.  Although the Social Security program helps a lot of seniors, it’s up to you to set additional money aside for a comfortable future.  The only way you can do this is to make sure you have given yourself a good salary.

Your salary should include all of these components.  If it doesn’t and you feel like you can’t afford to pay yourself that much, then your pricing might not be reflecting all of these items correctly, you might have a volume problem, or your business model may need some adjusting.

It’s normal to take a smaller paycheck the first few years as we’re building our businesses, but if you’re still doing it after several years or constantly having cash flow issues, then something may be wrong.

I would be more than happy to chat with you about your salary, to see what changes need to be made to ensure you are getting the salary you deserve.

Connect with Shannon:

www.netbooksaccounting.com

Want to learn tips and tricks live with Shannon?  Join the Facebook Group where she goes live every Wednesday at 8 pm EST to talk about these topics.

www.facebook.com/netbooksaccounting

**We help stressed and struggling fitness business owners transform from surviving to making a consistent paycheck.  Learn how to improve your business finances with our Keep More Money Method. Sign up now for our FREE next group by clicking HERE**

Shannon Simmons, a 10+ year business owner, and 5+ year Profit First Coach is the owner of Netbooks Accounting Services, LLC.  She is one of the original Profit First Professionals when the concept was created by Mike Michalowicz.

NetBooks is your gym and fitness center’s business partner in achieving levels of profitability, accounting integrity, and financial reporting that will allow your business to do more than just thrive but to achieve the highest levels of profitability.

Our professionals are intimate with the fitness market and will guide you through creating the right plans, managing your operations and accomplishing your goals.  Think we might be a good fit?  Click Here to find out!

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Top 10 Tips to Increase Profits for Fitness Business Owners

Top 10 Tips to Increase Profits for Fitness Business Owners

If you are looking to scale or have some personal goals you are trying to reach you may need some tips on how to increase profits quickly.  Every business has a gold mine in its current customer base. But not all business owners remember to mine this gold, because they are too busy trying to attract new customers or developing new products or services. This is the perfect time of year to step back and remember the easiest ways to increase your profits is using your existing customer base.

Top 10 Tips to Increase Profits for Fitness Business Owners

As an entrepreneur, you are responsible for shaping your business success, so here are 10 tips you can use to increase your profits this year:

Revisit Your Current Prices and Make Adjustments as Necessary

Many people will tell you that increasing your prices will increase your profits, but that’s not necessarily true.  Increasing your prices by a small amount might increase your profits without turning away existing customers, but make sure you research your competitor’s prices and adjust based on what makes sense in your market.

Keep in mind that if it has been a while since you have raised your prices, it is definitely time to do a little research and make the adjustments that are best for your business.  Review the price list for your services and products to determine what you need to do to bring all of your numbers back in balance.

It is important to note that customers do expect periodic price adjustments, so don’t let procrastination or fear hold you back from making a good solid business decision here.

Bundle Your Services or Products Together

Make your products or services more attractive by bundling them together and pricing them at a better deal than purchasing the services or products separately. Customers that only want one particular product or service should still be able to purchase the product or service à la carte, but offering different packages of increasing value makes it much easier to upsell to clients and increase your profits.

Make Your Online Presence Known and Manage Your Online Reputation

Everyone uses search engines and social media to find the right business to serve their needs, so make sure you can be found online. Create a website for your business and make sure you have business pages on social media platforms like Facebook, LinkedIn, and Twitter. You’ll have to develop some marketing strategies and optimize your site to rank high, but, when done right, these channels can dramatically impact your profits for the better.

When you have many good reviews, your credibility goes up and your business is more appealing to potential clients and customers. If your clients leave you an amazing testimonial, it’s a good idea to ask them to post it online as well—especially on Yelp, your Facebook Business Page, and Google Reviews. On the other hand, negative reviews will look bad to potential clients and can negatively impact your profits, so make sure you respond appropriately to the review and show potential clients that you care about getting things right.

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Encourage Customer Referrals by Building and Nurturing Customer Relationships

Connect with clients and build strong relationships through effective communication, providing exceptional service, getting feedback, addressing concerns, and showing appreciation. Doing so can increase repeat customers, customer referrals and your profits.

Cross-Sell Current Customers

Restaurants practice this the most, asking us if we want appetizers, dessert, or fries with our entrée, and you can apply this to your business too. If you offer two services and a client is only participating in one service, make sure they know about the other service you offer and find out if they have a need for it.

This is called cross-selling, where you offer current customer service or product that they don’t already purchase from you. For example, an attorney that does trademark work for clients might also let clients know that they do wills, too. A pool builder who also offers maintenance service will want to follow up with the new pool owner once the pool is built. A real estate agent who also manages properties will want to let rental property investors know about this service.

Upsell Current Clients

Offer steady customers a product or service with more features than they usually purchase. Examples include moving a client from coach to first class, from a budget vacation to a luxury one, from a standard model car to a luxury version, from an off-the-rack suit to a designer suit, from the standard service to an all-you-can-eat version, and from a regular meal to a super-sized one.

Some customers simply need to be given permission to splurge on themselves, so why not by you? Others have outgrown the standard package but find it hard to break routine. With a gentle nudge from you, a percentage of your clients will purchase the upgrade, therefore boosting your sales with little effort on your part.

Start a New Product or Service Line

If you’re limited to just a few products or services, it’s time to expand. If you mow lawns, offer a leaf collection or snow removal service. If you sell shoes, add socks. If you manage a restaurant, consider offering alcohol. Expanding the scope of what you’re selling will provide you with additional revenue.

This is a great way to then start upselling or bundling products and services to your customers!

Expand Your Geographic Reach

If you’re still only offering services and products locally, consider expanding your reach, especially because the internet is so readily available nowadays. Think about which services you can offer virtually; some may require you to invest in cloud-based delivery systems. If you only sell products at a physical location, e-commerce is a huge industry and you could definitely increase profits by having a storefront online.

Curb Irrational Spending

Invest in things that will last, such as your own education, great systems, team training, and assets that you really need. Avoid spending on items that are used up quickly, such as elaborate entertainment expenses that don’t generate significant revenue, excessive utilities, and stopgap equipment.

This area can be a tough one to evaluate objectively because there can be emotion and attachment involved in the spending. Let us know if you need help in this area; we can help you look at your spending with fresh eyes and provide a new perspective using the Profit First system.

Maintain Your Focus

Great entrepreneurs have a clear focus. If you have too many projects going on at once, you end up delaying all of your project completion dates, and nothing gets finished. Ask yourself, what’s the most important thing I can do today? And work on that until it’s done. Then ask yourself the same question again, and wash, rinse, repeat your way to success.

All ten of these tips will help to raise your average profits per customer and boost your overall profits without a lot of additional work on your part. Try these tips today, so you can enjoy a more prosperous 2020!

Connect with Shannon:

www.netbooksaccounting.com

Want to learn tips and tricks live with Shannon?  Join the Facebook Group where she goes live every Wednesday at 8 pm EST to talk about these topics.

www.facebook.com/netbooksaccounting

**We help stressed and struggling fitness business owners transform from surviving to making a consistent paycheck.  Learn how to improve your business finances with our Keep More Money Method. Sign up now for our March group by clicking HERE**

Shannon Simmons, a 10-year business owner, and 5-year Profit First Coach is the owner of Netbooks Accounting Services, LLC.  She is one of the original Profit First Professionals when the concept was created by Mike Michalowicz.

NetBooks is your gym and fitness center’s business partner in achieving levels of profitability, accounting integrity, and financial reporting that will allow your business to do more than just thrive but to achieve the highest levels of profitability.

Our professionals are intimate with the fitness market and will guide you through creating the right plans, managing your operations and accomplishing your goals.  Think we might be a good fit?  Click Here to find out!

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How Profit First Can Help You Live Your Dream Lifestyle

How Profit First Can Help You Live Your Dream Lifestyle

Living your dream lifestyle is not as far off as you think.  One of my favorite things about Profit First is the quarterly bonus you get to pay yourself when you set money aside consistently in your profit allocation.  Depending on the amount the size of your bonus it could equal a lifestyle upgrade.

Maybe you want to take a couple of months off from cleaning the house or start punching out early on Friday’s for a massage.  Regardless of how you want to spend it, it’s almost the end of the quarter and if you’ve implemented Profit First into your business, that means it’s time to take your Quarterly Profit Distribution.

Your Quarterly Profit Distribution

This will be 50% of the balance of your Profit Account. The remaining 50% is left in the Profit Account to build a rainy day fund.

Depending on when you started Profit First, and your level of revenue, you may have a large balance or a smaller one.  Either way, this distribution is meant to be a CELEBRATION and in no way should be “plowed back” into the business.

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Recommendations on How to Use YOUR Profit First Quarterly Profit Distribution

There is really no right or wrong way to use your Quarterly Profit Distribution (unless of course, you are trying to use it for business needs!).  Here are 8 of my favorite ways some of my clients have used their Profit Distribution in case you need some inspiration, but I am sure you can easily come up with a few others on your own!

Get a Massage

We all deserve a little relaxation and rejuvenation after all of the hard work we do, so indulge a little and get that massage you have been wanting forever!  This can become a regular part of your celebration every quarter if you choose to add it to your list of things to do every time you receive your bonus.

Fall Mountain Retreat

There is nothing wrong with having a little space to retreat to during your favorite times of the year.  Whether this is a home in the mountains for the fall season or somewhere on a sandy beach during the spring or summer, your dreams can all come true when you choose to use your quarterly profit distribution for them.

Kitchen Remodel

We all spend a ton of time in our kitchens, whether we are preparing meals or simply hanging out with family and friends.  Turn this space into the one you have been dreaming of for years with the extra money you receive each quarter.

Giving to Charity

There is nothing more important than supporting causes that are near and dear to your heart, so spread the love by donating a portion of your quarterly profit distribution. You can choose the same charity every quarter or you can mix things up, so multiple charities receive a little of your good fortune.

Concert Tickets

Going to concerts can be a lot of fun, but paying for the tickets can take quite a chunk out of your regular paycheck.  Splurge a little with this extra money and buy those concert tickets for that group you have been wanting to see for years!

Travel

Traveling to destinations near and far can be quite exciting and it is something you deserve to do after putting all of the hard work into your business.  You may not be at a point where you can take weeks off at a time yet, but you should be able to sneak away for a long weekend or even a weeklong celebration of the success of your business.

Football Tickets

Okay, not everyone loves football, but that doesn’t mean that you cannot use this quarterly profit to purchase baseball, basketball, or hockey tickets instead.  Simply use this one as inspiration, so you can choose which sporting event sounds good to you.  Heck, you can even use this money to pay for those greens fees if you love playing golf!

Pay Off Debt

This one should be first if you still have business debt.  But even then, we only allocate 45% of your Profit balance to debt and 5% is to be used for a CELEBRATION!  Yes, you won’t be able to do as much with that 5%, but it won’t be long before the entire 50% is yours and your business is debt-free!

You may have been thinking that your dream lifestyle would be out of your reach for your entire life, but I want you to see how wrong you are!  Now that you have the Profit First system implemented within your business, you are going to finally have the money to make those dreams come true!  Choose something fun to do with your quarterly profit distribution or save it up until you have enough to make your biggest lifestyle dream come true!

Connect with Shannon:

www.netbooksaccounting.com

Want to learn tips and tricks live with Shannon?  Join the Facebook Group where she goes live every Wednesday at 8 pm EST to talk about these topics.

www.facebook.com/netbooksaccounting

**We help stressed and struggling fitness business owners transform from surviving to making a consistent paycheck.  Learn how to improve your business finances with our Keep More Money Method. Sign up now for our March group by clicking HERE**

Shannon Simmons, a 10-year business owner, and 5-year Profit First Coach is the owner of Netbooks Accounting Services, LLC.  She is one of the original Profit First Professionals when the concept was created by Mike Michalowicz.

NetBooks is your gym and fitness center’s business partner in achieving levels of profitability, accounting integrity, and financial reporting that will allow your business to do more than just thrive but to achieve the highest levels of profitability.

Our professionals are intimate with the fitness market and will guide you through creating the right plans, managing your operations and accomplishing your goals.  Think we might be a good fit?  Click Here to find out!

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Why You Need to Implement Profit First in Your Fitness Business

Why You Need to Implement Profit First in Your Fitness Business

I was frustrated, feeling like I was letting down my clients until I implemented Profit First in my business.  We’d have a meeting with a client and we’d go over the Profit & Loss line-by-line; I thought they got it and we made good decisions together. Then I’d go away for a month or even a week and when we’d talk again we would be having the same conversation as the month before. This happened month after month, week after week, meeting after meeting.

Prior to implementing Profit First, or even reading it…I’d been working with entrepreneurs for nearly six years and in that time I’d met very few who understood how they could be making money on their Profit and Loss Statement but not have any money in the bank. And even fewer business owners could analyze a balance sheet or even knew a statement of cash flows existed.

Like I said…I was frustrated, feeling like I was letting clients down. And yet, they’d tell us we were doing a great job explaining accounting to them and blamed their own lack of follow-through or impulse decisions. And I wondered, “What else is there? How can I change your behavior?”

Then I read Profit First and realized I didn’t need to change their behavior, just leverage it, but on top of that, if we implemented this system together, then they could understand their own financial position every single day without me being present.

The Profit First System

I love systems. Marketing systems, client onboarding systems, planning systems, team building systems. You name it and I have a system for it. Even our personal finances. But business finances, not really, until Profit First.  I was advising clients using a Profit and Loss, Balance Sheet & Statement of Cash Flows but there was no system for an entrepreneur to implement across all industries or so I thought.

I’d even had my own business financial crisis due to a lack of system. When I prepared our own taxes in Spring of 2014 I had not saved enough to cover our own taxes. Oops!  I had been advising clients to save 10-25% of gross revenue in order to cover upcoming taxes but I was not doing the same.  I immediately started saving 10% of our gross revenue and was able to cover the tax bill in the Spring of 2015. But, that didn’t feel like a system to me. It was the best estimate to save for taxes.  But, it still wasn’t helping cover other expenses let alone make a profit and it wasn’t guaranteed.

Enter Profit First.  A proven system that not only saves for taxes but helps manage and predict cash flow.  It reduces our human psychological and spending tendencies (more on that below).  And, it provides immediate feedback on the health of a business.  Best of all, when implemented 100%, it guarantees a profitable business.

This was a system I was excited to implement into my own business and did so within 2 weeks of reading the book I had implemented Profit First…it was that easy!  I was also excited to introduce this to clients and implement Profit First into their businesses…I also did that within 2 weeks of becoming Certified.

It’s a simple system, collect money, allocate money and spend money, repeat. But that definitely doesn’t make it easy. It’s a learning process and we’re here to support you each step of the way.

The Psychology Behind Profit First

I could have been a psychology major – except I don’t like research. Reading about or listening to lectures on psychology all day is enjoyable for me.  One of my first clients even told me I would have made a good therapist. Early in my practice, I would go to his office every week and he’d come in from the shop floor and talk to me for hours some weeks. We agreed I’d keep working in his books and he’d just talk and I’d listen.

Every once in awhile I’d ask a question and he’d begin to think about his business just a little differently. He always came up with the answers to his own questions after I’d ask a question or two and because he came up with the solution he had more ownership in it. I enjoyed helping in those little ways.

But how does this relate to implementing Profit First?

Mike Michalowicz, the creator of the Profit First system, says studying human behavior and reading psychology journals is one of his hobbies. I don’t think I’d go that far but I do love listening to him teach us Profit First Professionals what he has learned.

And almost the entire Profit First system is based on the psychology and human behavior patterns Mike has learned.  Bank balance accounting leverages our human behavior to believe the balance in our online banking is our available balance to spend on our business.

Parkinson’s Law is the theory that we will spend every penny we have in our bank account or use every second of the time we are given before a deadline.  By creating many different smaller bank accounts for our business we create the idea of eating from small plates.  This limits the human behavior of spending everything we have.

Eating our vegetables first.  Or, set aside the profit for our business into a separate account before we pay any operating expenses – psychology.  Removing the temptation to rob the profit or tax account to cover operating expenses in slow time – psychology.  These are just a few examples of the psychology behind the Profit First system.

The biggest one, though, might be the way we implement Profit First. You are not going to figure out where you are going wrong and fix it 100% tomorrow. We will work with you to figure out the baby steps to get you where you need to be. It’s natural to get scared when the changes are too big, so we take baby steps and make it a little easier and less scary to get your business profitable and healthy.

Just like running a marathon – you won’t do it tomorrow, but you can start to work up to a marathon in just a couple of months. Maybe the only profit you can plan for is 1% tomorrow but we can have you at a healthy, profitable business within 6 quarters if you’ll just start with 1% tomorrow.

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It’s An “Accounting System” Written by an Entrepreneur

Profit First doesn’t have any “accounting-ease” in it.  The \accounting words I knew are what I learned in school.  And, while we were trying to make that into everyday language, we weren’t succeeding.

But, Mike isn’t an accountant so he doesn’t know that language either. He has learned some overtime and when he does use it in the book it is explained the way he had to learn it, from no accounting training so it 100% resonates with entrepreneurs and my clients.  And there is an example in the book to go with every single methodology, principle, and practice. I finally had an accounting system written by an entrepreneur for entrepreneurs that entrepreneurs understood.

By implementing Profit First in my business, my life became more fulfilling, less frustrating and simpler (not always easier).  And my clients have a lot less frustration and ridiculously increased confidence when it comes to their finances, both business and personal.  Another win-win reason we had to implement Profit First.

Are you ready to implement Profit First in your fitness business?

Connect with Shannon:

www.netbooksaccounting.com

Want to learn tips and tricks live with Shannon?  Join the Facebook Group where she goes live every Wednesday at 8 pm EST to talk about these topics.

www.facebook.com/netbooksaccounting

**We help stressed and struggling fitness business owners transform from surviving to making a consistent paycheck.  Learn how to improve your business finances with our Keep More Money Method. Sign up now for our March group by clicking HERE**

Shannon Simmons, a 10-year business owner, and 5-year Profit First Coach is the owner of Netbooks Accounting Services, LLC.  She is one of the original Profit First Professionals when the concept was created by Mike Michalowicz.

NetBooks is your gym and fitness center’s business partner in achieving levels of profitability, accounting integrity, and financial reporting that will allow your business to do more than just thrive but to achieve the highest levels of profitability.

Our professionals are intimate with the fitness market and will guide you through creating the right plans, managing your operations and accomplishing your goals.  Think we might be a good fit?  Click Here to find out!

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