Parkinson’s Law
Have you noticed that no matter how much time you have to do something, you always “barely get done”? Or that you barely have enough money?
The principle is called Parkinson’s Law:
A task will fill the time allotted to it
Or
Your expenses will expand to fit your budget
Re-Calculating Profit
Most likely you calculate your profit like this:
Profit = Revenue – Expenses
But if expenses can grow to fit you budget, you may find that your profit is always lower than you want, and maybe even zero!
Take your profit first!
Expenses = Revenue – Profit
Tricking Your Brain
Ready to make a real profit? Time to trick your brain. Pull your profit out of your operating account right away. Put it in a savings account where you won’t sneak it out “just in case”.
When you open your operating account, you will see the amount of money in it and you will make your business work…even if it is just a little less.
At the end of each month, extract your profits from your profit account (yes, on top of your salary!).
Start Small
At first, this can seem daunting, so start small. Start with 1% of your revenue, and detour it into your profit account. EASY! You can easily survive with 1% less expenses.
Seasonal Business
Is your business seasonal? Is there any business in Alberta that isn’t?
Start an off-season account, and divert a certain percentage of your revenue to keep the lights on during the off season. I use 3% for Lybroco Rentals Inc., and in another one of my construction businesses, I use 7%. When winter hits, I have no surprises.
The Rest of The Way
The principle is that you put away money that you know you will need in the future. My accounts look like this:
Operating Account
Tax Account (5%)-For GST and Income tax
Winter Account (3%)-To survive our winter slowdown
Maintenance Account (2%)-For equipment maintenance
Payroll Account (15%)-To pay my team members, and em
Profit Account: (3%)-The reward that I get for taking the risk and starting a business
Vault: (3%)- Emergency fund. Up to a max of 3 months operating capital. (Saved me during COVID)
Funds are transferred weekly in Lybroco Rentals, and monthly in my construction company. When it’s tax season, the money is there waiting…no surprises.
Learn More
If you want to learn more about this system, feel free to give me call, or check out Mike Michalowiz’s book “Profit First”. It has made a real difference to the profitability of my business, not to mention my personal stress levels.
Best of luck with your business!
Devon Lybbert P.Eng
CEO
Lybroco Rentals Inc.
1.800.674.1018
info@LybrocoRentals.com