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Give Every Dollar a Job: How Target Allocation Percentages Build a More Profitable Business · Profit Points Podcast

• 0:00
  SPEAKER_00: Hey, glad you're here.
• 0:01
  SPEAKER_00: This is Profit Points, and I'm Megan Schwann, your accounting sidekick and certified profit first professional and fix the sneak's advisor.
• 0:09
  SPEAKER_00: If you're a small business owner who wants to actually understand what is happening in your business financially, not just survive it, but genuinely get it, you're in the right place.
• 0:20
  SPEAKER_00: Every episode covers one concept, uses real numbers, and ends with something you can actually do.
• 0:26
  SPEAKER_00: That's the deal.
• 0:27
  SPEAKER_00: Let's talk about today's topic.
• 0:31
  SPEAKER_00: I've got a question for you.
• 0:33
  SPEAKER_00: What percentage of your revenue goes to operating expenses?
• 0:38
  SPEAKER_00: What percentage goes to owner's pay?
• 0:41
  SPEAKER_00: What percentage to taxes?
• 0:44
  SPEAKER_00: What percentage to profit?
• 0:47
  SPEAKER_00: If you answered, I'm not sure to any of those, this episode is going to change the way you think about every dollar that comes into your business.
• 0:57
  SPEAKER_00: I'm Megan Schwann, your accounting sidekick.
• 0:59
  SPEAKER_00: This is Profit Points, where we give every dollar a destination so your business stops being a guessing game.
• 1:06
  SPEAKER_00: Let's talk about target allocation percentages.
• 1:10
  SPEAKER_00: So most business owners operate their finances with a single bank account.
• 1:15
  SPEAKER_00: And a single question is there enough?
• 1:18
  SPEAKER_00: Revenue comes in, expenses go out, and whatever's left, if anything is left, gets called profit.
• 1:27
  SPEAKER_00: There's no intentional structure, no design designation for each dollar.
• 1:33
  SPEAKER_00: And without structure, money moves towards the path of least resistance, which is usually spending and not saving.
• 1:43
  SPEAKER_00: Target allocation percentages or taps are the framework at the core of the profit-first methodology.
• 1:51
  SPEAKER_00: The idea is simple every dollar of revenue gets allocated across five buckets the moment it arrives.
• 1:59
  SPEAKER_00: We have profit, owners pay, taxes, operating expenses, and income.
• 2:05
  SPEAKER_00: That is the holding account where all the revenue lands before being distributed.
• 2:11
  SPEAKER_00: Profit first provides benchmark taps by revenue range.
• 2:16
  SPEAKER_00: So for instance, a business doing zero to$250,000 in annual revenue, the target allocation percentages are 5% for profit, 50% for owners' pay, 15% for taxes, 30% for operating expenses.
• 2:33
  SPEAKER_00: As your revenue grows, those profit percentages should change.
• 2:38
  SPEAKER_00: A business at 500,000 might have a 10% target for profit.
• 2:44
  SPEAKER_00: At 1 million, 15% is your profit percentage.
• 2:49
  SPEAKER_00: The percentage shifts as efficient as efficiency improves, but the structure stays the same.
• 2:57
  SPEAKER_00: So for example, let's say your business is brings in$18,000 in a month.
• 3:03
  SPEAKER_00: Using the smaller taps, you allocate$900 to profit,$9,000 to owners' pay,$2,700 to taxes, and$5,400 to operating expenses.
• 3:14
  SPEAKER_00: Now your business has a design, it has a purpose.
• 3:17
  SPEAKER_00: You would know exactly how much you have to run operations, and you can't accidentally spend your tax money on a software upgrade because it's sitting in a separate account.
• 3:28
  SPEAKER_00: That separation, that bucketing is the genius of these target allocation percentages.
• 3:34
  SPEAKER_00: The system creates clarity before you make a single decision.
• 3:40
  SPEAKER_00: Those funds already spoken for.
• 4:07
  SPEAKER_00: Usually you adjust percentages by one to two points per quarter until you hit your tasks.
• 4:13
  SPEAKER_00: The system is designed to be gradual because sustainable change will beat dramatic change every single time.
• 4:22
  SPEAKER_00: And one thing I want to note here is that sometimes your target allocation percentages might be different from the ones in the book.
• 4:30
  SPEAKER_00: What I mean by that is that sometimes you need your business to show up differently for you than the most elite top performing businesses, which is where those taps come from.
• 4:42
  SPEAKER_00: But the taps gives us a direction to move towards.
• 4:46
  SPEAKER_00: And just like anything, you need to have a direction.
• 4:48
  SPEAKER_00: That's why goal setting is so important.
• 4:51
  SPEAKER_00: That's why the saying goes, you shoot for the moon, and even if you miss, you land among the stars.
• 4:56
  SPEAKER_00: You need to have a direction in business.
• 4:59
  SPEAKER_00: And the tops provides that.
• 5:01
  SPEAKER_00: And having your caps incrementally move towards that is going to help you make those small changes that are going to be sustainable for your business over time versus just jumping the gun.
• 5:13
  SPEAKER_00: So for your action step this time, calculate your current allocations for this past month.
• 5:22
  SPEAKER_00: What percentage of your revenue actually went to profit?
• 5:26
  SPEAKER_00: Profit is what's left over in your account.
• 5:29
  SPEAKER_00: Um, to owners pay, what percentage went to paying you?
• 5:33
  SPEAKER_00: What percentage went to taxes?
• 5:35
  SPEAKER_00: Did you make estimated taxes?
• 5:37
  SPEAKER_00: Do you have taxes set aside?
• 5:39
  SPEAKER_00: Do you what percentage went to operating expenses?
• 5:42
  SPEAKER_00: Writing out those percentages and then comparing them to what the tap benchmarks are will help you see where your gaps are and what you might need to start doing to close that gap.
• 5:54
  SPEAKER_00: Okay, so taps aren't a constraint, they're a design.
• 5:59
  SPEAKER_00: This is all about setting up a system for your business, which is instrumental and so important if you want to build a successful and sustainable business.
• 6:08
  SPEAKER_00: A business that's designed for profit behaves differently from one that just hopes for it.
• 6:16
  SPEAKER_00: If you want help calculating your current allocations and building a realistic path towards your target percentages, that's exactly what we specialize in at Sidekick Accounting.
• 6:27
  SPEAKER_00: So book a strategy call.
• 6:29
  SPEAKER_00: You can go to chatwithmeg.com.
• 6:32
  SPEAKER_00: It takes you to my website where you can book a call and get some more information on the services that we provide.
• 6:39
  SPEAKER_00: Until next time, remember you are in control of your business.
• 6:43
  SPEAKER_00: All you need to do is pay attention to what is happening so that you can make the moves that help you get closer to your goals.
• 6:50
  SPEAKER_00: Till next time, I'll talk to you later.
• 6:52
  SPEAKER_00: All right, that's your episode this time.
• 6:54
  SPEAKER_00: Don't forget your action step.
• 6:56
  SPEAKER_00: I want you to actually do it, not just add it to the list.
• 7:00
  SPEAKER_00: If this episode was helpful, share it with a fellow business owner who needs to hear it.
• 7:04
  SPEAKER_00: And if you're ready to go deeper on your specific numbers, book a strategy call with Sidekick Accounting.
• 7:09
  SPEAKER_00: Go to chatwithmeg.com, and I'll see you next time on Profit Points.