Episode 739: Do You Know What a Healthy Profit Margin Is?

 Book club is back! In this episode, Kiera reviews the August book assignment, Profit First: Transform Your Business from a Cash-Eating Monster to a Money-Making Machine by Mike Michalowicz. She talks about what a profit-first mindset means, Mike’s formula for profit, why bigger is not better, what that healthy profit margin for your business looks like, and more.

Episode resources:

Check out the full list of DAT’s 2023 book club here.

Reach out to Kiera: [email protected] 

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Transcript:

Kiera Dent (00:00.63)

Hello, Dental A Team listeners, this is Kira. And ooh, I'm so excited about today because today is book club. I wanna know, just email me in, hello at thedentalateam.com. How many of you are actually doing our book club with us? I wanna know, is it something you want us to continue on for 2024? And if I don't get a lot of responses, then hey, I'm totally okay with that and we won't continue on into 2024. But if you've loved having a book club, if you've loved hearing the synopsises, if you've loved having just structure,

please let me know so I can get our 2024 book club list out to you. So I just need to know, email us in, hello at thedentaleateam.com. You can also DM us on Instagram, social media, Facebook. Just say like, yep, love the book club or nope, not really our jam or I love it. I didn't read any of the books, but I appreciate the podcast every month. So I'm gonna finish it out for 2023. It was my first year doing a podcast book club, but I don't know if it should be continued. So let me know again, email us or DMS, hello at thedentaleateam.com. But today's book club,

Oh my gosh, it's a topic I love. It's a person I love, Profit First by Mike Mikalowicz. And I hope you guys read it. I hope you love it. And if you haven't, this is a book that truly has transformed my life. And I hope you just loved it. So Mike Mikalowicz, I actually had him come speak at our first ever Deadly Teen Summit in 2021. And I went to him because I'm a huge fan girl and his book taught me how to be profitable.

And it was life-changing because up until that time, I had been scrapping and scrimping and I was traveling all around the road and I could not get any profit and I didn't know how to pay myself. And it was this awkward weird thing that I didn't know. So profit first is where we take the profit first and then we figure out the rest. Because most of the time in the business, how do we think about our profit? It's revenue, our production, our collections minus our expenses equals profit, right? Well, he does it the reverse of

Profit minus expenses equals revenue. And so on that, I really love how he does this. And I love that he makes it very simple for you guys. And so on that, like if you haven't read it, I want you to make sure you do it. So please know, sorry, let me make sure my formula was right. We do production, collections minus expenses is profit. And he does it.

Kiera Dent (02:25.098)

production like our collections minus profit equals our expenses. So I just want to make sure that's clear so that right so our collections minus our profit equals our expenses. So if we collect a hundred thousand and we want twenty thousand for profit that means we can spend eighty thousand for our expenses. Does that make sense? And that's all expenses that's tax, that's owner comp, that's all the expenses. So I love that you figure out what you want your profit to be.

And then you're able to make your business off of it, which seems so counterproductive. But it's the same thing of if you wanted to build up a, like if you wanna figure out how to like eat less food, we have a smaller plate. And I love how he talks about like when we're squeezing on the end of a toothpaste tube that like at the beginning, we just squeeze it, squeeze it, squeeze it. But at the end, we're like really trying to, really, really trying to get it all there. And so I just loved how he talks about it. I love his imagery for it. I love that he just,

talks about why like you as a business owner should get paid, like radical principle, radical thought process, but you really should get paid as a business owner. And so I just think it's such an interesting way for us to think about it of like, grow a profitable business, not eat a cash eating monster. That's one of the things he talks about in there. And um, like he talks about in here, like we oftentimes business owners make a mistake of like having a bigger is better mentality. Um, and we focus on incomes or a top line production.

instead of cashflow and profits. And I remember when I was starting Dental A Team, my husband, he wasn't really involved. We were separated. Our marriage was in shambles. And so there wasn't really a lot of influence, he said. And we were like trying to date and it was just this awkward time in my life. And I remember my husband told me, he said, Kira, I'm not gonna tell you how to run your business. The only suggestion I would ever make is don't ever lose money. And I'm so thankful because

I feel like it's a good principle to live by. It's not always possible, but I don't lose money. I've never lost money in business and I will never lose money in business. And that's just a standard that I have for myself. And so it's like, there is a difference of making money and taking profit. Okay, so for me, not losing money means I take a profit. I'm going to pay myself. Otherwise I might as well go just get another job because I feel like that's a hobby that's not a business.

Kiera Dent (04:44.67)

And so for that, like you've got to shift it. Sales minus expenses. So collections minus expenses equals profit. That's a traditional formula. But the other one is, collections minus profit equals expense. So what we're doing is we're squeezing that tub of toothpaste, the tube of toothpaste to make it smaller for you guys. So to say like, we're gonna live on less than this. Now, growing up, I grew up LDS, which means I paid 10% tithing my whole life. So this was a little bit easier of a model for me, but I will just tell you from like whole life experience,

I knew I only got to live on 90% of my paychecks. So if I got paid $10, I knew that $1 went off to the church. Religion aside, that's not the point here. The point is profitability. I knew I would only live on $9. Well, when I looked at $10, I never once saw that $10 as $10. I saw it as $9 because I knew one was going to go away. It's kind of the same thing. Instead of looking at, we have $100,000 of collection. No, we don't because we know...

20% of that goes straight to profit. We are only there for 80,000 of it. So when we can look at that, then we're building budgets off of less because we want more profit in the business and it's going to help you then be profitable. So he has four core principles in there. And he talked about like the using the small plates, right? If you wanna eat less food, have a smaller plate and like remove temptations, build a rhythm. So profit first is take the profit first and split the balance into small accounts, okay? So we take the profit first.

and then split that into small. With less cash, you'll be forced to find innovative ways to achieve more with less. And then the next one is always take profits first and pay your bills last so you only spend what you can afford. Think about it, like if you reverse that, like for me, I took $1 out, I had $9, I had to pay my bills on these $9 because this $1 already went to the church. So it was a kind of an interesting principle, like again, no religion, I'm not here to say what's right or wrong, honestly, I don't even know. Like at the end of the day, just be a good person is my philosophy.

So with that though, you've got to look at that because if we're taking profit first, you then have to live on the rest and we've got to pay our bills on that. So it's really like budgeting in a better way. And then once you've taken your profit, keep it out of sight, out of mind and hard to be accessible. And then log in daily to check your balances and manage your allocations. And I remember hearing that like every single day I should be looking at my money. And so I really, really love this. So you've got to look at your business and I've found for healthy practices,

Kiera Dent (07:11.178)

a 20% profit margin is a good target. That's an established business. If you've got a growing business, it might need to be less profit for the beginning on there. Okay, and now I'm no CPA. I'm just telling you guys a book club review so you guys can hear this. And this goes for team members, this goes for owners. It does not matter. So think about it even as a team member, you're getting paid a paycheck instead of thinking, oh my gosh, I get all this money. We live on less of that. We put that in our rainy day funds, if you will. And then from there, what we can do,

is we can live on the rest. So the way you do this is we have all the money come into one account, okay? So all of our money comes into our operating account, if you will. And then we've got to have four allocations from there. So we've got our profit bucket, we've got our owner's pay bucket, our taxes bucket, and our operating expense bucket, okay? So we get $100, we need to put money in profit, money in owner's pay, money in taxes, and money in operating expense. Now.

on 100, if you're in the highest tax bracket and you're at 37%, $37 goes straight into that tax out of that $100 and you figure out how to live on the rest. It is the saddest day when you only get $63 and we pay taxes that's worse than freaking church. But guess what, that's the reality and we need to prepare for that and save for that, okay? So taxes go into a tax hold, whether it's quarterly. For me, I actually have opted to put it in Ally this year. Ally is sitting at like a four, 4.5%. It's earning more.

just to hold that money. So talk to your CPA, figure it out. But that's how I put it. I put it over in a long term hold. And so I'm actually accruing interest and making money on it while I'm waiting to pay taxes. So again, your philosophy, talk to your CPA. That's not my world. And I'm not here to advise you on it. So from there, we also then need to have our profit bucket, our owner's pay bucket, taxes and operating expense. Now dentists get a little funny. And again, I'm not a CPA, but I will tell you

As a consultant who was planning to have kids, I have figured out how to work myself out of the business using this profit first model. And that was because I started paying myself through the business so I could replace myself when the time comes. If I didn't pay myself as a consultant and I didn't pay myself as a CEO, how hard do you think it'd be for us to actually bring that and pay for it? It's gonna be impossible for me to get out because I'm not paying myself. Also, I think about myself as like, if I worked for myself,

Kiera Dent (09:32.09)

would I want to keep working there. We've got to also make sure we take care of ourselves. Okay. So I know some people say owners eat last. Other people say like feed the business first, your own personal preference. For me, I hate working for free. So you just decide what's right for you. So then what we do from there is we're going to have our profit, our owners pay our taxes and our operating expenses. After that, what we do from there is the profit goes into a separate one. Okay. So the profit heads over there and there's a profit hold and there's a tax

Okay, so and then we set up our accounts within. And what it is when you send it over there and you push it over there, then from there, you're not looking at it, you're not seeing it. So my profit bucket and my tax bucket are sitting over in Ally. There's Ally, there's HDIC, I think is the other one. There's Capital One 360, but really we're just looking for our high yield savings account and or talking to your CBAs.

I don't ever put my tax money in a brokerage account intentionally because I need to pay that money and I'm not willing to risk it on the stock market. But again, talk to your financial advisor about that. But we need to have our tax hold money. If you're an employee, you luckily get your taxes taken out already. So then you can have your profit hold buckets. Okay. So then from there, the profit hold buckets, you can do whatever you want.

You can spend that money however you want and people pay out those profits however they want. Some people pay it out quarterly, some people pay it out annually, whatever you want. But that's really where we put that profit hold. So to break this all the way down, it's going to be we have 100,000. We want to have at least 10% profit. So of that 100,000 collections, 10 grand is just taken off the top no matter what. And then we've got to figure out how to live on 90,000. 90,000 needs to pay our owner. It needs to take taxes and it needs to pay our expenses.

So if we're breaking this down on 100,000, we take 10 grand off the top. Then from there, we would have 90,000, okay? But of the 100,000, pending upon here, and this is where you gotta figure out your taxes because expenses obviously aren't going to take taxes. We pay taxes on our profit only. So it gets a little funny on there. Talk to your CPA and have them help you with this. We gotta have owners pay and owners, if you're being paid as a W-2, the taxing gets kind of funny in there too. So make sure you find out.

Kiera Dent (11:49.474)

how much of this do you actually need to hold for taxes? Because some people can hold too much for taxes, some people can hold too little for taxes. So you've got to dial in that tax bucket perfectly. And then you can figure out how much you actually have for expenses. And then it becomes fun because then you list off all your expenses and you see where are we at. And so I remember when I first did this, I wasn't even close to this, not even close. So my profit was like, okay, here, take 100 bucks.

I was more profitable than that, but I didn't know and I was super scared to implement it. And so what was super awesome though, is I figured out how to do my pay, how to do my taxes on profit, how much profit I take off of the company, no matter what became a standard for me. And then I built my expenses and then I can figure out, okay, what are my expenses? How can I do this? How, like, what can I change? What can I evolve? What do I need to do? Do I need to increase our production? Do I need to decrease expenses? What do I need to do to live within this?

And it's so crazy cool, because when you can budget like this, you feel free. And I think that's why I'm obsessed with Profit First, because there is so much freedom in this. And there's like so many more formulas, and this is just a quick highlight, like there's target allocation percentages, and there's all this, and how to like debt, and free up cash, and so there's so much more in there. But I really wanted to just show you how to set this up simply, how to make this, and yes, it does take time. I do this every single month.

I move my money every single month. I've been doing this for the last three years. I've helped tons of clients. So if you're wanting help with this, it's actually really fun. I just did a whole training for a client this month. And it's really awesome for him to start to see like in that profit bucket, we can start setting it up for new businesses. We can set it up for travel funds. We can set it up for dream funds. If you wanna buy a car, we can set it up for that. If you wanna buy a house. So as a team member, not an owner,

That was how I was able to start saving up for my house, is how I was able to pay off my husband's student loans from school, was all from profit first. And so really just having you guys embody this, of like, number one, we take the profit first. Number two, we make sure we're paying ourselves. Three, we have our taxes. And four, we have all of our expenses after that. And that's the budget we live on. Not the top line, but on what it is after those things. Like basically making profit a line item for you, just like you do all the other expenses. We have rent in there.

Kiera Dent (14:09.726)

We have all of the other team members pay in there. Why don't we put profit in there? So we are always profitable from the beginning. So Mike McCowick actually sent me this really cool sign and it sits in our office and it says, profit is not an event, it is a habit. And I just really, really love that. Profit's not an event, it's a habit. Like it's not just one day we wake up and we're automatically profitable.

It's a habit. It's as a lifestyle. It's deciding I'm going to be profitable. It's, hey, I'm a business owner and I took this risk and I am going to be profitable and I'm going to make sure the business is taken care of. So it's so amazing. It's amazing to watch this money grow. It's amazing to see how like, if we do the smaller plates where we have the tube of tooth, how creative can you guys get to get that toothpaste out of there? So I really hope you guys read the book. And if not, I hope you at least set up some buckets for yourself to start on that saving process.

and save for just a rainy day and save for those different things. Just so you guys know on my Profit First Buckets, what I have is I do have a rainy day fund. I do have the BAM on the business, so that's my rainy day fund. When I'm about to hire new employees, I do put money in there to just start to prepare for that as if I was paying for it, but it goes into the profit bucket as if I was paying so I can watch my expenses. I have in there my Dental and Team Live To Give, so our give back charity portion of our company.

I have end of year bonuses in there. So I have a lot of things. And then I have my own personal profit ones, which on there, like I've got my Lambo fund, my Ferrari fund, my real estate fund, like travel fund. Those are just fun for me. That's the profit and I can do whatever the heck I want with it. And so just setting it up to make sure I've got things prepared and taken care of in the business. So if you guys want help with this, if you wanna set this up in your business, let us know. There's also.

profit for CPAs out there, but if nothing else, learn to live on less than you make. This kind of ties back to the psychology of money book that we did a book club on, but learn to live on less than you make and to start setting up these buckets for you. It's crazy the freedom you'll have, it's crazy, the opportunities to say yes, you'll have. And it's fun to then make money as a business owner rather than just always paying the expenses. So I hope you guys loved it. I hope this was a fun one for you. I sent Mike McCowicks the email of like,

Kiera Dent (16:25.91)

put a line in the sand. I did that. And it really just helped me be more committed to it. So I hope you guys love this book. I hope you enjoyed it. I hope I was able to give you guys a quick like little synopsis on it for you and your team to talk about how can we set this up in our practice and how can we set this up personally. So if we can do team trainings for you or we can help you set this up, I've helped tons and tons of doctors set it up, become profitable, become cash flowing to see that profit first, rather than seeing the expenses first and living on less.

and figuring out how to do that successfully and work themselves out of the business, whether they choose to leave or not, but to have the freedom of that opportunity is truly a blessing and an opportunity that I love to share with you. So if that's a helpful thing for you, if you're interested, email us, hello at thedenaliateam.com, click on the book of call, we'll do a free strategy call for you anyway. So no risk, it's a ton of fun and you get to hang out with us. And if you guys wanna join us next month,

So October, our book club is going to be the Color Code Book Club. And this might actually be a really fun one for you guys to do as a team, because it's all about personalities and, and how we can be. So it's a totally different one. There's like my arm, Briggs and disc and all these different things. So I always love these. I love learning about people. So the Color Code Book Club, um, might be a fun one to just read as a team and figure out who we are, or you guys can always catch the synopsis next month on the Dentaly Team Podcast Book Club. So email me, let me know if you love these.

these recaps or if you're like, no, I don't really enjoy it. Just so I know for next year, if this is something of value for our listeners, cause at the end of the day, I don't care what I like. I care what you like. So join us next month. Um, October will be the color code book club. And then November, if you want to get ahead, will be the medical medium. That one's a very long one. It's going to be all around like all different things about medical and medical health, and that's more sustaining you guys. So notice we do a business one, we do a team culture one, and then we do a health one. So trying really to just give you a diversity of.

So as always guys, truly just so appreciative of all of you, make sure you're profitable. Pay yourself first, get that profit in there, make your business be, expect your business to be profitable. And if you don't know how to do that, reach out, hello at the dental team.com. And as always, thanks for listening. I'll catch you next time on the dental team podcast.