Updated: Mar 12, 2021
Looking to create a thriving yoga business? It all starts with your finances and I know that can be overwhelming but it doesn't have to be. By implementing the Profit First method (Mike Michalowicz) it's as easy as setting a few percentages.
What’s Profit First?
Profit First is a concept for accounting in your business and it’s laid out in a book, Profit First, by Mike Michalowicz.
This is not my process so please be sure to go buy his book wherever books are sold. Trust me, this is the best $20 you’ll spend in your business and I have no connection to that purchase whatsoever.
I hope to be the official “Profit First” teacher for yoga teachers but I’m working on that. Until then, I’m sharing what I know in this podcast episode so you can implement this ASAP because the sooner you can, the better!
The concept of Profit First challenges the traditional way of looking at finances.
Sales - Expenses = Profit
Profit First is:
Sales - Profit = Expenses
Mike shares this concept because he had some rough times with money. He shares a story about his kid bringing him a piggy bank with money to help him out and from that moment on, he committed to doing money differently.
He created this system and he says it’s “built for humans” because humans are emotional, not logical and we will spend money if we have it, in general. So the idea is that we won’t have a profit if we use it all for expenses. So we need to take a profit first. Get it…. =)
**This was also a podcast interview. If you prefer to listen to this, use the player below.
Profit First Principles For Yoga Teachers
First, I highly, highly, highly recommend that you buy the paper book of Mike’s - Profit First. (I’ve heard it’s hard to process in audio version but that’s available too) Read the first 8 chapters and then stop. He even says to do this too. Seriously, STOP after chapter 8 because the rest is advanced and you don’t need it right away. Put the book away!
I’m going to share the overall idea but there’s not replacement for his book so do yourself a favor and buy the book.
Here are the four core principles outlined by Mike in the Profit First book. He uses food as an analogy and it really helps get a better understanding.
Use Small Plates
Here’s what we know - if you have a smaller plate, you’re likely to have smaller portions and therefore fewer calories. If you take in less calories you typically lose weight. Right? Same thing happens with money. If you have a smaller amount on a “plate” you will look at it differently and spend less. This helps with expenses!
The order in which you do things matters. In the food example, if you eat veggies first and then mac and cheese, you will be more full from the veggies and eat less mac and cheese. Simply by changing the order, you can change the outcome. This is why we look at taking out profit before expenses, it’s the veggies of the meal!
If something isn’t available to you, you’re less likely to use it/eat it. It will take more effort to go to the store and buy a cake or even bake a cake than it would to simply eat the cake on the counter. By removing some of your money from your immediate “reach” it helps you create more boundaries which leads to better money management.
Enforce a Rhythm
If you wait until you’re super hungry to eat, you will likely eat more than intended but if plan ahead, you typically make better choices with food. This is the same for money. By knowing your numbers and having a rhythm that you follow each month, you will ensure better financial health in your business.
How Profit First Works As A Yoga Business
Now you know the basics and it’s time to actually think about how this works in your business. I want you to think about any transaction that happens in your bank account.
***Side note: if you don’t have a business bank account, this is step 2 in the process. (1) Buy the book. (2) Set up a business bank account. You’re running a business and you need a business bank account.***
If someone pays for a private session it goes through your payment system, your payment processor takes a percentage of that transaction, then the rest is deposited into your bank account. BINGO!
Let’s say that transaction that hits your bank account is $100.00 (it won’t be a round number like this in real life but it’s easier to show as an example)
Using the Profit First method, what you would do is break that individual transaction into 4 buckets based on percentages:
The Four Buckets:
OPEX (Operating Expenses)
Mike goes into detail about how to get to the specific percentages for your business and I recommend that you go through his process but here is an example so you can see how this breaks down.
Profit - start at 1%
Taxes - estimate 20% but do the math for your location
OPEX - goal is 30% but you might be higher or lower than this, look at your expenses!
Owners Pay - 49% is left over, aim for 30 - 50% but it’s critical to pay yourself! This cannot be zero. Period.
Single Transaction Example:
Transaction = $100.00
Profit - $1
Owners Pay - $49