1- Don’t Know Your Numbers
Two CPAs that I was going to buy last year could not produce their numbers. They took over six months to produce accurate numbers on their business.
This is not uncommon. Your CPA is operating this way.
One CPA wanted more money for his business but his numbers did not allow for it. He did not understand how his numbers should break down. So, not only did he not know his numbers, he didn’t know how to interpret his numbers.
A $1 Million office should have numbers like this…
- 33% overhead
- 33% employee costs
- 33% to the owner
His employee costs were 48%!
When I brought this to his attention, he said, “I need those employees to deliver the services that I deliver.”
I did not disagree with him.
However, he was not delivering enough value to his clients. How could he deliver more value to his clients when he earns more money per client and therefore, his employee cost per client went down to service those employees.
Knowing your numbers isn’t enough. You also have to know how to interpret them
For him, he needed to…
- Cross sell and upsell his clients
- Provide more value or
- Increase his fees
You can only increase your fees by providing more value. The only way you cross sell and upsell is by solving a client’s problems.
He didn’t know his numbers and didn’t understand how to interpret them, and it drastically cost him…
The amount of money he’s bringing over to his family, and I know he was working hard, and number two, it cost him by not understanding the value of his business.
2- Get a Handle on Fixed and Variable Expenditures
We all have fixed expenditures that are not going to change. Our rent, our utilities, whether that be in business or our personal lives. Our employee costs, our equipment costs, whatever that money may be, we have fixed expenditures.
But we also have variable spending. What if the HVAC goes down? What if we need to patch our roof? A family down the street had to patch a roof, or re-do a roof during Christmas time. Five thousand dollars. You know, that’s a tough hit. But, how do you plan for it?
I remember one time when I worked in the corporate world, I had a $5,000 transmission problem on my car. So, how do you plan for those types of things? They’re going to happen. So, how do you put them in your cash flow and how do you put them into your budget? Because typically we know where we are maybe on a weekly or monthly basis, but we don’t plan for those variable spending occurrences. And guess what? They can sting!
3- Get a Handle on Emotional Spending
The other day I was out, and I was paying a compliment to a guy who had a Breitling watch. $10 thousand…Very cool!
He should have a $10 thousand watch. But as soon as I congratulated him, he went into buyer’s remorse mode. He started defending his purchase and his emotional spending.
I think you should have emotional spending. You should buy ten watches. I don’t know what you can afford. You should get whatever you want. However, you should not feel bad about your purchase.
If you want a nice $10 thousand watch one time a year and you’re buying three and you feel bad about two of them, well, let’s figure out your cash flow. Let’s figure out your emotional spending.
And here’s the deal. If you don’t know where you’re spending, you can’t make better decisions. It’s just plain emotional. But then when you put some logic and you put some baseline numbers to it, you can start controlling that emotional spending and decide where you want to spend that money.
I talk about this with my wife. You know, she has some variable spending every month, but she deserves it. She’s in a job that requires her to look and act a certain way and that takes time and a monetary investment.
That takes some investment in herself and that is some variable spending that we needed to understand. When I showed it to her, we understood it and she still does it but by understanding it, we can understand that it’s an investment rather than variable or emotional spending and we have baseline numbers and we can make better decisions.
4- No Plan
When you have those goals and understand that when you have what gets measured, it gets done, you can reverse engineer your success and define your actions.
Dominate The Day,
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