Can a tube of toothpaste honestly help create a more profitable business?
When you brushed your teeth this morning, did it make you think about your business’s income and profitability?
I can see you sitting there, shaking your head saying, ‘Ummm no Lisa – has your creative brain gone mad?’. And rightly so. Most people stare blankly into the mirror as they brush their teeth in the morning…
But let me stretch your imagination for a minute or two.
What if you were to think that the way you squeeze out your toothpaste can reflect how much profit you make? How can that tube of toothpaste represent the income of your business in a month? How much of that tube is an expense or a tax, or how much is profit?
Can the way we use toothpaste really be compared to how we spend our income from our business?
Let me explain the toothpaste/business profit metaphor.
How much toothpaste do you use when you have a brand-new tube? A decent amount, right? It’s like you can have a toothpaste party! You squeeze it over your brush, you lose a bit down the sink, some spills out on the bench and it oozes out the sides when you squash the lid closed.
But who cares, hey? There’s still heaps left.
So, let me ask you this. What happens if you do this every time you brush your teeth? Truthfully, you’ll run out of toothpaste pretty quickly. And if you’ve got kids, you’ll probably know this as a fact!
The toothpaste tube starts to get a tad thin. You begin to roll it up from the base, squeezing the tiniest pea-sized bit onto your brush and telling everyone to take it easy.
Those giant amounts of toothpaste you started with have resulted in your toothpaste being reduced to a pea-sized luxury. But despite how little toothpaste you end up with, you’ll still manage to brush your teeth to achieve that fresh and clean feeling.
That pea-sized bit was all you needed. That last 10% of toothpaste in the tube will last you another week. But you’ll get your new tube and do it all again starting with the toothpaste party!
How does toothpaste relate to business profits in real-life?
Ok, I’ll make it real for you now.
Imagine a client paid you $10,000 (your toothpaste tube is now full).
You know there’s taxes and bills to pay, but you have $10,000 that’s burning a hole in your pocket, and you want to spend it.
Magically, shiny new objects appear, and you’re happy with your new purchases. Honestly, everyone understands this; we all love new things, especially when we’ve worked so hard for it.
But the bills won’t stop rolling in. Not to mention the wages and taxes you’ve still got to pay. Suddenly, you feel like you’re living on the edge of the poverty line and not sure what to do. This way of spending money ends up with you stressing over money, having no savings, and no business profit.
So, let’s rejig this.
What if you put $5,000 into a separate account first, an account used for bills, taxes, wages and so on? You’d still have $5,000 play money to buy whatever you like. Sure, your purchases may not be as grand, but you’re getting the best of both worlds.
It’s human nature to spend what we have.
Introducing Mike Michalowicz, author of Profit First.
The above examples come from Mike’s book called Profit First. If you haven’t read it, I suggest you do as it’s very insightful. You can grab some sample chapters here.
When he suggests putting away half of what you earn (the $5,000 in the above example), you need to think of the result if you did this with all your clients.
For example, you have 5 clients who all paid you $10,000. That’s $50,000 in total. Whoop whoop – party time! Maybe a new car, a new wardrobe, a holiday! Woosh – there goes your profits down the drain.
But wait! Think the 50/50 rule.
Put half of those earnings away. That’s $25,000 in this example. And you still have $25,000 to play with. I’d say that’s pretty damn good.
Mike recommends setting up additional bank accounts for profit, insurance, taxes and operating expenses. When you see less money in these accounts, you’re forced to think smarter and innovate more to make sure you’re keeping everything even and flowing in your business.
If you can run a business off $5,000 and save the added $5,000, why wouldn’t you? You’re getting all the expenses paid and still have spare money to spend on the shiny new objects. And you end up with 50% profit rather than 0%.
It’s the best of both worlds. Everything is covered in your business, and you’re still free to succumb to human nature and spend your money as you see fit.
This method has helped me become more profitable in business.
And I know it can work for you too.
After I started separating my money, I found that I could quote on jobs, have enough profit to pay taxes and wages, and still have savings. My shiny new objects are bought from the leftovers, which helped me control what I’m spending my money on.
It also stopped me from impulse buying and gain proper control of my money.
However, as like many things business-related, this method may not suit everyone.
When I told my husband I was implementing this method into my business, he was confused. He’s fantastic at being organised and saving his money and knowing exactly what money is coming in and going out.
He already knew how to handle money meticulously, so he didn’t need to separate it. But for me, I was a spender, not a saver. And this method helped me to become both.
I’d love to hear from you. Have you found any fun ways to save/spend money in your business? What has helped you become more profitable, or what has stopped you from spending it all on shiny new objects? Drop your comments below.