Ep. 166- Profit First Journey with Laura Magu: The System That Gives You Peace of Mind

Welcome to another great episode of Profit First Nation. I'm really excited today to have Laura Magu, the owner of Rev Bistro in Lafayette, California. Join us today to share her profit first journey. Welcome to the podcast, Laura.

Thank you Danielle. Thank you so much for having me. I'm really excited to chat with you today. So, we're gonna go back like about nine, 10 years.

You read Profit First and then you had the fortune of seeing Mike at a conference. and I've traveled with Mike on speaking engagements, and he does the keynote and I do the workshop afterwards and it is amazing how many people come up to him and fan out, and say, "Oh my gosh, I've read your book twice. I've listened to it on audio three times." And he is like, well, great.

That's awesome. How's it working out for you? And they're like, well, I haven't implemented it yet. And I wasn't there with you, but you were kind of stuck.

You read the book and you thought what after reading the book? So I discovered him through, Dave Ramsey through Entree Leadership, and it was one of the books and had just come out. And a little bit before that, my husband and I opened the restaurant, never owning a business before. And so I was like, oh, I have a lot of learning to do.

I gotta figure out how to be a successful business owner. So I found profit first and it made sense. And then I decided, okay, I'm gonna go to a breakout session, and it just. It was a little bit confusing for me.

How can I have five different accounts, six different accounts, and what does that look like? And a restaurant is structured different than the general business that his book talked about. That was my hesitation. I just felt a little bit overwhelmed.

And so what I did after talking with him, I just opened up two other accounts. I opened up a sales tax account in California. We're basically this pass through entity where people pay sales tax and then we pay it to the state. And then I opened up a labor account, because labor is, our biggest expense.

and just having those two accounts and then setting up a rhythm of, Moving money every Monday. but yeah, so that was my first touch of Profit First and then, profit First for Restaurants came out by Kasey Anton. It did. It did.

I was like, this is the book that I needed. And she really gets into the nitty gritty of breaking it down specifically for restaurants. And I know that other industries have their industry books and I feel like. I had been maybe in the back of Kasey's mind for years going, please write this book.

Write this book. so yeah. And then we started working with Kasey Anton's team two years ago. So that's Kasey Anton, with Spark Business Consulting, the author of Profit First for Restaurants, and you're exactly right.

So Profit First is like basic profit first, you know? It gives you the basic foundations. I mean, let's be honest, Laura, maybe do you kind of regret not opening up that profit account along with those first two accounts so you could just have started allocating a little bit to profit when you started? Yeah.

Yes. Getting your tax statements at the end of the year and being told that you had X amount of dollars in profit and going, oh my gosh, I did. Where is it? so those distributions, they're wonderful.

Yeah. We would take some profit here and there, but then. What I thought we took, versus the end of the year statements, I'm like, we didn't take that much money. the government says we did.

So, yeah. Yeah, because that's the beauty of profit first. You actually see where the money's going Exactly. And how it's being spent.

And, that having the profit in that profit account to correlate to your profitability is pretty exciting, but you're also allocating to the tax account. So remember, for the audience. I know you know this, that profit owners pay and tax are three servings for the owner. and you were probably taking money out of the business that you thought was profit distribution before profit first.

But you were using that to pay your personal estimated quarterly taxes and taxes that you have to pay on April 15th, et cetera. But really kind of like that profit account and that tax account are really ways where you can. hold on to that cash and see where it's going and how it's being used. Instead of, what usually happens is, you never see where that money is, it just shows up on your financial statements.

And then it's like, well, where do I collect this? And it's like, oh no, you plowed it back into the business. unknowingly. and, through all of this.

you implemented Profit First and you started things going, the sales tax account was big for you. And I just wanna point out too that, that the tax account for Profit First for the listeners, you've got those basic accounts. Everything goes into the income account. It just accumulates there until your designated allocation day.

Then you allocate to profit owners pay tax and operating expense, and in those four accounts that you're allocating to that tax account is the taxes that are for you as the owner to pay the taxes that you owe, right? As an individual, as a business owner, to reimburse you for the taxes that you're paying to the government for payroll, et cetera. That is not sales tax. That is not any taxes that are quote business related.

Right. so Laura, You're like, this is great. This concept of allocating money and putting money aside, you opened up a separate sales tax account, which if you collect sales tax, you absolutely need to sweep the money that comes into your income account that is not yours and will never be yours into a sales tax account. And, you were working with a different accountant at the time and this is sort of in the COVID days, and you had the sales tax account and California, tempted you with something that was pretty tempting to a lot of business owners.

What was that? Right? So California, for those of your listeners that aren't in California or don't know, California was on lockdown during COVI and restaurants were deemed essential. so we were allowed to open for takeout and occasional dine-in seating, but mostly for takeout.

and I don't know really what they were thinking, but they decided to defer sales tax payments to the state. So right now, every month, I collect all the sales tax from my guests, and every month we file a sales tax statement and the money comes out of our account. And the government said, we're gonna defer that for an indefinite amount of time. what our accountant told us and what the conventional wisdom and what everyone was talking about is, oh, look at this now.

You can use this money to pay bills. You can use it for this and that. Pay labor and. I, at the beginning of COVID, I was actually audited by the state for sales tax, which was an experience that I would never wanna go through again.

but I'm sitting there thinking. They're gonna say, we want our sales tax now and they're gonna give, what, 30 days for you to come up with this money? for someone like us, it's thousands of dollars every month that we're collecting in sales tax. And so even if it's three, four months, you're talking almost $50,000.

if you're spending that, where are you gonna get it back? so our accountant came to us and they said, all of our clients are using this money and you should take advantage of this opportunity. And I said, no, it's not my money. It's never been my money.

It's going into the pass through account and that's where it's going. sure enough, the state came back and I think they gave like a 30 day notice. And then you were fined if you didn't, pay a hundred percent of it back in that amount of time. Yeah.

Our businesses are based in California too, and the penalties and fines in California are pretty astronomical. yes. and they accrue and it can get ugly and with interest, so it almost, was like a dirty trick. The state played Yes.

On people. so the lessons you guys is that sales tax is not your money and if I could write, an added thing to profit first, just the basic profit first book is that if you collect sales tax, you absolutely need a sales tax account. because that is not your money. Thank you for sharing that.

And then, you started implementing Profit First. You were taking baby steps, you implemented a couple of accounts and you were working with a different accountant and bookkeeper. Then Kasey's book, profit First for Restaurants came out and it was like, huh. Right.

Yeah. The exact game plan for you and. there's been several, iterations of Profit First that have been written, for e-commerce sellers, chiropractors. healthcare practitioners, mental healthcare, just, all sorts.

so make sure that you check those out on Amazon. if you have a specific industry that has some nuances but what made you decide that like, I need to work with a certified profit first professional to help me fully implement this. So our accounting firm at the time, they were open to what we were doing and she was like, well, I kind of don't get it. I guess it makes sense, but I just wanted that extra line of accountability.

every month, you know, I get my numbers, and there's this real sense of, these were your allocations. these were the goals that you were going for. let's look at this. Let's look at that.

It was also, a real benefit with, something that we have, and that's gift cards. for us, we get a huge amount of gift cards purchased every November, December. And one of the things our accountant said is, where's all this money that you've collected for gift cards that haven't been redeemed? So we decided to open up a gift card holding account.

so when gift cards are purchased every week, and a lot of times they balance out the ones redeemed versus the ones purchased. But that November and December, we're talking over a $10,000 worth of gift certificates are purchased. and it takes a year or so for those to get redeemed. for example, last week we had $3,500 worth of gift cards redeemed.

it was a slow week for us, taxes and all of that. And 10% of our revenue was paid with gift cards. Wow. And so I was able to transfer that money into our OPEX account so that we didn't lose any money.

The money was there, we held it and we transferred it over. and that's an important account, especially in California. because in California, gift cards never expire. Right.

so someone could come, even if you put an expiration date, it doesn't matter. It still doesn't expire in California. So really, really important that whether you're, whether you have gift cards that haven't been redeemed and you've collected revenue that has not been realized yet, or if you're collecting a catering deposit or things that you're collecting. Before services are rendered or before the product is delivered, you really need to have that separate account that you're keeping that money in, and then you only move it to your income account.

Once that income has actually been realized, the gift card's been redeemed, the catering order has been paid in full and has been picked up. Those are great examples. And then, I mean the labor account, when in doubt add an account, but the accounts that you have, are some of your largest expenses like labor is, for sure it's a subset of operating expense, but let's get clarity to it because, you saw what running your business off of one business checking account looked like, right.

And then you started to see what it looks like when you have multiple accounts and you can start to see the purpose for that. I'm sure you sleep much better now. Like come on, tell us all the benefits and wonderfulness. There is so much peace of mind.

I can't explain that enough. On Monday, that's when all of our deposits have hit the bank from the weekend we're closed on Sundays and Mondays. So, Monday morning all of the deposits are in. that's when I go through what my allocation should be and I transfer all of the money.

And it is true, like Mike talks about in the book, I literally every morning check my bank account. Sometimes I check it twice. and especially labor, so running payroll. I have that number in a designated account, and when I'm running my payroll, it tells me this is how much money we're gonna pull and.

I don't panic, I don't stress, I can't emphasize enough the peace of mind, especially with payroll, and I don't know about other industries. I've only known restaurant world, but I can tell you it's not uncommon for anyone in the restaurant industry to have worked with a restaurateur that has bounced a payroll check. It. It's just everyone has worked for someone that has, the peace of mind is just very refreshing.

It also allowed us, we just hired another manager, a very good salary, and. There's a bit of nervous there because we are increasing revenue in order to, be able to really sustain that position. We know we can do it because we have a track of our numbers, and it's so black and white. The number is right there.

it's not, oh, can we afford this in payroll? No, that number's there, I'm not worried. every once in a while we do have slow weeks where, you can cut labor here and there, but. Will have to look and it makes me say, oh, I'm transferring $2,000 from my profit account or from, you know, my ops account into labor so that I can make payroll.

Okay. Reality check. We have to make some changes. This isn't working.

but we always, but you're getting that in real time. That's like the beauty of it. It's like, 'cause previously before you implemented Profit First and you had your prior accountant, you're getting income statements. That's a rear view of last month.

Right. And like, we're in April, even when we're the first day into April. Yeah. There's nothing you can do to change March.

no. Yeah. I've already run March payroll. it's gone it to look at one large number for bank account and then have to sit and, because I would do this, so I know I'm not alone in this.

I would have to go through, okay. Run my uncleared checks report. Okay. What checks do I have coming through?

Okay, now I have payroll that's coming through. I'm looking at this really big number in my main account and, okay, well, so I have, payroll will clear and then this check won't clear, and so then I should be okay. 'cause then I don't do that anymore. I have this now and, to me, payroll is something that.

should never be questioned. Like to have peace of mind about paying your team as a business owner. You owe that to your team and that includes me too. I'm on payroll.

we even had a person talk to us and they're like, oh yeah, I'm sure you guys are really stressed out, not being able to pay yourselves. I'm like, oh, no, no. I take a salary. yes, I am the owner.

I take profit, but this is my job and I wanna pay myself. And so, having that account just. Total peace of mind. there's no question of can you hold your check for a couple days, or, you know, my husband also works, he's our executive chef and, I don't have to tell him, oh, can you not deposit your check for a couple days?

We gotta wait till Monday for the income to come in. I can't stress enough the peace of mind of that. Yeah. and you're both paying yourselves.

What you need to be paid and not that like, oh, the husband, the executive chef is the one getting paid and you're just the volunteer wife behind the scenes Absolutely not at all. You're the front of the house manager. You get paid what a front of the house manager gets paid and your husband gets paid. And then the bonus, the perks are, you've got that allocated tax account and then you've got the profit account.

Yes. So congratulations on that. Now, can you talk us a little bit through the difference between, kind of what is. like 95% of accountants and bookkeepers who, are compliance oriented.

and when I say compliance oriented, like they understand the, gap accounting and they reconcile your accounts and they put the numbers in the right box, and then they spit out, your income statement and your balance sheet and send it to you, and that's about it, right? And versus now you're with Spark Business Consulting and how are those two? different experiences like a status quo bookkeeper, an accounting firm, versus working with a certified profit first professional firm like Spark Business Consulting.

The conversations just look and feel different, so there's more of an understanding of the different accounts that we have. there's never a conversation about, oh, you have all this money in this holding account. You can just use this. Or conversations about, I don't understand why you have this money here.

and there's also more details of budget, so there's an awareness of what our allocations are supposed to be, what we've agreed upon, whereas, I mean, we had a great accounting firm before, but it was just kind of like, here are your numbers right. And it wasn't a partnership. And I feel like with the Profit first, especially with Spark, it's a real partnership. So they are a little bit of my CFO in that, they're like, okay, here's your labor from this time.

It's ticked up a little bit, but you managed it with this and so there's much more of a conversation about the health of the business. And be aware of this. Mm-hmm. it's a lot more of a partnership.

Yeah. and you use the B word budget. the thing about Profit First is it, my opinion. the budget is more about the health of your business because Profit First is a percentage based system, and the percentages allow you to normalize your cash flow over the course of the year.

But like your budget is. And because you do your allocations weekly, which makes sense because like your business cycle is a week and I'm sure you know, your weekends are real busy, so real exciting to come in on Monday and see what the income is and such. but what you're able to see is like, hey, we should be hitting X on average every week, and if we didn't hit x. Then why didn't we hit X?

Or if we exceeded X, why did we hit X? Right. and now, you know, because you have a baseline. so the B word is really baseline.

You have baseline understanding of where you are because of the percentages. and because you know where your income is and then based off your allocation percentages, then you should be accumulating certain amounts of dollars based off of the income, into these accounts, including payroll so that there is money to cover payroll. so the B word. Usually is a scary word to people, but really it's getting a baseline of your business and operating your business on what you have.

Yes. and understanding, why don't we have maybe what we need to have, right. Or why do we have more than we were expecting? Right.

and that gives you real time control because again, traditional accounting and bookkeeping firms are just providing you with that rear view mirror that there's nothing that you could do to change it. But now. Hey. you mentioned, like tax week was a little slow for you guys, right?

so you knew right away that, hey, we're a little bit slower. I might need to make some adjustments here, but you were able to make them in real time instead of being with your head in the sand. Right. Yeah.

you know, scrambling when I'm doing payroll, why don't we have enough or even just, Yeah, just looking at projects or, it helps in just making decisions about purchases, it helps making decisions about long-term investments, about reinvesting into our business. It's like, okay, yes, we need new glassware or something. Okay, let's budget it. Let's work it in.

But then at the same time. Maybe we had it scheduled and then, oh, we had this unexpected slow week. Okay, we're not gonna go ahead with that purchase. We're gonna delay it a little bit.

it just gives us really real time, analysis of what's going on in our business so that we can make, wait decisions and not three weeks after the month passed going, oh, that was really not smart. Right. and the beauty and the clarity is the sales tax money is out of the picture. Yeah.

Because you're not operating off that one account anymore. The payroll dollars are in a separate account, the labor dollars. you know, it's like, okay, well let's see what we have really in operating expenses to, make improvements, make additional purchases, And it's like, well, you know what? The baseline is a little thinner than normal.

So, we need to hold off on that. Right? So yeah, what is your advice to the listeners out there who've read Profit First and who think, but my business is special. My business is different.

This won't work for my business. 'cause you kind of thought that when you originally read Profit First, right? And then you had a conversation with Mike and then you had Profit First for restaurants and then your life changed. I will say, so I had a little side hustle back before we had the restaurant as a mom and I had this mom entrepreneur business.

I had a lot of fun with it. And looking back, I had a hobby. I didn't make any money. I didn't have budgets.

I didn't really know what I was doing. And I have talked to more than a few business owners that are actually running a hobby. They're not paying themselves, they're losing money. They're investing in what they're calling a business.

And so I think there's a little bit of a fear of diving into numbers because what if this is a non-existent business, but there's a reality in that. You deserve more. If you're gonna put your heart and soul into running a business. You need to know your numbers.

And I think profit first is the easiest way to do that. if you feel like, well, I don't wanna do it because I can't always pay myself. That's a conversation you need to have if you don't have that money to put into your owner pay account, if you don't have the money to put into an OPEX account. Then you really need to have a hard conversation about what you're really even doing before you get yourself into a lot of debt, and I think that was the original reason that Mike wrote Profit First.

he shared a story about being bankrupt. so for any entrepreneur or business owner that feel like, oh, I don't think I can do it. Just try with a couple accounts, try your biggest expenses, things that keep you up at night, and just set those aside. And if it doesn't work for you and you can't do it, that's the reality of what's going on in your business.

then you can have more clarity and more information to make future decisions. As someone that ran non-profit first and now does, the peace of mind of running a business that you know is sound and secure versus the people walking around going, I don't know. I don't know. And I know a lot of entrepreneurs and that's the world they live in, and it's just not necessary.

Yeah. Yeah. very well put. and you're exactly right.

And thank you so much for sharing your journey with us, Laura and, To the listeners out there, if you would like to make the move like Laura did and work with, spark Business Consulting, then you can visit Spark business consulting.com. Or if you want to find another Profit First Professional, then you can go to. Profit first nation.

com and click on contact and we will connect you with, the other certified profit First Professional accountant, bookkeepers and coaches. Cheers to another profitable day, my entrepreneurial friends.