Hey leaders, if you’re not living in your numbers, then what are you basing your decisions on? Today we learn leading by the numbers.
A lot of leaders tend to shy away from their accounting processes, giving only an occasional glance to the bottom line. It’s tough to make well-informed decisions that affect the overall business without knowing the details of what’s happening in every area.
I hear from clients all the time, “Sometimes I don’t want to see the accounting, because I’m scared of where we’re at.” But that’s precisely why you need to be in the financials on a routine basis, making well-informed decisions that are going to set you up for success.
416 | Leading By The Numbers
p&l, business, numbers, money, decisions, expenses, leaders, accounting, clients, impacted, understand, people, areas, payroll, kinds, question, income, paying, revenue, next level mastermind
Joel Fortner, Chris LoCurto
Chris LoCurto 00:00
Leaders! How well do you know your P&L numbers? Not sure? Well, don't worry, we're gonna get you back into the numbers, that is coming up next.
Chris LoCurto 00:19
Welcome to the Chris LoCurto show, where we discuss leadership and life, and discover that business is what you do, not who you are. Welcome to the show folks, I got a question for you. As an owner or leader, anybody who is over a P&L or multiple P&L's, I got a question; are you living in your accounting? Now, as I say that, I know a lot of you are like, "Oh, I'm turning this episode off." Don't do that. Just stick with me. Alright? So when I say living, I'm not saying, "Are you spending all day long in your accounting?" Leaders typically avoid accounting. And this is one of the biggest issues that we find with leaders and business owners when it comes to the long term success of their business. Here's what I want you to understand. You cannot make good decisions long term, if you're not in your numbers. You can make some really great shoot from the hip decisions. But when it comes to long term sustainability and growth, you're not going to make great decisions or even good decisions sometimes if you don't know your numbers. You need to understand everything that your profit and loss statement is teaching you. No I'm not going to get into everything else, balance sheets and all that, I'm just going to be talking about the numbers that are ending up on your monthly P&L. So on today's episode, we're gonna dig into a practice that I do all the time here. Now, most leaders I know have a really hard time digging into this side of their business. There is a lot of leaders that take a passive position, deferring their accounting to an accountant or you know, a CPA or bookkeeper, whatever. And I'm going to tell you, that's a mistake. I'm not saying you shouldn't have. That's fantastic. What I'm talking about is the passivity that you have with your numbers. You can't really lead the business in an active way, you know, with perspective, good quality perspective, if you don't understand what your numbers are saying. Trust me on this, this is a super important thing to understand. There's a lot of folks that have run businesses for years and are still not sure what the numbers are telling them, and when we dig into them, what we discover is they have massive room for growth. They have massive opportunity. There's all kinds of things holding them back. And yet they still have this black number on the bottom line, right? "Well, we're making money, Chris, we're profitable." Yeah, but you're leaving like three times the amount of net profit on the table, because there's decisions you could be making better if you knew your numbers. So we're gonna dig into what's holding you back from your numbers when we come back right after this.
Joel Fortner 03:16
Hey, it's Joel Fortner here. I'm the Vice President of leadership development on Chris's team and I oversee our Next Level Mastermind business coaching program. Most business owners and leaders lack a clear path to succeed in business. They question whether they're making the right decisions, if they're focusing on the right things to really grow their business. If this is you, you need a coach in your life. Coaches help you make better decisions, navigate uncertainty lead more effectively, and grow your business without sacrificing your life and your family. in their first year, our clients typically see an average of 67% increase in gross revenue, and an average of 138% increase in net profit, and regained hours of time. Our clients stay in the program for over three and a half years simply because of the results they get. So if you're ready to run your business at the next level, and see the growth you've been wanting, then visit chrislocurto.com/mastermind. Again, chrislocurto.com/mastermind today.
Chris LoCurto 04:18
Folks a classic example of what I'm talking about about leaders not spending enough time and their money-in their numbers. They spend plenty of time and their money. Not enough time in the numbers, not enough time in the P&L is, how many times do we see that we have an issue? Like let's say a capacity issue. Like let's say, "Man, we need to get more stuff done." And because we're not living in the numbers, what do we do? We make a decision to hire somebody. Now, we hire somebody not realizing, you know, not having forecasted, what is this new expense gonna cost us, not only is it a salary, but it's taxes, it's computers, it's desks, it's all kinds of stuff. That now impacts our bottom line even more, and it It takes quite a while for that person to start paying for themselves. And because we didn't look at our numbers, now we're actually hurting on the bottom line, right? We didn't plan it. This is just one of many examples like that of where we throw money at the situation to try and solve it, without actually understanding, do we have the money to throw? Is it actually the problem in the first place? What if we adjusted things, right? So I want to kind of give an example as we go through this, just kind of telling you what it was like for us when COVID hit. Now, when COVID hit the very first thing, the very first thought on my mind was, I have to relate the same message to two groups of people. The first thing I need to do, is get into my office and speak to my team. Now, of course, we did it over zoom, but I've got to speak to my team and make one message incredibly clear, we are not going to live in fear. Yes, things are going a little crazy right now. But we're not going to operate in fear, we are God fearing people. We're not situation-fearing people, right? We're not man-fearing people, we're going to trust the king of the universe, we're going to trust that he has called us to this place, and he has a purpose and a will for us and that we are operating in that and we're gonna keep doing this, we're gonna keep busting it, we're not gonna live in fear. We're gonna do what needs to happen. Then, I went straight to our clients, we had a big O' zoom, call this before zoom was famous in COVID, we had a big O' zoom call, and talked with all of our clients or a large number of our clients and went through that same process, you're not going to live in fear, this is not the time to be fearful. This is not the time to be worried. You've got to make smart decisions and talk through some decision making processes to make sure that they were okay, here was the great, fantastic thing that I experienced in both. When I talked with my team, my team looked to me like, "Yeah, of course. That's you, Chris. That's, what you've taught us." And so, literally one of my team members said, "That's exactly what we believe. And it's just good to hear you say it." But my team wasn't, they weren't freaking out, they weren't worried about what was gonna happen. Because this is stuff we talked about all the time. The great thing about the clients, they responded the same way. We literally had clients on the call that are like, "Chris, we've been doing this stuff you've been teaching us for a long time, and we're good. We're okay, we got this." And so it was great to see that people weren't gonna operate in fear. So that's one thing I want you to understand. When you know your numbers, a great thing happens, you don't operate in fear. You don't live in fear, you don't throw money at situations you don't try and make things happen. You know, because you've got to do something to solve it, and you think money is going to do it, right? When you know your numbers, it's like a phenomenal dashboard that guides every bit of your decision making process, right? So that's what I want you to hear. Here's the second part of COVID. That was super important. Because I know my numbers so well. Now for me, I don't have one P&L, I've got six sub-P&L's. So I've got multiple areas, different sub-P&L's, classes, whatever you want to call it, I have six sub-P&L is inside of my business. So, what is a sub-P&L? What does a P&L? Just think of a profit and loss statement being, what is the money coming in, where's the expenses going out, how much money you making after that? Okay? So we're not talking about long-term depreciable assets or anything like that we're talking about the most basic function of money comes in, money goes out, what's leftover, right? And understanding where the money is coming from, where it's going, why you're spending it, where you are, what the percentages are, and taking a look at your expenses, how much of your your gross income is the payroll, right? What percentage is payroll of the gross income? If it's super high, we may have a problem. If it's super low, we may have an opportunity, right? So these things that we need to understand. Because I know our numbers, because I know our profit, our-you know, what's profitable. And just this let me just kind of give you a little insight into Chris LoCurto. This business I say all the time with our clients, profit is not my number one motivator.
Chris LoCurto 09:58
It used to be, earlier on in my life. You know, a couple decades ago. Maybe even 15 years ago, I would say that was a big motivator for me. But it's not my number one motivator in this business. So let's just take this show. My number one motivator is not trying to get you to give me money. My number one motivator, is worshiping God. By far.
Chris LoCurto 10:25
I do this show, I guide, I teach. The people inside of this business, are busting their butts to guide, and teach, and lead and do administrative tasks to help people worship God. And they look at their job as an opportunity to worship God. Second motivating factor for me, when it comes to this business is not profit. It's changing lives. God is number one, changing your life is number two, profit, at best, is number three. Now, here's what I want you to hear me say, there's no way I'm going to run a business that's not profitable. If it's not going to be profitable, I'm closing the doors, I have four profitable businesses, they are doing great. Because we do the things that we teach here, right? So here's the thing, there's definitely going to be profit, it's definitely important. But if profit was my number one motivating factor, then there are areas of my business that I would not do. Hello, that might surprise you. We actually have areas of the business, that if I wanted to just make money and make profit, I would literally close those things down, I would lay people off, I would crash it down to the highly profitable stuff and go ballistic, and leave it at that. I would probably sell my buildings, I would you know, there's all kinds of things I would do differently. Why am I sharing that with you? Because here's an important thing to know when COVID hit. I know, the things that I would pull back on if things started to go south. Now, everybody, well, I don't know if I should say everybody, not everybody is matter of fact, we have some clients that took off because of COVID. It's usually the clients where I say, you know, people are sitting at home not going to work and they're looking at their, you know, their house going, "We've needed to repaint this house for the last three years, call the painters." And then next thing, you know, painters are on site, right? Or, "We need to go redo our landscaping." And then Home Depot was blown up like crazy. So not every client struggled, but a lot of them took a dip for us, it was right at the time of our Next Level Leadership Live Event in 2020, where we didn't get to have people come in person. Let me tell you, that was a kick in the teeth for us. Now, praise God, we were able to do it virtually. But that impacted us greatly. We took a big loss in that. But here's the deal, because we understand our numbers, because we understand where to press down on the gas pedal, where to press down on the brake pedal, because we understand how to make decisions and what are the best decisions. We made a lot of little decisions that drove us right back to being where we were. We made smart decisions, not based on gut, not based on theory. But literally based on the information that is telling us this works. This is going to help you the most, press the gas pedal over here, this is the direction to go in. Here's something else that we could have done during that time. If we were not being able to take care of everything and pay the team, I didn't lay anybody off, everybody stayed working. We did make some adjustments on positions, some people had to shift from one area into another because we needed to make smart changes to make sure that we were doing the things that kept paying them, you know, paying the company, the company making money and putting food on our team members tables, right? And so we had to make some adjustments. But here's what I knew. If it continued to not be good, I literally knew the areas that I would pull out. I literally knew the areas that I could say, "Okay, stop doing this completely. This is for right now. Just put on the brakes that's done. Focus on this, this and this." And if it continued, what was the next thing I would stop, and what was the next thing I would stop, and what was the next thing I would stop? The process of understanding my numbers showed me exactly what I would change and adjust and even stop, right up until the point that I would be almost losing money. And at that point, I would be making a much different decision. So the great thing is I didn't have to lay anybody off.
Chris LoCurto 15:23
I didn't have to worry about paying people. I didn't change any of that, which some folks had to, and praise god it worked out, right? What am I saying? If you do the things that we teach you to do, if you monitor your numbers, if you lead your culture well, if you kill the leadership crazy cycle, if you focus on your accounting, if you do these things, then it puts you in a place to make the best decisions you possibly can. So, what holds leaders back from being in that type of a position, one of the first things is being to task saturated to bother with the accounting. I can tell you right now, if you are stuck in the leadership crazy cycle, if you've not killed the leadership crazy cycle, then the accounting keeps getting pushed to the backburner over and over and over again, because there's in your mind, too many more important things. Here's the funny crazy part about this, right? Here's what's ironic. If you actually were in the accounting, and you knew the numbers really well, you could probably make some better decisions, probably adjust some things, shift some things, stop buying some things, you know, get better income and other areas that would allow you to hire more people to get more tasks off of you. Yes, it's probably in your numbers speaking to you right now, you're just not hearing it. If you're too task saturated to bother with accounting, then you're missing out on this, there's money you're leaving on the table. For a lot of folks, it's because of a lack of understanding and skills to get to the numbers. That is completely understandable. Listen to me. If you're out there, and you're going, "I literally just don't know what to do here." We've got like a two and a half hour accounting lesson that we do for our Next Level Mastermind clients, for a reason. And let me tell you, it is fun, and hilarious and exciting. Okay, maybe it's not the greatest, funniest, most hilarious lesson that we teach. But it's actually a great lesson. Why don't we teach it? To help them to get a great understanding of what they need to do. So if you're out there, and you're saying to yourself, "I don't understand how to read a P&L, I don't understand how to even understand, you know what the numbers are telling me." You're not alone. Okay? Now, I'm not going to tell you the new marketing tactic that says, 'It's not your fault.' Yes, it is your fault. It is literally your fault, right? You've got to spend time discovering this information. But, it's not uncommon. Why? Because most of us who have led a team, you know, under a P&L or lead a business with a P&L, a lot of folks have never been taught how to actually read that P&L or what's important about it, what the numbers are saying. So I will give you this, you're not alone. But do not allow this to be the thing that continues to hold you back. Another thing that holds leaders back is, the fear of the unknown. The fear of the negative emotional impact of low profits, you know, of seeing mistakes, or seeing that things are out of whack, whatever it is, that's another thing that holds leaders back from getting in and understanding their numbers. Some of our clients will hear them say, "Hey, listen, I really don't want to look at the accounting because I'm scared of where we are, where our numbers are. I'm afraid of actually finding out the information." I get it, I can understand where you're coming from. But guys, that's not a good enough excuse. That's not a good reason to not know the numbers. You got to figure this out. So what does get impacted? Think about this. Your mission. What is your mission? It's your purpose for existence. If you don't know your numbers inside and out, if you don't make the best decisions, if you don't have a dashboard telling you exactly what's going on inside of your business, then guess what? The very reason you exist gets impacted. Yes, you're not utilizing everything to the best of your ability, right? It impacts the risks you're gonna take. It changes the decisions that you're gonna make. It causes you to be emotionally handcuffed to having to crack that nut every single day. If you understand what that means. There's an old saying that you know the amount of money that you have to make every single day, you become emotionally hand cuffed-it's called cracking the nut. I just had to explain all of that, wow. It's an old saying, all you young folks. What happens is, is that instead of being able to be heavily focused on the purpose for existing, you become emotionally handcuffed to the amount of money you have to make every single day. Cracking the nut, right? You've got to do this every day. What else does it impact? The customer. Why? Because we're limiting our ability to execute. When our focus is on, we've got to go make as much as we possibly can, we got to do as much as we possibly can, just keep doing the same thing over and over again, then what happens is, is that we're not giving the best we possibly can to our customers. What else does it impact? Our team members. Here's what I will promise you, you are under utilizing your people.
Chris LoCurto 20:54
One of the things that I love doing when I sit down with a client is take a look at the gross revenue's coming in, take a look at the payroll that's going out, take a look at the expenses. And I ask the question, "If we increased the top line 25% could your team handle it?" "Oh totally." "If we increase the top line 50% could your team handle it?" "Oh, absolutely." We have a problem here. If you could increase your top line 50% and the current team you have can handle it, you're under utilizing your team massively, and you're paying for more people than you should have. Do you get that? Do you understand what I'm saying here? Another thing is, is if we doubled your income, what would happen to your team if the person is like, nothing. Now you are colossally wasting money. Right? What I want to hear is, "We would self-implode because we're not prepared for that." Now I don't want you to self-implode if we double your numbers. But I don't want you to be in a place where you have amazing capacity. Crazy thing is, most companies could add a lot of revenue, and not over task their team. That speaks to us not understanding what we actually need in place. What's another thing that gets impacted when we don't understand all of this? Our options are limited. Seriously, when you think about it, when you are living on trying to accomplish what you need to accomplish today, because you don't know how to make the best decisions, because you don't have a great dashboard telling you what to do, then what happens is, you stick to the only options you know. You stick to the only decisions that you know, you stick to, only going after what you're comfortable with. The last thing you're going to do is take risks, which is huge for me. I am somebody who takes calculated risks. What does that look like? When I know that I have the money, when I know that I have the revenue streams coming in, when I know where my expenses are going, then I literally look to my team, especially my leaders, and I go, "What do you want to do? What can we grow? What can we expand? Where can we spend money? How can we change more lives? What can we add to what we're doing?" And we go through this long process-I told you, I was gonna tell you the things that we do here. One of those things is is we literally sit down and I go, "Guys, we've got this much money we can spend over this time period or we've got this much money we can spend every month." And I'm constantly asking my leaders a couple of questions. "What's our next hire? Take a look around the business. What's our next hire? How much is it going to cost? We need to forecast that, how much expense is going to go into it, and how is it going to cost justify? Because I know what we can spend." Right? I literally had this conversation today with my leaders. Today I had a discussion on a few areas that we're looking at hiring and a few areas that we're looking at bringing in more capacity. Why? Because we can. Because we're in a position to. Right? So that's one of the things I look at. Another thing I look at is I will ask the team, "We've got this much money we can spend, what's another thing we can do to help clients? What's another opportunity? And usually for us because we do a lot of events and things like that, we look at is there an event that we can put in place? Events cost us a good amount of money to put something in place, to help you guys change your lives, right? So we'll look at, do we have another opportunity? Can we take a risk? There have been times in our company, that we have taken huge risks. Calculated ones, because I saw the numbers that we had, I knew the money that we had, I knew the potential risk if it did not work out, what if it failed? What would that look like? And I waited out and asked the question, am I willing to lose that money if this whole thing just fails? And the answer was, yes. Praise God. None of those have ever failed.
Chris LoCurto 25:23
None of those have ever tanked where I'm like, "Man, that was a really bad decision." Now, I'm not saying that I haven't done that I had one decision a couple of decades ago, that cost me a whole lot of money. Because I didn't calculate a leaders response well. And no point going into all that information, but, it helped me to make better decisions going forward. So it's impacting every area of your business. So I think I've, I feel like I've laid this out well enough, you've got to know this, you can see that it's impacting a whole bunch of stuff. So, what are some of the things that I do in the accounting itself, we're going to talk about some of those habits when we come back right after this.
Chris LoCurto 26:10
Hey, folks, a couple years ago, I was visiting with a client, and the CEO said to me, "Chris, we're not going to hit our goal." And I asked him what he meant and he said, "We're going to miss our three year revenue goal coming out of StratPlan by a few months." I didn't realize it at first, that he was having a little fun with me by saying they were about to triple their company in less than three years. How freaking awesome is that? Folks, these are the kinds of results that businesses get by coming through our four day StratPlan event. On average, we find $2.1 million worth of revenue in the next 12 months that the company was not planning on. And this event is for all sized businesses, if you're small, medium, or large. It works for every single business, because it's not industry specific. It's about gaining all the information about all the things inside of your business that are holding you back from success, and then giving you a plan and a process on how to walk that out and be successful in your business. By discovering the things that are holding you back, it helps you get to all of those goals that you've been planning on for a long time. So if you're ready to get the perspective, you need to solve what's holding you and your business back, so you can grow faster, then you need StratPlan. To learn more, go to chrislocurto.com/stratplan. That's chrislocurto.com/stratplan.
Chris LoCurto 27:47
Okay, so now let's talk about just some of the things that I do. Obviously, like I said, if you're our Next Level Mastermind program, and you've not hit the accounting lesson yet, get your butt into it, right? It's a whole ton of information. Obviously, I can't hit all of that stuff on a podcast. But I'm going to hit some of the important things you need to start doing right now. First thing you need to do, you need to educate yourself on actually reading a profit and loss statement, you have to understand what it's telling you. Now, generally, for most businesses that aren't heavy duty into accounting, they have one P&L. What that means is, they have one area, or one report that is telling them how income was coming in, no matter where it's coming from, where cost of goods are going, no matter where it's going, and where overhead expenses are going no matter where it's going, and giving them a number of net income at the bottom. Okay? That is the bulk of businesses, which there's nothing wrong with that. That's a great place to start. But I'm gonna give you some, some opportunities here in just a second. You have to understand how to read a P&L. Now, there's a ton of tutorials and things that can teach you how to look at the numbers. Here's the major things I want you to see. I want you to see where is the revenue coming from? Now if you sell one widget to one client type, you've already got this answered. That's not very difficult. We sell all kinds of different things. We have StratPlans, we have Next Level Life's, we have Next Level Mastermind, we have live events, we have coaching retreats, we have full day business trainings, we have onsite trainings, we have virtual trainings, we have lessons, we've got DISC personality profiles, we got values, we've got all these different things that we sell. Now, if I don't separate that out, that's fine. It's not the best idea. But if I don't separate that out, then all of that comes into one bucket, all of those dollars come in.
Chris LoCurto 30:09
If I don't separate them out, here's the problem that I have; I'm not doing the best job I can seeing where's the money coming from. Right. But that's fine. Let's just stick with this for a moment. So let's say all of that money is coming in. If I can do it by line item, what you probably are already doing, then I can at least see which product lines or services are giving me money. How much money is coming in? Then, part of your accounting, and a lot of you probably already do this as well, is what's called cost of goods, what are those expenses that are direct costs of executing that service or putting on that event, or so on and so forth? Right? What are the what are the expenses that go to actually making the thing happen if you didn't spend this money, it couldn't happen, right? And by the way, there's all types of definitions of what is considered, "cost of goods", go look it up, you know, talk to an accountant. But understand what does it cost to put the-like, if we're doing a live event, so let's say Next Level Leadership Live Event, we have got venue costs, we have got audio visual costs, we have got room costs, you know, for paying for hotel rooms, paying for ballrooms, we have got supplies and materials of all kinds of workbooks, and pens, and all kinds of stuff, right? We've got tables, and chairs, and linens, all of these things are direct expenses, that we have to have to put on the event. And therefore it goes in our cost of goods, okay? So cost of goods sold there, then everything after that is what's generally considered your overhead expenses, your office expenses, your, your electric, your utilities, your internet, your dues and subscriptions, your payroll, you know, whatever else, if you're paying for people's phones, if you're paying for people's health care, all of those things that you're paying for, you know, employee benefits, all of those things are what's going to show up as your overhead expenses. So important things for you to do is to understand what does each line item mean and do those line items mean anything else to any other line item? So let's go back to the income for a second. A great example that we used all the time back when I used to teach the financial side is, the lost leader of a video game console.
Chris LoCurto 32:57
So if you think about it, I can't think of any video game consoles right now. But let's just take a video game console company-tells you how long it's been since I've played video games-they create this console, and they sell it, let's say for 50 bucks, that's actually usually a loss, it usually takes more money for them to make it, put it together, ship it, get it out all that kind of stuff. But then they sell a video game cartridge, which nowadays things are digital, but back in the days when they sold the video game cartridge, then guess what? Tha video game cartridge cost them almost nothing. But they could sell it for an incredible amount of money, like 500 times worth what it costs to make it. So they now have this loss leader that they're losing money on, which is the console itself, which is leading to the sell of the cartridge, which makes all kinds of money, right? Think of your printer in your office, the printer itself, there's no way they make as much money on that printer as they do the ink cartridge that you have to buy every 37 seconds, because somebody in your office is printing off their family photos, right? So that's where you're gonna see a lot of money being made. Well, you have to understand that inside of your profit loss. What's making me money? Is there anything that's helping me to make money in other areas? Then what are the expenses that go to put that thing on? Once you get the income and those costs of goods, you have your gross profit. What does that look like? That's before you hit the overhead expenses, right? Then as you go through every line item in those overhead expense categories, you have to ask yourself this question: Does this help me to make more money? When you get to the furniture category, and you've bought your phenomenal desks and all of your pictures and you know, art that you've put on the wall and all that, you have to ask yourself a question, has that actually caused you to make a single sell? Has that helped you? Has that done anything to create new revenue inside of the business? If the answer is no, then when we get to the very bottom line, if that number doesn't look phenomenal, you better start asking yourself this question, am I wasting money on things that I don't need? When you get to your payroll, this is possibly your biggest line item expense. Ask yourself the question, what's the percentage of revenue? So, for example, I like to keep the payroll expenses somewhere between 25% and 40%. This is not any scientific number. It's just a number I like to keep it no more than that-I like to keep it at that 25%, if at all possible. Man, I really don't like to get above 40%, right? So when I'm looking at a bunch of businesses, if I see that a payroll expense is like 60% to 75% of the income, we have a problem. Why? Because just one line item is sucking up 60% to 75% of the revenue. Which means, that we don't have a whole lot of room, we only have 25% to, you know, 40% of room for everything else that we do. Now, if all you do is sell a digital product, and you just have to pay for internet and people, well, then maybe that's working out for you. But here's what I've discovered, usually when you have an incredibly high, and again, I can't see your P&L, so don't take this as, "You're failing miserably if you've got a really high payroll number." It should be a red flag that causes you to ask the question, why is it so high? Why do we not have much greater revenue with this amount of money that we're spending? So when you look at a number like that, ask yourself, are we getting the revenue out of what we're paying for the payroll? So big thing for me, which is also something that is not only in the accounting package, I think it's also in our hiring package is-our lessons-are you cost justifying the people that you're paying for? So in other words, if you have an administrative person who is doing- I don't know what they're doing, whatever they're doing- social media. Are you making enough money because of the efforts of the social media that they're putting out, is it creating somehow through some sort of funnel, revenue that it's paying for not only the person salary, but the taxes, plus all you know, the computer, the internet, all the stuff that's happening to put out that social media, plus making you money? If it's not, then why do you have that person in place? Or, is that the right person to be in place? So maybe you've got somebody who doesn't know how to do quality social media? This is a question that comes from knowing your numbers, when you're going line by line, asking yourself the question, Why is this here? What does it do for me? Is this good? Do I need this? So, those are just the basics on understanding a profit and loss statement, that allows you to ask the questions, what's going on? So you know what to address first. Once you have that information, then you start asking those questions and you start getting to some understanding of, do we need to make different decisions? Now, let me warn you, some of you out there are going to be "Oh my gosh, we need to start cutting expenses like crazy." That may not be the answer. Once again, why do we have the expense in the first place? If you're wasting money in areas that you don't need to, then you're right, you probably do need to cut that. You need to make some changes there. But cutting expenses isn't always the answer. Sometimes it's spending a little bit more money to actually get more revenue that will cover the expenses and then some. Next thing I want you to look at is sub-P&L's, or for a lot of you that use QuickBooks, QuickBooks uses the term classes. If you're using bigger accounting packages, it's usually considered to be a sub-P&L. So here's what I want you to do. If you have a income stream that also has a direct expense to it. And it's enough of an income stream and expense that it makes up a decent percentage of your P&L, then I want you to consider separating it into a different class, or different sub-P&L. So do not create a sub-P&L, just because you have income to something. If you do not have direct expense to that income, this is kind of a waste of time. Right? So let me give you examples. Next Level Life is a two day intensive event that we do here at our offices, right? There's a whole lot of expense that goes into taking care of that event. So somebody comes here does a one-on-one event with either me or Joel, you know, maybe they bring their spouse with them. There's a whole lot of team member expense, food expense, supplies expense, there's all kinds of stuff that goes into just that one event. So, we have an income that comes in, we have expenses that go out to make that event happen. It gets its own sub-P&L,
Chris LoCurto 41:15
Our coaching side of the business; income, lots of expenses, same concept, our live events; income, tons of expenses, that go into that-we have multiple areas of the business that have plenty of income coming in, and plenty of direct expense, not overhead, so think of cost of goods. And some overhead that's direct to that as well. But it has plenty of expense that gets applied to it, that I want to measure the daylights out of it. I want to know; Am I getting enough net profit off of the money coming in, and the direct expense to it? But it doesn't stop there. So for me, I have multiple sub-P&L's, and then I have one just company P&L, which is everything else. So it has areas of income that comes in that really doesn't have that much direct expense to it, but it's bringing in money. And then it has all the other overhead costs, you know, the internet for the whole building, the electricity, payroll for people who actually do parts of everything, there's all kinds of overhead expenses that are applied there. When I get done with my month, and I close out my month, when I make sure all of my numbers are correct, when I go through my my budgets versus actuals and I find out what we didn't spend compared to, you know what we said we were going to, and find out why we didn't spend that money, or did something get shifted around? I know this is a lot more stuff. Get into our accounting lesson, it's important. Once I do that, then I split all of the remaining overhead expense and income that isn't in a sub-P&L, I split the income and the expenses, according to the gross revs of the other sub-P&L's. Listen, I've done this for decades, I've tried to find all different kinds of ways to do this, it's just the easiest way to do it. If you got a better way, feel free to tell me, but like I say I've tried every possible way I could think of, and it just helps out. So what that ends up doing is, the remaining income that wasn't in those categories get spread out by percentage. And the remaining expenses, which tends to be a larger portion than usually what's you know, of all the sub-P&L's there's still a lot of overhead expense that's leftover, that gets spread out as a percentage of gross revs. Now I have got the income of that product or service, I've got a little bit you know, a percentage of just, you know, ancillary income. I've got the direct expenses, and then I've got a percentage of the overhead expenses that are applied to that. I now have the ability to look at this one product or service line, and ask myself the question: At the end of the day, does this make money and if so, how much? So now I can look at where the revenues coming in, I can look at all of those expenses and ask all kinds of questions on whether or not this is something I should be spending money on, or I should make adjustments or I should change things, and then I get to look at that bottom number for that one sub-P&L, and answer the question; is this making money? You do that over every single one of your sub-P&L's, and you may only have-you may not have any, you may have one, you may have two, you know, for somebody like me, I'm, I've got six. And it's important for me to have those six. And I'm able to look over the bottom line on every single one of those. And there's not a single one that is not making money.
Chris LoCurto 45:13
There's not one-now it wouldn't be bad if one wasn't if it was a loss leader, right? So keep that in mind. If I have a loss leader that's pushing, you know, more sales and services, we sell stuff at our big event. So that makes money in other areas, which praise God, hallelujah, that's a great thing that's what you want to do, right? But I need to understand if it's doing that, if it's losing money, is it making money somewhere else? Right? That's super important for me to know. Now that I have all of this information, it starts to feed my decision making processes. Do I want to keep the things I'm doing? Do I need to press down on gas pedal somewhere? Do I need to stomp on the brake somewhere? Do I need to pour more marketing into a specific area? Do I need to hire more because we need more capacity, and if I have that capacity, it's going to free things up? Do I need to help a leader who's in an area that's task saturated and it's holding back the P&L? All of the questions about how I run the rest of the business now comes from those areas. Think about it. If I've got a sub P&L or a P&L where I am losing money, why am I making any decisions that are not based on that? Why am I making decisions inside of my business without getting to that information first, and then making some changes? Right? So let's say I have six sub-P&L's, and one of them is sucking wind. I have a decision to make. Either I'm going to hold on to that, because I'm prideful and arrogant, and egotistical. Or, I'm going to look at that and go, "I don't like losing money, change things, do something different. Make a change." Right? So, I know that's a lot of information, right now, it may seem like a lot of information, believe it or not, this is good, solid basic information on what you should be doing with your P&L. This is how I make decisions all the time. I make the comment all the time that I live in my accounting, which obviously I don't spend all day in my accounting. But there are rarely days that I'm not in my accounting, looking at numbers. I want to see what's going on, because it's constantly feeding me information. And especially when I'm talking with my leadership team. I know my numbers before I sit down with my leadership team so I could speak to them about things and changes and adjustments. And there's nothing better than being able to look at one of my leaders and going, "Hey, we have an opportunity to grow your area. What are your ideas? What are your thoughts? What can we do?" That helps me to make those decisions. But on the backside of COVID, I want you to hear what I'm saying. When you don't know these numbers well, then you do not know what you can change, what you can shift, what you can shut down, where you can press the gas pedal. Unfortunately, you start scrambling and you operate out of fear. And that is the worst place you can be. One last thing I want to tell you to do; set some reminders. If you have to. Set a reminder to get into your accounting and go over, and by the way, some of you need to set reminders to go over your personal finances as well, you're not doing a good job on your personal finances either. And guess what, when you suck at your personal finances, you really suck at your business finances. So set yourself reminders of when you're gonna you know, blocks of time, that you're gonna sit down and you're literally going to go through your accounting, I can promise you in the early days, you need to set a big block of time, it's way more than you understand, it's a lot more than you think. So don't think that you're going to spend 30 minutes in your accounting and get all of your information. I can do it now in just a handful of minutes. But that's because I've been doing this for decades. I know this stuff inside and out, right? But I remember in those beginning days, I really had to learn what in the world is this thing telling me? How do I understand it? How do I make decisions from it. So decades later, four businesses profitable, I know the numbers inside and out in every business, and I know how to make decisions and each one of those. Well folks, hopefully this has helped you to understand a very important part of your business, an area that you've got to get down. A fundamental thing that will help you to make the best decisions inside of your business. Once you do, it will change the way you make your decisions. Only when you're in your numbers all the time, can you make fact based decisions from quality perspective, that's when you start managing your numbers instead of the other way around. Well folks, hopefully this has helped you today, as always take this information, change your leadership, change your business, change your life, and join us on the next episode.
Related Media: https://chrislocurto.com/budget-correctly-or-fail/