Ways to increase revenue for your small business in Canada

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hello and welcome back to my channel my name is jessica morehouse and this channel is about all things money but also i love to talk about uh you know entrepreneurship and small business and accounting and taxes because well there's uh a lot of questions out there that i feel like it's very sometimes hard to find the answers but also hey i've been there done that i am a small business owner um i started with a side hustle i then went into full-time sole proprietorship and i recently incorporated my business and i will be doing some videos on that in the future but for this video i really want to talk about a method that i sadly only really discovered in the past year and it's something that i wish i knew right at the get-go and i kick myself every day for not reading this book called profit first everyone i know he's a small business owner or you know a freelancer or whatever i feel like everyone has read this and loved it and told me to read it for years and years and years and i just kept on putting it off until i don't know what inspired me but at the beginning of i think it was the beginning of 2020 or 2021 i can't remember the years just meld into one but i finally picked it up and read it and it was just like yeah i should have read this years ago so anyways i want to talk about um some of the key principles in this book that were so so helpful in me um changing how i kind of organized my business finances but also it's basically how i now structure my corporation so if you want to figure out how to better organize your finances so you can i mean as the book says profit first i hate when i see all these people who just started their own business and they're like ah i don't have enough to pay myself a salary or uh i'm just breaking even this book is all about how if you are organizing your finances right and you know doing a few of the strategies that uh yeah the author mike mikallowitz um shares you should always have enough money to pay yourself so we're gonna talk about all this in this video so let's get to it so first let me kind of share um a little bit about me in case you're new to the channel so i started my uh first kind of foray into this uh business that i have now almost 10 years ago starting uh with setting up a blog it was a personal finance blog it was kind of just an online diary i was just trying to figure out what i want to do i want to have a creative outlet i also kind of want to learn digital marketing and social media and and website design and all that kind of stuff and so i started my blog on top of my day job um and somehow 10 years later here we are and i have an incorporated business weird how things like that happen it was not the plan i will tell you right now this was not the plan but you know you just got to be open to things and just take some risks and see what happens so i ran that blog like it was just kind of a hobby i was not making any money for a few years then i i feel like this was maybe around i started this and so i started the blog at the end of 2011. i feel like in 2013 2014 that's when people started actually making some money through you know online you know blogs and things like that this i mean this is dating me but it's like no one was an influencer like that was not a term no one was making a like a full-time living just off like instagram and things like that i don't think instagram was even a thing quite honestly anyways and so i only then kind of started to make some money through my blog through you know doing freelance writing for other websites um doing i guess some google adsense like ads on my website um doing some sponsored posts things like that um and then of course as you know things have evolved very quickly since then and now i mean you can just make a living apparently just having an instagram account or a youtube channel which is kind of crazy how things have changed so much in just the past few years so as things kind of evolved so did my business and i was able to kind of leverage the audiences that i've created i also added on a podcast now i have this youtube channel um and created a business that is uh well it's a blog it's a youtube channel it's a podcast i do public speaking um i don't really do freelance writing anymore but i did do that um for a while at the beginning i'm an accredited financial counselor now and so i sometimes not so much anymore but um did for a while work with clients one-on-one i have online courses the one last thing which obviously i haven't done for a while is i also started my own a live event series called the millennial money meetup which of course has been on hiatus because of this little pandemic that's still still not gone we're still kind of in it so that is how i kind of make money i call myself a financial educator or a money expert because sometimes i'm on tv in the news and stuff like that so that's the title they gave me but um that is pretty much how i make my money in my weird old business but i had no formal business background or accounting background so i had no idea what i was doing when i quit my job in 2017 and started doing this full-time so even though i was obviously like my whole business is about personal finance i'm pretty good with managing money i still didn't really understand how is personal finance different than business finance and it is quite different um i did a lot of things right just from i think instinct or just experience with personal finance but i did a lot of things wrong and i want to kind of share some of the things that you should do if you are a small business owner and you want to make sure that you are saving enough for taxes um sales tax you know i've got a few videos about you know income tax and sales tax so make sure to watch those how to make sure that you're actually paying yourself a salary and it's not super crazy variable um and how do you make sure that you um are paying your business expenses you always have enough money to pay your business expenses and you're not investing too much money into your business okay so the first kind of thing that michael shares in his book and again if you don't already own a copy highly recommend you grab it because again it's one of those things that i wish i read years ago and didn't so i'll include a link in the description of this video so you can check it out but basically one of the core principles is kind of flipping the idea of how we can actually kind of earn money through our business so typically how we kind of think of uh you know business finances is we've got our sales or business revenue what we're earning through the business and then we've got our business expenses so we have to you know deduct money for that and whatever is left over is your profit now there is a big problem with that scenario because it is very easy to just keep on adding more business expenses where there's not enough left over for you to have any kind of profit it's basically the same concept of uh you know personal finance and budgeting where you're not paying yourself first so he's you know profit first is really the business version of paying yourself first so you know with the pay yourself first concept when you're budgeting first we've got our income coming in of course when it's personal finances we've already deducted money for taxes but anyways we've got our kind of net income we pay ourselves first so we dedicate that income towards our savings goals first and then whatever is left over we use to uh pay for our different variable and fixed expenses so we can you know pay our bills and buy groceries and things like that same concept should apply to your business business revenue should come in you should immediately put some money away for your income taxes and whatever you've collected for sales tax put that away into separate bank accounts and i'm gonna talk a little bit more about bank accounts in a moment and then we've got our you know business revenue minus our taxes and what you should do first is pay yourself you need to pay yourself some sort of salary so you personally can pay your bills and thrive in your personal life if you're not paying yourself uh and there's nothing left over all of your money is going towards your business expenses i'm sorry that doesn't sound like a business to me that sounds like a very very expensive hobby figure out what makes the most sense for you for your salary i feel like if you're just starting out and you don't have really an idea of how much your business will earn be conservative back in 2017 when i first started my you know business full-time uh i really lived on little like i really probably spent more than i should have on business expenses and didn't leave that much for me to actually live off of and that's why i think 2017 was such a grind it was a really tough year for me because i i didn't give myself i think enough money for me to personally thrive and grow and feel comfortable so make sure to set aside a good amount that is reasonable um for your personal salary and then we want to you know pay for our business expenses now what i love in his book is he really does give you some um good benchmarks and some good ratios to stick to and one of the best things actually that did happen this was several years ago my accountant did actually recommend me reading this book in 2017 and of course didn't but one of the things that she told me that stuck with me was okay well based on your business revenue and at that time in 2017 i think it was 70 or 75 000 in total business revenue she said make sure that you don't spend more than 30 percent of your business revenue on your business expenses so that was like a good benchmark that she gave to me and that's something that i've continued to uh use as a benchmark for my business moving forward and it has been so so helpful because if you don't have that kind of limit that you give yourself it is very easy to find business expenses it is so easy to spend money especially when you're running your own small business because you have the kind of excuse or the the thought process of oh well i'm investing in my business i'm in that you hear this thing all the time i'm investing in my business of course but you shouldn't be investing everything into your business i saw someone i know online share this and i thought it was so so smart uh of a way to think about things you would never invest all of your you know personal income into one asset like you wouldn't just put all of your money into gold or all of your money into real estate you want to diversify right you want to make sure that you're investing in gold and real estate and the stock market and the bond market you want to make sure you're spreading your money around to diversify that risk so why would you think it makes sense to invest everything into one asset which is your business you want to make sure you're spreading your money around so don't just throw everything into your business because if you do you will be in that situation where there's nothing left over to pay yourself or to have a profit so you can then grow the business now in the book and i'm not going to discuss everything that he shares in the book but he does have a bunch of other really helpful benchmarks for how much you should and shouldn't spend on other areas of your business so like i mentioned 30 is a great benchmark for you to stay below in terms of your business expenses or your operating expenses but he does actually have that uh percentage for a specific um amount of business revenue so he says if you're earning zero to 250 000 it should be 30 however if your business is making more money like between 250 and 500 000 he actually increases your business expenses to 40 percent he has a bunch of other um kind of ratios depending on if you earn more and more and more but uh for most of us small business owners were probably below that 250 000 mark so staying within 30 for business expenses is a good idea the other important thing uh which you can figure out very easily on your own uh is how much should you set aside for income taxes now i've told everyone this i'm sure on multiple videos and blog posts just go to this online calculator it is free while simple now owns it it used to be owned by simple tax but they now own simple tax so you can use this calculator it'll show you your average tax rate uh i usually am a bit conservative so i like to round it up by a few percentage points just to save a little bit more than i need it just so i can feel good and then basically if you know you have maybe more business expenses or more deductions such as rrsp contributions then you may have saved too much money which is great because then whatever is in excess that is you know you can call it your profit or you can call it your own tax refund but it is money that you can do whatever the heck you want with it's a nice little bonus at the end of the year after you pay your taxes now another great benchmark that he shares in this book is he calls it owner's pay i'm just going to call it like your personal salary like what you're paying yourself in your personal life to live off of so you can save invest and pay your living expenses um he has different ratios for different um you know kind of income levels or business revenue levels rather and he says if you're earning between uh zero to 250 000 your owners pay or your salary should be 50 which i like because hey we should be you know taking a good chunk of what we're earning in our business to pay ourselves that's the whole reason we quit our jobs to run our own businesses is so we can earn a living and hopefully earn a better living than the job that we left that was always my dream and my goal so 50 is what he says for that um now as your business earns more and more and more he actually decreases the percentage which makes sense because you may not need as much money to live off of especially if you're making a million dollars you don't need to necessarily um have 50 of that for your you know your salary also you got to be mindful of your marginal tax rate you always want to make sure that you're trying to get into a lower tax bracket so you can pay overall less taxes so that's something to be mindful of as well now in terms of profit and what profit is is well we've got our business revenue we minus our taxes we minus our uh owner's pay or our salary whatever is left over after you've um allocated money to all of those that is the profit and so if you are between zero to 250 000 he's saying that you should have a profit of five thousand dollars now what you do with that profit is totally up to you he does give some uh great examples in his book but um for me it could just be a bonus it could be a nice little treat to incentivize you to continue to you know work hard expand the business try new things to earn more income so it's a nice little bonus you can pay yourself that you can use on whatever the heck you want really a trip somewhere a new wardrobe whatever or it is something that you can put towards like a specific you know personal savings goal like for instance maybe you have a goal of like i want to pay down my mortgage quicker or something like that that makes you really excited and happy you can use your business profit to do that you can do whatever the heck you want with it i'm pretty sure that is the main rule is to do whatever you want with the profit that is the whole point of having that percentage as your profit but the whole goal is you shouldn't just have enough money to pay yourself a salary pay your business expenses and taxes there should always be a little bit left over because it's basically a sign that your business is healthy and doing well your business should always have some sort of profit now the last thing i'm going to share is when you have all these different uh kind of you know percentage points that you figured out for your you know uh business and you're gonna have five percent for your profit fifty percent for your personal salary you're gonna put you know for example fifteen percent away for taxes and thirty percent for your business expenses how do you organize all those now similar to what you would do in your personal budget personal expenses i like to put all of these in their own different savings accounts um now you know i'm based in canada and so what i did was i opened up a bunch of different savings accounts with eq bank now i think they do have a limit to five different savings accounts so that is something to be aware of in case you want to make a bunch of different accounts uh but for me it was fine so i had you know an account for my income taxes i had a savings account for my sales tax um one that i you know used i kind of used it as like a a place where i'd have kind of a good buffer amount of money and automatically i would use that to pay some of my business expenses that were like automatic subscriptions or my credit card and also would uh flow money like through an automatic transfer every two weeks would pay myself a little salary um so i had that as i called it my like buffer business emergency fund account you can do whatever you want that just made sense in my mind um and yeah and then i had one account that was called profit that also uh kind of every quarter i would take a look at my uh accounts to see okay how much profit did we actually make and then whatever i had then i would put it into that specific savings account now why i used eq bank specifically is because in this low interest yet high inflation environment sadly it is still one of the few uh banks that offer relatively high interest is still 1.25 percent um so it's not you know it's not keeping pace with inflation at the minute but uh if you go to any other bank they are offering lower interest um so that's why i use them just so i can at least make as much interest as i possibly can to keep pace or try to keep pace with inflation but it is an online bank so um that is something to be mindful of sometimes it does take a few days to make a transfer but honestly i've been using them for years and i've been very happy if that is an account that you want to uh or a bank that you want to check out i do have a link in the description for this video but again i've been using them myself um for my business or personally for like four years now and i've never had an issue they've been really great so um that's why i use them now how the flow kind of works just to make this a little bit easier and i'm gonna show you kind of visualization right now but basically um money for me either that's like clients paying me by check or um you know stripe payments or wherever it flows into kind of my main business account where there's kind of my my business emergency fund and that's also kind of where money will flow into my personal bank account to pay me for a salary so money flows into there and then it flows into my income tax savings account my sales tax savings account and my profit account so it is kind of like this funnel account everything flows into that account first and then flows into my other uh bank account so i do have it kind of automated not everything's automated like the income tax and sales tax it's not automated because i have to look at my you know accounts to see okay how much should i set aside for income tax this quarter or sales tax this quarter but i did set it up so i was automatically paying myself a salary um through that account and so how i set that up was i just created an automatic transfer um to my checking account that lives at tangerine and so it was kind of like i was working for a company with direct deposit every couple weeks i would see oh there's some money in my bank account that is how much i can live off of for the next couple weeks until i get paid again and it was a way that honestly made things so much more organized and simple and i had only honestly started doing this process may less than a year ago and i really wish it was something that i did so much sooner and made things so much more organized and just i don't know i just worried a lot less about money and i think that's kind of like the main point of this book and this strategy is for you to worry less about the financial aspects of your money because you have a good plan you've got a good strategy and then you can focus more on actually growing your business doing the things that make you excited why you know the whole purpose of you starting your business was because you were passionate about it you wanted it to be profitable and you you know hopefully you're doing something that you love and so you shouldn't be spending all of your time worrying about money or trying to organize all of your uh accounts and stuff like that one thing i will say is for anyone who is just getting started with their own small business definitely invest in hiring an accountant and seeing if they can set you up with this kind of strategy they can also help you figure out what some good accounting software to use for a number of years i used freshbooks which i think if you're sole proprietor it's a pretty good software program i switched over to quickbooks when i incorporated and uh you know there's definitely a learning curve i still don't really know what i'm doing so i also kind of use a spreadsheet to keep things organized until i'm more fluent in quickbooks um but definitely it is such a worthwhile investment to hire an accountant to help you get set up so you have a bit of a more of a lay of the land and also they can help you follow your taxes and get everything nice and organized so you're never in a situation where you have an unexpected tax bill or you didn't save enough for taxes we don't want to be in that situation so definitely definitely make sure that you hire an accountant if you're just getting started so those are kind of the main principles and takeaways that i got from reading this book i highly recommend reading it honestly it is very easy there are some parts that are dry i mean it is about business accounting and and finances but it's like a super popular book it's really really popular so there's something to that there's so many books out there that are for like entrepreneurs that sound like they're gonna be about money but they're all just about manifesting money and uh for me i'm over a practical gal i'm like no can you give me can you give me something to actually do like manifesting is good but can you give me some actual strategy some actual tips so this book actually does uh deliver so highly recommend this book um so that is it for me i hope you enjoyed this video uh if you have any questions about how i run my business or anything to do with business finances please let me know in the comments because it will give me some inspiration for a future video or i'll just answer your question um but thanks so much for watching make sure to like this video if you liked it comment below and subscribe to this channel if you want to see more content for me on entrepreneurship or accounting or taxes or just personal finances in general as well so thanks again for watching i will see you in my next video