Dec. 29, 2023
Ep 230 - Simplified Budgeting for the New Year
In our latest Electricpreneur Secrets episode, Joseph and I share the key steps to bulletproof budgeting and financial clarity for your electrical business as the year comes to a close. From practical tips on paying yourself first to the importance of building a relationship with an accountant, we guide you toward a stress-free financial future.
Navigating personal and business finances can be as challenging as untangling Christmas lights, but with our insights, we make it a smooth journey into the new year. Discover how to set a meaningful personal salary, use tools like our simple pricing calculator, and gain insights into managing business insurance and maintaining a financial buffer. We wrap up by emphasizing the significance of charging premium rates for sustainability and service excellence in the electrician industry, thanking you for your support and inviting you to continue powering up your business with our episodes. Charge up your entrepreneurial spirit, hit that like button, and subscribe for a jolt of empowerment in every episode!
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00:01 - Simplifying Budgeting for Financial Stability
11:57 - Managing Personal and Business Finances
22:03 - Maximizing Profitability and Business Growth
28:31 - Price and Service in Business Importance
32:38 - Reflecting and Looking Forward
WEBVTT
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Hello, hello, hello and welcome back to yet another episode of Electricpreneur Secrets.
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This is episode 230, simplifying Budgeting for the New Year, which, as you know, joe's kind of important being that it's what?
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December 29th, at the time of this podcast, I am your host, clay Neumeyer.
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With me is always my esteemed co-host, joseph Lucani.
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We are the Electricpreneurs just a couple of master electricians with business addictions, here and ready to serve.
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Welcome to our freemium program and your daily coach.
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Call the admission for this ticket, sit back in the hot seat, take everything we give, just promise to take action and report your wins back to us so we can know how much impact we're having out there as we help you master your sales, simplify your pricing and deliver premium level electrical service.
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Joseph, this fine Friday, how are you doing, my brother?
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I'm doing really good, but I got to say something that's going to make some people tease me a little bit, and then we're going to go for it, right, all right, anyone who's watching rather than just listening.
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No, I'm not crying.
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This happens when I stare at a computer for too long.
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But I'm so enthusiastically here today, I just can't wait to jump into today's topic.
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What about you man?
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How?
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are you holding up?
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Today?
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I'm not crying, so that's a good sign.
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Everything's going great over here.
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Man, I'm pumped up.
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I'm pumped up about this episode.
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It's another in the series of us trying to cram a metric ton of value into about 15, 18 minute episode.
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So we've got a lot to break through here.
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But huge shift, huge shift.
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And this is why I say that All too often someone says to us either on a call or in live engagements on the Facebook group if you're watching right now with us, they might say something like this hey, winging it isn't winning it.
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Yeah, you ever heard that before?
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Winging it isn't winning it.
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Yeah, I've heard that before into solid statement.
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And one of our most quoted Jim Rohn statements of all time is like you kind of have a plan or you've fallen to someone else's plan and you know what someone else has planned for you.
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Yeah, how much?
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Not much right?
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So dangerous, dangerous, dangerous.
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And when we're speaking to financials, I mean there's really no greater place where we just don't have the wiggle room, because at some point, if we don't budget correctly, if we really don't have a plan for our finances, for our future, then we end up with more month at the end of the money than money at the end of the month.
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And that's a tragedy, brother, it's a tragedy.
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So there's a few things that I have planned to cover today.
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I'll bounce them off, you man, and let's cut through this.
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Let's cut through the thick and the complexity of all of this, actually, and let me first say, with this disclaimer, I love accountants.
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I'm not an accountant, nor is Joe, that's correct, but I love accountants because they're specialists, just like us master electricians.
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They are the specialists of accounting, though, and taxes and tax deductions and all the great things that they need to have complete mastery over, and that's why you should have a great friend who is an accountant.
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If you're listening to this, please, please, take this, take this one action from today.
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If nothing else, make sure you've got an accountant that you have a great relationship with and you don't mind spending some time with, even quarterly.
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I suggest, I encourage that you have even this quarterly meeting to the point of like, why am I going to see my accountant again?
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Oh, yeah, to make sure that our shit is tight, joe.
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Go ahead, brother, jump in.
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I was going to say oh, thank you.
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I got to get the water works down right.
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But the fact is is you said something that was really, really important.
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I don't know if anyone really caught the.
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The really gravity that's behind it was have a great relationship with your account and, as most things that I speak to, I've experienced the opposite of this before in my life and I can tell you, even if you have an accountant that makes you money every year, if it's pulling teeth and you dread the phone call and you hate him because the guy's just a jerk, you're not going to be happy when you have these conversations.
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So my advice here is even if the accountant somehow wizards you money every every year, it's sometimes better to work with someone who you wouldn't mind a phone call from.
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That's the kind of person you want to work with, someone where you're like, oh, Tim versus oh, what are we working on today?
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Yeah, absolutely.
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I want to be able to have that honest, upfront conversation with my accountant to listen.
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I don't want to pay you out of pocket, I want you to be an investment.
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Let's, let's work on that relationship.
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How can we be friends and you be an investment to my business to help me save on taxes, to have more financial freedom in my life?
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That's ultimately the role of a great tax accountant.
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So please, please, leverage that.
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The next thing I really wanted to get started in here is actually something from every personal finance book I've ever read Pay yourself first.
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Have you ever heard that?
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Yes, I love that.
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Actually, the first time I heard that was in college, and I remember that my finance teacher was going through it.
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Every first thing, lesson one, was pay yourself first.
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Everything else after that is just an addition to that one statement.
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Absolutely so, barring everything else in the company, I want to first go to the table with my life partner and say did we make enough?
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And that's a general question, let's drill down further.
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Do we have a savings, a nest egg, at least in case something happens?
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I'm up here in the land of the true North, strong and free, where medical is quote unquote free.
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But down there, joe, I know you and a lot of other electricpreneurs do have unexpected medical bills, sometimes change the course of your life.
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Yeah, American healthcare is nothing to brag about.
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It's really not.
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But at the same time, you're right.
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If you don't have an accountant that can help you account for those things, sometimes one bad injury could be what takes.
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So having a good nest egg and making sure you're protected is key.
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I can't remember the exact stat man, maybe I should have looked it up before this.
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But something like 90% of people do not have finances to last next month to pay the bills for the next month.
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I've even heard that some people are beyond that where they're literally paycheck to paycheck, to where even every getting paid every two weeks is like, if it's off by a day or two, we're selling something.
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Yeah, that's tough.
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And the last thing I want I mean, obviously we want for everyone to be in a financial, financially stable position and that's a great fight that we'll be taking for humanity forever.
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But we got to start with our little corner of the world.
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And if you're an electric printer with your own business, then I have to ask is there any excuse to be paycheck to paycheck?
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No, we're such a valuable industry like, literally, if our trade disappeared tomorrow, the entire world goes into ruins and chaos.
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Things need to work, homeowners need to be served, businesses need to be operating.
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So the fact is, if you're such an essential service, why do you allow yourself to be paid so minimally to where you can't even afford your basic essentials one month from today?
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It's not fair.
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Absolutely not.
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And if you're listening to this and you're one of these sole proprietor types who have an account that represents your business and you and you simply take owners draws from what's left, that is not paying yourself first and that's why we opened with this logic.
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I want you to plan for the new year as a salaried employee.
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I want you to know what your business needs to earn, based on what you need to earn.
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We're starting there Pay yourself first.
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What do you need?
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Sit down with all your household expenses and do a budget, because if you can do this for you, you can do it for your business.
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Here's budget, simplified just to make sure we don't leave anyone out here Before.
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I want you to make a list, and on one side of the list is a description of an expense, something you've got to pay for today, tomorrow, this week, this month, this year, and on the other column beside it, is the amount that you've got to pay for it and we're going to add it up for the entire year.
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Right, and this is your break even point now, before any taxes, before anything.
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If that number is $65,000, then that's what you need to take home net after taxes, and that's negating investments and negating nest egg.
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That makes sense so far, joe.
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Yeah, I was going to say and for those of you that might be in the background that are like, well, that sounds massive, I don't know how to do that, can I introduce a little hack that will help in a lot of situations?
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I'd be mad if you didn't.
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Okay, so I did this exercise in my own personal life, and the way that we did it was we consolidated credit cards, because when you have multiple cards, it's hard to track multiple expenses.
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But if you can consolidate to one card, preferably I use the cashback card.
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What you do then is now all of your expenses go on one itemized report every single month, and what I do is every three months I compare and see what has changed in those three months and then I do the next quarter, and then I do the next quarter and every single quarter we're working on.
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But I would not be able to do it as efficiently or effectively without that one consolidated card.
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Agreed, and you know what?
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I do the same thing.
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I'm super pumped that you brought that up.
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I love that.
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I love you, man.
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That's awesome, absolutely.
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So this might take you and the misses, your partner in life whatever that needs to be to collect all those expenses and figure it out.
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Household income what do we need Then?
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Don't forget the wants.
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We're almost done with the personal stuff, but you got to have some wants in there.
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What do you want?
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You're building a business and you deserve to have something.
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You deserve to enjoy your day to day life.
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So let's not neglect your entertainment, let's not neglect date nights with your partner, let's not neglect sports, athletics for your family, education and savings for the future.
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These are all things that should be in there, and if your number is getting up to 150k a year, then I want you to be okay with that.
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You're a business owner and you're a master electrician.
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You're an electricpreneur.
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You deserve that and I want you to be okay with that.
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Any argument, Joe, not a single bit, you know, because when you think about it and people talk about like what is a frivolous expense and what is not, you got to have something that gets you up in the morning, like if you're just going in and just knows to the grindstone and every day it's down to the powder and that's all you have left.
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There's nothing to give yourself back at the end of the day.
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Maybe you enjoy binge watching a show with your spouse Okay, great, put in the cable bill, it's an essential now.
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Or you know what?
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Once a week we don't want to cook.
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Once a week we're gonna have a water at 50 bucks.
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Fine, hundred dollars, I don't care.
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But whatever it is, give yourself a reason to want to keep doing things, otherwise the joy gets sucked out of it 100%.
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And to finish this section up, remember that accountant you've been made a great relationship with.
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Now I want you to call them and narrow down the tax position of it and get help figuring out what that exact number is that you need to Pay yourself, gross Before the income taxes are taken off, so that you know the exact number.
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And then I want you to divide that by 12.
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That's what you pay yourself once a month.
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It's easy.
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If you really need bi-weekly, then go by 26.
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I'm just a monthly guy because it's simple.
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Payroll once a month.
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Keep it simple.
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Agreed, all right, we're done with the personal.
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Now we know and what we do with that personal amount that we're paying ourselves.
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As we go and we update our business burdens, our cost, or break even our cost to do business, your personal salary needs to be updated in there because you just did the exercise, unless you already paid yourself enough, or maybe you figured, hey, I paid too much, I could do a better tax position here if I made an adjustment.
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Either way, we're going to adjust your business burdens, which is essentially the same exercise we just did for your personal.
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And, by the way, our free simple pricing calculator that comes with our simple service rate pricing work tool guide is Free for you.
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All you have to do is comment whether you're listening to this episode where you're at, say, price tool and Either myself, joe or Austin someone's gonna send that to you and help you use it, so you can't go wrong with this stuff.
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And in this second piece, the burdens again a list of all your business Expenses.
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To keep this simple, you wouldn't have to understand anything else to do.
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A simple service rate, your burdens, just every expense in your business.
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If you're wondering, well, how much am I gonna pay my employee, just take 2,000 hours and multiply it times the hourly wage that you need to pay them to keep them.
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That's gonna give you a yearly amount.
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Add up all these yearly amounts, as we would have had you do for last year too, but going into a new year, the idea is to update every one of these expenses and make sure they're accurate.
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So in this section we get to reflect a bit on history.
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How much did we spend?
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What does our P&L look like for this year?
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Again, leverage your accountant here.
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P&l, your profit and loss statement.
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Go ahead, joe.
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The one thing I wanted to add was that when you mentioned to adjust for things, I think that that's very, very important and I want to make sure it's properly stressed, because you may say you know, I did it once.
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I got all my expenses and everything's on paper.
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It's all itemized, great.
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Are other businesses allowed to change their prices, often going positive at this point?
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Because if they are, wouldn't it make sense to ensure that you're constantly having a pulse on it and when those say it's too much to do on a yearly basis?
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That's why we break it down by the quarter.
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If you can slowly check on people's prices over time and make sure that you're being billed Appropriately or inappropriately, you can ensure you're not getting overcharged and at the same time, you can also make sure to keep your pulse on Whether people are being fair with you 100%.
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I have a great example of this insurance Always in your second or third year of business insurance that that famous question comes out oh, how much were your earnings this year?
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Okay, and what's that going to do to my rate?
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In many cases, triple or quadruple it.
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And, and my answer to this has always been go shopping for new insurance because the new provider wants your business and they're not going to charge you three to four times as much as it's a pain in the arse to do that.
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It's the reality of insurance.
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I don't know why, joe, have you found a workaround for that one?
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Well, the closest I can say is I like my insurance agent very much, so much so that he was actually a former client.
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So we have a very, very good relationship.
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We have very transparent and Really, what I found is I'm willing to pay for premium service Because I got into a car accident where someone hit me from the side and it was.
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It was bad, and one of the things was is my insurance agent stayed with me by my side and dealt with a pile of BS and it was worth the money.
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So if someone is willing to charge me three or four times more, instead of saying I'm gonna shop for someone else, my first thought is why would I pay that and are they justified?
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And this person took 12 weeks of accident and handled it in my stead.
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Okay, that's an investment I could put back into my business and a great contrast.
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I appreciate that comment for sure.
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Okay, so this entire burden rate piece is about making sure the projected cost of business is the actual cost of business and that any increases that are coming are built into that.
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If break evens break even and our personal pay is our personal pay, then everything going forward from here is about being above the line, and that's something I can get behind.
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How about you?
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Joe, I love that.
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Yeah, when you're cutting it too close to the nose, it's always gonna be a risk of one bill goes up and now you're in the red.
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So it's really I've always considered it establishing a strong shield.
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Some people call it a buffer, some people call it a barrier.
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I really consider it like a shield up and saying you know what, when things happen, it takes a lot of effort to pierce my interior, which means my personal finances will not be affected by the outside forces of the world 100%.
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I knew we were gonna get long in this one.
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I'm gonna move up to the third stage here, which is your growth rate, and that's something, again, that's in our pricing tool and it can help you and if you already used it for 2023, then all we have to do is look at okay, in reality, with where we are in our tax position and that relationship with the accountant, are we in a favorable position where we need to invest in more of these growth items that we had accounted for?
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That could be a lot of us.
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Most of the people in our group are experiencing this right now.
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It's a great place to be because they've already accounted for the items and charged for it this year.
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Now we should have the cash flow assuming we worked a thousand hours plus to pay for those items rather than pay tax to the IRS, that would be a tax deduction.
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Again, non-accountant strongly encourage this conversation with yours as you're looking at the big picture with them so they can help advise on exactly what to do next.
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But you yourself are the business owner and that means this growth rate items that are on this list should actually be by your design, not an accountant.
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It's just the amounts and how much to actually put forth that they could help with.
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Did that actually make sense, joe?
00:19:01.615 --> 00:19:04.152
Yeah, I follow you, brother, awesome.
00:19:04.829 --> 00:19:07.859
So, on this list, you could almost look at it like a checklist.
00:19:07.859 --> 00:19:14.515
If you already had a growth list for 2023 that you were billing for that was part of your pricing, then look at it like a checklist.
00:19:14.515 --> 00:19:17.857
Oh, salary increases yep, we did those.
00:19:17.857 --> 00:19:21.439
Oh, new van deposit yep, we got that.
00:19:21.439 --> 00:19:28.598
Improved shelving in vans two and three yes, done, and go down the list and you can check these off.
00:19:28.598 --> 00:19:31.838
Oh, new website who hasn't done that recently, right?
00:19:31.838 --> 00:19:35.874
So as you go down, you can see what you did and what you didn't do.
00:19:37.190 --> 00:19:41.996
Now, looking forward at 2024, what do we need to grow into next?
00:19:41.996 --> 00:19:46.117
Well, you might say we haven't done the full van wraps yet.
00:19:46.117 --> 00:19:55.996
Or maybe, hey, we're gonna go back to Kick Charge and Dan and the episode we did with Dan and Danelli, and maybe we're looking at reinvesting and upping our branding game.
00:19:55.996 --> 00:20:07.154
Or maybe we've kind of maximized our lead flow and now we're looking at an SEO alternative and something to invest in long-term to get more out of our website.
00:20:07.154 --> 00:20:14.594
These are all great goals, depending on your needs, and they should go in this growth category for your new year budget?
00:20:14.594 --> 00:20:16.990
Why so?
00:20:16.990 --> 00:20:23.016
It's reflected in our pricing and we can bill adequately to make sure that we can hit those targets.
00:20:23.016 --> 00:20:28.800
Any clarity you would seek on that discussion at all, joseph?
00:20:30.789 --> 00:20:41.472
I mean the thing is is that I'm a biased person because I understand what you're already talking about, so it's hard to look at it from the perspective of someone who's looking in, but I feel like you're being clear enough that it makes sense.
00:20:42.190 --> 00:20:45.979
All right and, of course, if you're with us in the Facebook group, feel free to comment.
00:20:45.979 --> 00:20:48.596
I'll be happy to answer your questions as we see them.
00:20:48.596 --> 00:20:51.115
Next is the profitable rate.
00:20:51.115 --> 00:20:54.343
Profitability is in question.
00:20:54.343 --> 00:21:02.388
The question I have for you, between you and your accountant and your growth expenditures how profitable were you this year?
00:21:02.388 --> 00:21:08.022
If it was acceptable, awesome, congratulations.
00:21:08.022 --> 00:21:09.145
We applaud you.
00:21:09.145 --> 00:21:10.407
That's amazing.
00:21:10.407 --> 00:21:15.798
What might be acceptable as an industry standard for a net profit?
00:21:15.798 --> 00:21:20.858
I'd be looking at 19%, plus Anyone in the 20% isles.
00:21:20.858 --> 00:21:22.262
You're living the dream.
00:21:22.262 --> 00:21:22.944
This is wonderful.
00:21:22.944 --> 00:21:23.846
You're doing great.
00:21:24.869 --> 00:21:30.343
But ironically, you might find that, hey, we reached 30, 35% profit.
00:21:30.343 --> 00:21:36.228
And you might also find that the reason why is because you haven't spent on those growth items that you planned for yet.
00:21:36.228 --> 00:21:44.230
Again, we applaud you, and it's a great time to go and have those expenditures take place and invest in your business.
00:21:44.230 --> 00:22:03.056
And this is the very simple reason why Jeff Bezos of Amazon has paid like an effective tax rate of 5.5% on almost $5 billion, because he's so aggressively reinvested into business growth Such a huge principle.
00:22:03.056 --> 00:22:03.856
To understand this.
00:22:03.916 --> 00:22:08.976
Tax deductions, that's a whole other topic and it can worms that I got to be careful about.
00:22:08.976 --> 00:22:22.146
If you weren't profitable enough, then the question becomes well, why, and your accountant should be able to help you figure this out, and my hope is that even this conversation helps you figure this out.
00:22:22.146 --> 00:22:46.300
If you properly accounted for your burdens and you properly accounted for your growth items and I should have said first your personal pay and you did not deviate from those items, then it could only mean one thing, If you were following our suggested 1000 hour rule, that you didn't work the 1000 hours.
00:22:46.300 --> 00:22:48.056
Does that make sense, joe?
00:22:48.255 --> 00:22:56.346
Yeah, the thing is is that I know that we're trying to say that the goal is to be at a 50% efficiency rate, where you're getting your 1000 hours.
00:22:56.346 --> 00:23:03.914
So those who aren't getting it and saying that like I'm not hitting my 1000 hour, the first thing I want you to assume is it's not just the price.
00:23:03.914 --> 00:23:11.990
There's a lot of other factors that can get you to that point and if you find you're in a deficit, please get in contact with us and we'd love to talk about ways we could support you.
00:23:12.111 --> 00:23:24.407
Back onto the positive 100%, and the only other area I could suggest where this might be a cause for concern with profitability leads us to our final step.
00:23:24.407 --> 00:23:27.015
Fifth and final the simple service rate.
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