The SECRET to SUCCEED in Business: The Importance Of Pay Yourself First

Now most of you guys are operators that listen to me and I understand that but I want you to start thinking as an owner, the hustle days can make you a lot of money, but the CEO is what makes you personally a lot of money.

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Yo yo, welcome back to the science of flipping podcast. I am your host, Justin Colby. On this episode, we’re gonna to be talking about paying yourself first to make sure you can pay the bills. As always, this episode is brought to you by our main sponsor Minute Pages, go to minutepages.com. If you are looking for an incredible website, with all the SEO capability that you need to build credibility, influence and authority for your real estate investing business. This is the websites I use, and it is incredibly affordable. Not only that, any homeowner, agent contractor, they want to know that you have some authority in the space that you’re not just a newbie with no presence, make sure you go to minutepages.com To get your website now.

Alright guys, let’s jump into this because I think it’s something super, super important as I have coached 1000s of real estate investors, I’m part of several masterminds. And I actually just came back from a mastermind, the boardroom mastermind, as a matter of fact, is incredible. And one of the things that was somewhat of a common theme, where people were making a lot of money, I mean a lot of money, but not exactly paying themselves what they wanted. So the first thing I would make the argument for is you have to understand and believe that you need to be able to pay yourself first, there’s an incredible book out there called Profit First by Mike Michalowicz that in general talks about how an entrepreneur should be able to profit first meaning pay themselves first. And there’s a whole system to what he lays out well, I’m not going to go through that whole system, at least not right now on this episode, but I will talk to you about the basic fundamentals of what I believe you need to be doing as a business owner.

Now the first thing is I want to make sure you understand there is a difference between an operator and an owner. The operators negotiating deals with the sellers selling deals to your buyers. If you’re wholesaling. Meeting with contractors accepting real estate or rehab bids, I should say that as an operator, you’re doing the functions of a business, an operator A lot of times doesn’t think or act as an owner. An owner is the type of person thinking and acting to figure out numbers, profitability excetera. Now, most of you guys are operators that listen to me and I understand that but I want you to start thinking as an owner, the hustle days can make you a lot of money. But the CEOs what makes you personally a lot of money. Now I hate to see it and I myself have gone through it where I’ve had years multiple seven figures, and I quite literally paid myself $90,000 The business made multiple seven figures, and I personally made $90,000 That’s just insanity, right? In that case, I should have just went and got a job and not dealt with all the headache and heartache that comes along with being an entrepreneur. So this episode is about the very fundamental basics that you need to be thinking about and changing right now. First things first, you need to know personally, what your expenses are. I don’t mean expenses like vacations and really expensive dinners and you know bags for your wife or or a car for your husband. I’m talking about literally every month, what are you paying for your mortgage, your car payment, gas, car insurance, homeowners insurance, all of the normal monthly expenses in your life and allocation budget for food, grocery shopping, maybe you go out to dinner every other week. But it shouldn’t be excessive. This is a need not a want. That’s the first point here. You need to know your personal finances. For some you might have a personal budget every month that’s roughly $6,000 all in right. Others may have a little bit of a bloated number. They have you know three or four kids, maybe they have you know more costs in their life, private schools, etc. I’m not here to judge anything, I just want you to understand what is the actual number. The best way to do that my accountant forced me to do this which is not fun, but I had to go through all my debit charges in the bank statement as well as my credit card charges every month. So I am added that up for about six months. And then I took that total and I divided by six. And that was my number. Right now, obviously, within those numbers, there are some wants. If you’re not watching this on YouTube, I encourage you to is this a good video, go to youtube.com//JustinColby, make sure you subscribe, make sure you like this video. And if you’re listening to this on iTunes, give me a five star review, I’d greatly appreciate it. So I had to make sure I wasn’t adding those ones, which were nicer things and maybe some purchases, I wanted to remove those because those weren’t really my monthly expenses. So I removed all the things that really were outliers, whether it was a vacation or whatnot. And then I added those up for six months, and I divided by six. And that was my monthly expenses, like what I actually needed to make every month. Now once you do that, you realize I want to make more, everyone will like I don’t care if you’re making $100,000 a week, you’re gonna want to make more, right? That’s just kind of human nature. So now I want you to understand what is your want? What is your want of income, right? I need, let’s just say $6,000 a month, what do I want to make? Well, the easiest way I would look at that is to just to x your need. So in that example, you have $12,000 A month is what you want to make. Now that number is not like super thrilling, and you’re kind of at about that number, maybe you want to 3x that number, right? So instead of 6000, maybe it’s 18,000. Now you might get excited. But you need to know what you want to make because very hard for me or anyone to help you get to a number that you want without actually knowing the number, right? Don’t just give me I want to make as much as possible. Great, that’s irrelevant, I’ll never be able to help you. No one can help you when you do that. Now you know what you need. You added up all your credit card statements, all your debits and your mortgage payments, your car notes, all the auto debits that come out of your bank account, you added them up for six months, you divided by six now you know you need you 2x or 3x that now you know what you want. Now you need to start thinking like a business owner, and make sure you’re profiting or paying yourself first. As someone who came out of a business partnership. This was a conversation at length many, many years, right about making sure that my business partner at the time, I was single, I had no wife, no kid, no nothing. I was able to live a lot leaner than my partner could you had a child and ex wife, a current wife, etc. His living expenses were higher. So for him to work effectively and efficiently, he needed to make sure at minimum his bills were paid. And that’s what got us down the path of Profit First the book to make sure that we understood that. But before that, I had no recognition of profiting first paying myself first. And so that’s why I bring up this episode you need to be. Now there’s an equation sales minus expenses equals profit well, so flip it around a little bit. Go sales minus profit equals expenses, you need to pay yourself that $6,000 Every single month, and then the operator not the owner, the operator needs to go do whatever it takes to make sure at very minimum, there is $6,000 a month profit every single month. If you start there, it’ll change the way you think which will start changing the way you act. This isn’t the want, this is the need. So we need to start by making sure every single month you pay yourself $6,000 A month period end of story. There is no not paying yourself. One of the mastermind members great guy very successful as a matter of fact, but he’s able to live pretty lean. So he doesn’t pay himself right now and he hasn’t for months, because he hasn’t quote unquote needed to. Well, that’s still not the right way to run the business. So my point to him was what I’m making you now, make sure you put yourself on a payroll. Something that maybe you need is maybe not a want. You don’t have to live lavishly, but make sure you’re running the business on the right fundamentals. So I encourage you to do that first. So that is step number one. Know what you need to make. Need literal need. Make sure you pay yourself that every single month, know what you want to make, which is usually 2x or 3x what you need. And then then I can help you structure the rest. But end of story. Make sure you’re paying yourself first. Sales minus profit equals expenses. That’s the formula I want you to be thinking about. And that’s how you can go about you know, creating income right away, not just waiting until you have massive paydays. I hope this finds you. Well. I hope this was helpful, because I know that several people are living lean and not paying themselves that is the wrong way to run and start a business. Make sure as revenue comes in. You are paying yourself each and every time again if you have not yet subscribed to my YouTube channel go to youtube.com/c/JustinColby, subscribe. Also, make sure you give me five stars on iTunes and I will see you guys on the next episode. Peace.