Avram and Rachel dive into the book/method of Profit First by Mike Michalowicz and share how they saved 27% in operating expenses over two and a half years. They get real about how it can be emotional to let go of expenses that you think your business needs and share how much better it is to be profitable!

 

Show Notes

1:30 What Rachel discovered about our operating expenses when she came on full-time

2:30 This is our testimony of Profit First!

5:00 What amount is healthy for your business to spend on expenses

8:28 The massive cutting of extraneous expenses happens here

10:13 The number one area of our biz where we were able to cut expenses

12:15 Rachel suggests another slash that takes Avram a while to come around to

Mentions & Resources

Profit First (book and program)

Episode Transcription

Below you will find a transcript of this entire podcast episode. Enjoy!

Avram Gonzales: Hey friends. Welcome back to the Babies and Business Podcast. It’s Avram Gonzales here with my lovely wife and co-host, Ms. Rachel Gonzales. What’s up?

Rachel Gonzales: Hello?

Avram Gonzales: Yeah, we’re batching a bunch of episodes here today. This one, I think you’re gonna be very excited about. We’re talking about how to drop operating expenses by 27% using Profit First.

This is our personal testimony for a system that has radically transformed our business and actually allowed us to pay ourselves not only what we deserve, but what we need to survive. Actually, I should have reversed those, right? But we need to survive, but also what we deserve.

Rachel Gonzales: Yeah. And this is our personal story, maybe you don’t need to cut 27%, but we did.

Avram Gonzales: When Rachel became a part of the business, one of the first things that she did is became hyper aware of how much money was going out the door and how high our operating expenses were. But at the same time not really realizing what was a healthy amount versus what wasn’t a healthy amount.

Rachel Gonzales: Welll we don’t even really think about that. When we’re in business, you talk to your bookkeeper, you talk about expenses, you, there’s all sorts of different ways that we have checks and balances, but when it comes down to Profit first is transformational.

Avram Gonzales: We’re gonna tell you about that. We’re gonna give you some solutions for it, a little bit about how it works, and then we’re gonna give you some hardcore examples of what we did to drop this 27%. One of the things that we were trapped by was trying to run faster and make more money to solve the money problem. But what Profit First told us and taught us was that you need to be profitable on day one and it gave us the instruction manual on how to actually do that and put a plan for us in place.

Rachel Gonzales: So reality based, it starts where you are. You don’t need to be at a certain place to start Profit First. You need to start it now. If you’re listening and this resonates at all, pick up the book Profit First by Mike Michalowicz. It will change your life. This is our testimony of that.

Avram Gonzales: Because in the beginning, we did not have enough money in the house, to really live the life that we wanted to live.

Rachel Gonzales: And we felt like we were stealing from our business and in reality we were, our business was functioning at a very high level on our operating expenses side, and we just felt like we were scraping the bottom of the barrel to pay us even small amount of money.

Avram Gonzales: It’s true. So this 27% didn’t happen overnight.

Rachel Gonzales: Correct.

Avram Gonzales: We’re gonna tell you the journey of that. It is something that occurred beginning in, was it May of 2021?

Rachel Gonzales: That’s correct. Yeah.

Avram Gonzales: That’s when Rachel implemented this system after picking up the book and going through it.

Rachel Gonzales: Yeah. Yeah. Just to a little bit of a, before I say what really happened was the problems, just paint this problem really clearly in your mind. Not enough money for you as the most important employee of your business—if that’s a problem for you. Listen up. We did not have money set aside for taxes.

Avram Gonzales: Oh, tax season was scary.

Rachel Gonzales: We were praying for a very low tax bill. That was what? That was our strategy. Praying for lower tax bill. That’s a bad strategy.

We also had this thing— robbing Peter to pay Paul, and we just so happened to be Peter. We were always getting stolen from. We didn’t have enough money. We were constantly stressed. If this is you, keep listening. So now about Profit First. So we cut 27% in two and a half years. We did this by doing something small over time, consistently.

And oftentimes in life, we think that we have to do this grand thing to create a big change. Big change creates big results. No big doors swing on small hinges. It is doing something consistently over time because it is consistency that wins over the long haul.

Avram Gonzales: So what is Profit First? How does it work?

Rachel Gonzales: Yes, we’re gonna talk about that.

So Profit First, it’s a system that helps you know, for your business’ revenue amount, what percentage is healthy for your expenses to be in your business. You are going to understand that you are the most important employee. And you are going to understand more about owners’ pay.

You need to pay yourself, and there’s so much more, but very small, simple way to explain. Profit First is the system that helps you know what percent is right for you and how to get there. So you’re going to know where you are. There’s an assessment where you’ll know where you are as a business right now.

Avram Gonzales: Assess your financial health of your business.

Rachel Gonzales: And it’s gonna be scary. I guarantee you. It’s gonna be scary if you’re listening to this and you’re interested in this and this is impactful for you and you think this can help you, it really will.

You will understand more. You’re gonna know where you are. It’s gonna be scary, but you’ll see the future and you’re gonna get there slowly over time. We have changed percentages each quarter, so it is slowly. And we’ve taken these principles into our other parts of our business. We do goals quarterly and we methodically take things forward and go slowly to bring about change. Was there more you wanted to talk about how it works?

Avram Gonzales: So I think the teaser is go by the book. It’s by Mike Michalowicz, Profit First. We’ll link to this in the show notes, like Rachel said so much more. I think one day we’d like to have Mike here and explain to you exactly what Profit First is all about. But this is really what you need to know, what’s possible here in the book and Mike’s work can take you the rest of the way. We might have other podcasts about it, but we just want to start here, show you what’s possible, give you some examples of what we actually did. And then leave you with some action items.

Rachel Gonzales: One more thing I would say actually about how it works is. I would actually buy the audible version because Mike is so dynamic in how he talks about it.

It’s like you’re there sitting with him and he’s hilarious. Like you said. He brings levity to a very serious topic. He talks about his journey, and where he came from, and why he came up with this, and it’s amazing. So I would actually recommend the audible version.

Yes. Get it physical cuz you’ll wanna see the graphs that he talks about, but listen to him talk to you. It’s really awesome.

Avram Gonzales: So one of the first things that occurred when Rachel got her hands into the Profit First System and started implementing it was a massive initial cutting of extraneous expenses. Now here’s the deal. You probably think that all the stuff that you’re paying for is stuff that you need.

Rachel Gonzales: Yes, absolutely. And if you think that if you are attached to your expenses,

Avram Gonzales: you really need this

Rachel Gonzales: and you are not the one to do this process.

Avram Gonzales: You might need some help with a third person objective to attack this. Something you might also consider doing is buddying up with another business owner about the same place as you, or the same mindset. You can audit each other’s stuff without judgment. Help each other execute this together. Especially if you don’t have a business partner or a team member that you feel like you can trust.

Rachel Gonzales: Yeah. So you mentioned, or maybe you didn’t maybe. I’m just thinking. Anyway, I’m just, I’m going forward in this podcast and just really excited to talk about this. So 15% cut of expenses. That’s what I did.

Avram Gonzales: Right away.

Rachel Gonzales: That was out the gates. So I came in and we started Profit First in May 2021. So what I did, my strategy and we’re not gonna go really in depth, but I’ll tell you where I found the most efficiency in and cutting costs. So I audited expenses and asked Avram because I needed to know what these things were. So this expense Aram, tell me about that. What is this for? What’s this for? So I made a spreadsheet all the things categorized it, saw what was what, and then I paired things together. What does the same job? And I found

Avram Gonzales: Software.

Rachel Gonzales: Software was huge for us. We’re a search engine optimization company, so there are a lot of different software tools that we require to really deliver on this service for our clients.

So the one category that we found was: research tools. We had multiple software that did the same thing. So what my job was, what I did was I would first became aware of what they were. Then I asked Avram, “so why do we have three software that do this same job?”

Avram Gonzales: Or, “it seems like we have three software…” She was nicer about it. “It seems like we have three that are doing the same thing.” She approached it as the layman, that’s, ” I don’t really know. Could you please tell me? Tell me the real difference.”

Rachel Gonzales: Yeah, so then he’d educate me. And then I’d come back with, “Okay, so why do we need three if they’re all doing the same thing?”

Avram Gonzales: And I really couldn’t explain to her why they were so different is what it came down to.

Rachel Gonzales: And then what I did was say, “Okay, so if we could only keep one, which one would it be?” And then I made him choose. I actually made him choose, and I made it my mission, like I said, to cut 15%. I made it my mission. He wasn’t canceling that software. I was. He told me which one he’d keep. I canceled the rest.

That was one way that we did it, and that was monumental. That was a huge win. It was a lot of work, but it was a huge win. Then we had another category that was office space, so this was the hardest expense that we had to get rid of.

Avram Gonzales: Sure.

Rachel Gonzales: We’re gonna talk a little bit more about that. Avram’s gonna tell you the story, but the way I did it was I found out how much we paid monthly, how much we paid quarterly or per time that we would go visit that space

Avram Gonzales: actually use it.

Rachel Gonzales: And yearly. Exactly. So I broke it down in different ways to explain the same amount but broke it down in a different way so that Avram could understand it . So I’d love to hear what was going on in your mind when I was bringing this to you.

Avram Gonzales: There was like no way that we’re getting rid of the office.

Rachel Gonzales: I remember that conversation.

Avram Gonzales: I need a space to meet with clients and close deals and yada. But I will say when you showed me that, because it was a small amount that we were paying on a monthly basis, so it was a fractional office. Okay, so different people, different things virtual, not a fractional. And so I was paying a small amount every month and then a little bit more when I would actually want to go visit and do a meeting there. Long story short, Rachel showed me it is $128 every time you go and visit. Now this is also on the back end of Covid, and we had a lot of lockdowns and bullsh*t here in New Mexico, so I didn’t spend nearly as much time in the office as I did before. But the thing is like the world changed. We literally weren’t going back to the office.

Rachel Gonzales: People were scared here in New Mexico. People didn’t want to meet in person. They were more happy to meet over Zoom.

Avram Gonzales: And so it was like this irrational, maybe ego trip, that I was on that had me holding onto this thing for dear life.

Rachel Gonzales: Yeah. And in Profit First, Mike actually talks about how we become attached to expenses, that kind of becomes our identity, and that we really don’t wanna let go of it because maybe in some way we feel like a failure.

Avram Gonzales: So when I was further pressed by Rachel, it was became apparent that the real value of having it wasn’t being used.

Rachel Gonzales: Correct. Yeah. So it took time. So all this to say what is it that we did? We did this audit. It was a third party audit in the sense that it wasn’t him. It wasn’t the person that was attached the expenses. I think that was very important, cuz for one, you wouldn’t have done that. You’re not detailed like that.

For two you would’ve done it maybe next month and then next month would’ve been next month and next month. It would never be important enough to you just cuz that’s not your personality. And that’s okay. And then, pressing on those things. If we see this expense and we know how much of an impact it has on our bottom line and on those percentages, it is worth it to really bite that bullet, get rid of that thing that maybe you’re not ready for.

Maybe sometime in the future you can, but maybe not now. And it reminds me of a story in the Profit First book, and this transformed the way that I think about things and how we cut costs and how we approach processes. And that is that oftentimes when things are constrained, we innovate.

And innovations bring about so much stuff. So I’m not actually gonna tell the story because I would totally botch it. I’ll let Mike tell that to you. Get that audible, listen to that. It’s about the leather machine that he created that was way better than anything else on the market. Listen for that.

He’s gonna tell that and if it’s not on this book, it’s in another one of his. So forgive me if it’s not in this one, because I’ve listened to so many of them. But this was what we did and it worked. It has worked. I am telling you, we are not looking to cut 27% of our operating expenses. I am telling you that we have cut 27% of our operating expenses and we at one point in a year, we had $50,000 growth and that was accompanied by $2,000 worth of operating expenses to go along with that amount of money that we had. So there’s a lot possible for you if you think it can’t be done. Think again if you’ve never had profit in your business. Profit First is for you. If you want to align yourself with Mike Michalowicz’ vision of eradicating entrepreneurial poverty or having that be your reality, listen to Profit First.

Hear what he has to say to you and move forward to get it implemented in your business. It will change your life.

Avram Gonzales: I think it’s a great place to wrap. You’ll become much more aware of where your money is going and be empowered to make new decisions in your business that you probably never thought were possible. And honestly that won’t reveal themselves until you take action and move this piece forward. So we look forward to hearing your stories. Hey, if you know somebody that can get Mike Michalowicz and get him on this podcast we would appreciate that. Yeah, let’s do it. But catch up with us on social media.

Send us a note @babiesandbizpod, any of the major platforms. We are there. We’d love to hear your feedback. If you’ve implemented Profit First, we’d love to hear your stories. If you got questions about it, just reach out to us. We’ll point you to some resources and make sure to check out the show notes for everything that we talked about today.

Anything else you’d like to add, honey?

Rachel Gonzales: Do it.

Avram Gonzales: There you go. Just do it. Thanks for listening. We’ll catch you soon on the next one. Bye for now.

Rachel Gonzales: Bye for now.