Episode 68: 5 Mistakes That Sabotage Your Profits

Episode 68: 5 Mistakes That Sabotage Your Profits

The first mistake that we think that our salary is something that should be paid off out of the profits. And then, we have a situation in which there is no profit, so we as business owners have no salary. And, this is the main problem thinking that our salary is something that we should have from the profit, and we do not treat it as a cost.

Susanne Mariga:Welcome to the Profit Talk Show. In this show, we’re going to explore strategies to help you maximize profits in your business while scaling and creating the lifestyle that you want as an entrepreneur. I am your host, Susanne Mariga. I am a Certified Public Accountant, a Certified Profit First Professional and a Certified Tax Coach. And today, we’re going to talk about strategies to help you maximize profits in your business. 
Susanne Mariga:Hello Profit First Entrepreneurs, and Thought Leaders. I am so excited today. We have a very special guest. She is reigning from Poland. Her name is Anna Kupisz and Anna, I want her schedule. She likes to travel all around the world, lives in different parts of the country, and I like Anna because Anna is, first of all, she is a best-selling author. She’s also a very successful businesswoman, and she’s a CEO of three companies, including Softway LTD and Foundation with Initiative. Now, Anna’s background is a financial strategist. She’s also a mentor with a background in economics and psychology, and she withdraws her wealth of experience as a businesswoman to really help companies turn around that have traditionally experienced low profit in order to achieve much higher profitability. And today, we have an amazing conversation, and we’re going to talk about the 5 mistakes that you guys make as business owners that sabotage your profit. So, please join me in welcoming Anna to the platform. Hi Anna, how are you today?
Anna Kupisz:Hello. Thank you for having me here. I’m really well. And, I’m really excited about our podcast, about our conversation. I can’t wait.
Susanne Mariga:It’s definitely a hot conversation. And, I think any business owner is smart to want to avoid those traps and just not aware because most companies don’t share their trade secrets, and they don’t share their learnings. So, today, we’re going to uncover that, unravel that and get down to the five mistakes that business owners do that absolutely destroy their profitability and sometimes takes years to overcome. So, by you guys knowing this, you’re going to avoid these mistakes and definitely achieve that profitability much faster. So, Anna, tell me about it. What are typically the top 5 mistakes that happened?
Anna Kupisz:Well, maybe I will start with the first thing that we are convinced that we can make money, and we can make more profit only when we are selling more. This is the main problem because very often, I know different situations in which entrepreneurs have high revenue and a low profit. And, very often they even struggle to pay themselves a salary. And, I think that this is the first mistake here. The first mistake that we think that our salary is something that should be paid off out of the profit. And then we have a situation in which there is no profit, so we as business owners have no salary. And this is the main problem thinking that our salary is a something that we should have from the profit, and we do not treat it as a cost.
Anna Kupisz:However, if we are not Richard Branson that have his own CEOs in his own companies, and he just check the financial statements each quarter, but we really work in our companies, then that means that our salary is a cost, and it should be treated as a cost. And, what is more? We, as business owners, we need to be able to pay ourselves a salary because we just need to keep well ourselves motivated. We cannot be frustrated because if we are frustrated, if you’re depressed, then the company sooner or later will be closed down. So, this is the first thing, treat the salary as a cost. And, this has huge consequences when it comes to calculating the price because then you will start calculating the price or setting the price differently because price consists of the steel elements, the costuming and margin.
Anna Kupisz:So, if you incorporate your salary into costum, then you will know that for sure because the costum that is responsible for covering all the costs that you need to have in order to deliver the product to the market. So, it’s not only the production cost, it’s not only the item, no transportation costs, it’s not only the cost of time you spend with your clients, it’s also a certain percentage of a fixed cost. It’s also a certain percentage of the salary. And then, you have a margin and margin is responsible for creating profit. It cannot be eaten by different costs that you have in your company. So, if you treat your salary as a cost, then you will incorporate it in the custody of your product and service. So then, margin won’t be eaten by different costs. So this is the buyer by different customer here.
Anna Kupisz:It’s your salary. And, when I see small companies, the salary of the owner is the biggest cost in the company, usually, especially at the beginning,  we cannot treat it as something that can come from the profit. So, I think that this is the first mistake. I think, a very easy to fix. Just remember, this is the cost. This is not something that you pay yourself out of the profit. So, this is the first thing.
Susanne Mariga:I love that. You’re absolutely right. Too many business owners create a job for themselves and their business, and they don’t realize that in the long run, when you’re ready to sell your business, nobody wants to buy a job. They want to buy a business in a box. Something that can run without them, not a job. And so, if you look at yourself as being an employee of your business, where you actually have a salary, meaning that if you had to step out, because you got hit by the proverbial bus, or as I talk about in my book, about my back going out, and I had to suddenly find another Susanne to get these tax returns done, just being able to replace yourself, you need to have that salary because without you being the MVP, the most value player, you have no business. So, you got to always be able to reserve for that. So, that’s an excellent idea, Anna, to make sure that they are intentionally setting aside money to pay themselves a salary because whether they’re taking it themselves or somebody else is taking it, it needs to happen. 
Anna Kupisz:That’s true. It’s so obvious when we talk about it, but at the same time, I remember myself 10 or 12 years ago. It wasn’t so obvious to me, just I was taught in this way that when it comes to the business owners, we pay ourselves from the profit, but then there is no profit, especially during first, two or few years when we were on the market. And then, we calculate differently the break even point because If our salary comes from profit, then also we will calculate differently the break even point because we think that we break even when we cover all the costs, except for our salary. Now, when we calculate the break even point for our company, we will include salary here. So then, we will calculate how many clients we need to have, or how many products we need to sell in order to break even.
Anna Kupisz:And then, we will know, “Okay. If I break even I will have salary for myself. I won’t be fighting for surviving in the business. I will be able to run it. I will be able to grow it. I will be able to work on generating more profits now.” So, this is the first step. Look at your salary as a cost, then you will recalculate break even point. How many clients you need to have, how many products you need to sell in order to break even, and then you will be able to work farther. So, this is the first thing, but here also is the second thing connected to the salary because it is why, but when we run our own company, we have this approach in which we downgrade our needs to the absolute minimum.
Anna Kupisz:And then we say, “Okay. So for the first two years, my salary can be something like $1,000 or 2000 pounds or 1,500 euros.” And when I talk to my clients and I ask them, “Can we really calculate the cost of your lifestyle? How much money you really need from month to run like a nice life? Maybe not luxurious one, but just nice decent life.” And then, it’s not $1,000. It’s not $2,000. Very often it’s something like $4,000 per month. Sometimes, it’s even $10,000 per month. It depends. And, then again, if you downgrade your salary from the very beginning, then while calculating the prices or even while calculating the breakeven point, you will have false numbers. Your prices will be too low. The breakeven point will be too low.
Anna Kupisz:So, if you calculate the number of clients you need, again, it will be too low, so count or other stopped and grading your own needs. So, think about the salary you really want to have, think about the salary you want to have in the next 12 months even if at the very beginning you won’t be able to pay yourself exactly the amount you want to have, but still your prices will be set up correctly, lots of calculations in your company will be done properly, and when you downgrade this at the very beginning, you made the mistake between you and your company, really.
Susanne Mariga:I definitely can see that being true. I remembered there are clients that would come to me, and they would be making $30,000, $50,000 a year. And they would be making that consistently for years, and they always would have this excuse that we’re a startup company, we want to keep reinvesting so that we grow, and it’s fine when you’re a startup like your first year, but two years, three years four years, five years, and you’re still the same place, there’s something wrong with that. And, what happens is, there’s somebody that’s supporting that lifestyle, whether it’s a spouse that’s supporting that lifestyle, I hope that hopefully none of y’all still live with the parents out there, but somebody supporting your real lifestyle. S,  just like Anna says, make sure that you have a realistic salary that you need in order to meet your life goals. And then, you factor that in into how you’re going to position your company so that you are able to meet that and cover that salary.
Anna Kupisz:This is extremely important, like we’ve talked a little bit about the prices, because of all, if you see your salary as a cost, and then if you calculate properly the salary, then you can calculate the prices because here, this is the huge mistake we do. And usually when I meet entrepreneurs, they have different strategies when it comes to pricing. My favorite is something that I call, I Feel The Price. I feel the price means that I feel that the best price for my product is $500, or I feel that the best price will be $20, or this is I feel, no data, no calculations, just I feel, and of course the feel or the feeling is, I would say influenced by our self-esteem is influenced by our competition.
Anna Kupisz:But at the same time, for example, because very often we look at our competition’s price, and we look at our competitors, and we say, “This will be my price, may be a little bit lower than we can see on the market because then I will attract more clients.” However, when you set the price again, you need to remember that the price consists out of those two elements, the costs you need and the margin, and when it comes to the costum that we can really calculate it. We can just gather all our costs that we have business costs, plus our salary. We can add to that our variable cost when it comes to all the products that we have or services, and then we can calculate how much money we really need when it comes to delivering this one service or one product to the market, including marketing, including time.
Anna Kupisz:We spent acquiring new clients, including the service after we sell our product, so everything. And then, we will have the absolute minimum price we can offer to the market because the customer needs of a product or service means if you sell at this particular price that is equal to the cost you need, then you will break even. And that means that this is the absolute minimum price you can offer. If you offer a lower price, well, you will generate loss, of course, with this cost you need price, I call it like that, you cannot offer any discounts or any promotions, because again, you will create loss. And very often, people are just not aware of that. They set the price regardless of the cost that they have in their company. And then, they offer different promotions, and they are not even aware of the fact that they are selling below costs.
Anna Kupisz:Yes, they are selling below cost unit. And when I talk to or when I work with my clients and I do the whole analysis and I recalculate everything, and then I show them half of your products you saw below the cost unit, it means that half of the product generate loss, simply generate loss. You need to have at least $1 margin in order to generate profit, and you have no margin at all. So, this is something I would like you to know because this is the third mistake, we do not set the price, we calculate the price, so we can calculate the first element, and we can calculate the margin, taking into account our financial goals, taking into account of what I call marketing infrastructure we have because if we know that we can reach 1000 clients within a year then well, for sure, we cannot set the price in such a way that we will be able to meet our financial goals.
Anna Kupisz:Only if we reach 2000 clients. Well, at this particular level, you’re not able to reach 2000 clients. You’re only able to reach 1000 clients, so the price needs to be higher. So, if you first calculate the price, I know that for some people it’s like, first, I need to calculate the price. Well, yes, because if you know your price range, then you can choose your products wisely. What you can sell, and what you can’t sell because just simply know what kind of products or services you need to create, develop, built, whatever, in order to be in this price range. And then, if you know the price range, you can break even, and even meet your financial goal, generate the profit you want, then you can choose wisely your client segment. When it comes to the client segment, one of the elements that distinguish different client segment is the level of wealth, the level of money they have in their budget for your services. So again, you will be able to choose right client segment. So, pricing and just calculating the price is extremely important because it just affects the client segment that we have and the products, the way we deliver different products, the way we choose different products or services for our customers. And, I think that this is extremely important.
Susanne Mariga:Definitely. So, Anna, what do you like to normally see from a margin? Do you like to see four X, five X? What is your ideal target for margins?
Anna Kupisz:Well, I would even say that I can do it even differently. First, I set the financial goal and if the financial goal is set the breakeven point and the profit. And, if I know that, for example, my financial goal is let’s say $1 million, and I know that I am able to reach like 1000 clients within a year then, I will just divide this 1 million by 1000. And now, I know what’s the price range. That is good, really for me. And now, I will start thinking about different services or different products that are within this range, and I will start calculating the cost unit. And, I will see what is the real margin that I have, but I know that if I have a product or service within this price range, and I will sell like 1000 of it, I will meet my financial goals. So, this is from my perspective, I can say the higher margin, the better. I would even say like, usually when I calculate the margin with my clients, as you said, it’s even five or six times higher than the cost you need.
Susanne Mariga:I love that. That’s definitely great. Once you get below four X, you’re usually struggling with that. And, it’s hard, too, because a lot of people are afraid to raise their prices because that positions them in a lot of times, much higher than the competition. But at the end of the day your competition, a lot of them are not profitable because what I say, 80% of small businesses fail in five years. And, it’s for you to lead that market. It’s better to just spend that effort and positioning and making sure that you’re positioned well in order to become profitable in the long run. So, Anna, tell me, what else happens to sabotage profitability in a business?
Anna Kupisz:Well, the fourth mistake really is all about managing the money now. So, first of all, we need to remember that we need to have sales targets that are calculated properly, and this is the first step to manage the money because even if we calculate sales target for the whole year, we need to remember that we need to break it down into months or quarters because we need to have the cashflow. So, first of all, we need to see how we can set the sales target month by month or quarter by quarter, depending on the business that we have. And, what are the possibilities, if this is like a seasonal business, or if we are able to sell a different number of our products each month.
Anna Kupisz:So, this is all about breaking the financial goal that we have into sales targets, especially that we have, for example, more than just one product or more than just one service. So, we need to think how much money we want product A to generate, how much money we want the product B to generate, how much money we want product C to generate, so, altogether they will generate a financial goal that we have. This is the first thing we need to divide. We need to decide how much money different products will generate when it comes to our financial goal because if we don’t have it, if we don’t have sales targets, we are not able to calculate the easiest conversions. So we are not able really to plan any marketing campaigns.
Anna Kupisz:Deciding the sales target is nothing different from preparing a sales plan. And, again, it’s about numbers. Very often people just have this approach, “I want to sell as much as possible.” Yes. But when you have the sales targets, sell as much as possible, then it’s quite difficult to really build any marketing campaign around it because I need to know and any marketing agency needs to know how many clients you want to have because we need to calculate how many leads we need to deliver, then we need to calculate how many people we need to reach with our different ads. I was like, tell us this information, what’s the absolute minimum that you want to have? We want, of course, to sell as much as possible, but we need an exact number because it’s kind of compass for us.
Anna Kupisz:So, this is an extremely important thing. And, this is the mistake number four. How can we start with our profit if we don’t calculate sales targets? Then, how you want to generate money, how you want to generate your financial goal and generate the profit. If you don’t know how many products or services you need to sell each month, for example, you just don’t know it. You have no sales plan at all. And then, it’s impossible even to create a marketing, it will be creative work, but it’s really possible that the numbers will be totally different at the end of the year that you want to have.
Susanne Mariga:I love that. That’s so true. Just really starting your end goal and algebraically going back and go, what must happen for that to be true? What does my total revenue need to be? And what is their actual stratification if I offer different products or different services that I need to sell in order to do that? And, I’ve led sales teams. You guys may not know that. And, if you do not give your sales team targets and goals, you will not meet them. And you may fall short of meeting your target and sales goals, but at least, once you have a goal, everybody is working towards that goal, and you’ll get a lot farther when you have a goal than when you don’t have a goal. So, definitely, do that algebraic calculation from where I want to be to what needs to happen to get there. That’s a very good idea for that. Thank you for sharing that, Anna. And then, what is the last thing that needs to happen in order to stop sabotaging your profits?
Anna Kupisz:Well, the last thing I think that it’s the most important thing and the most neglected at the same time is creating financial plan. Just simply creating financial plans. I think you understand it perfectly because we just need to know what kind of costs we will have each month? So, what is the absolute minimum revenue we need to have each month in order to cover it? The other thing is that, if we decide about the revenue that we want to have each month, and we know what kind of cost we will have each month, then we can calculate what kind of profit we will have each month, and then, if we have this financial plan, for example, we fail in meeting our targets let’s say, in March, then we can see when we update the financial plan with the real data, then we can see how this one failure affects the whole financial plan.
Anna Kupisz:So, we can simply see that, “Okay, next month, we won’t have any problems in two months. Also, we won’t have any problems, but in three months we will have a budget hole. So we need to think what we have to do in order to generate more money within the next two-month, so we can avoid the budget hole.” So, a financial plan makes the business more predictable because running the business is not about firefighting. If you don’t have financial plan, you will just fight every month for covering all the costs. And, sometimes you will have more money, but you even don’t know if you can spend them, or you don’t know if you have to keep the money in your company, you know nothing. And, this is why we need the financial plan.
Anna Kupisz:Financial plan makes the business predictable. You can just simply see what will happen in next month. However, I don’t know what’s your experience, but very often I meet entrepreneurs that say that financial plan is good for corporations or big companies. The financial plan will tell you if you can afford to grow your team, if you can afford to invest in your company or when you can invest or what you need to do in order to invest. How much more money you need to make in order to invest in your company or buy a new car or employ another person to your company. So, this is the most important thing that we need to start doing immediately in our companies.
Susanne Mariga:I love that. So, business owners stop skipping on your accountant, and you need us, you can’t see where you’re going without those numbers. You need numbers in order to calculate margin, to create a plan of how to get where you’re going. So, stop skipping on your accountant and stop trying to hire the cheapest one because they’re not going to be able to help you with that because you need a financial plan. That is absolutely awesome. Thank you, Anna, for that. That amazing information about how not to sabotage your profits out there. Now, as we wrap up today, one of the things that I love to ask our guests is, if you could leave our guests with one piece of advice, it can be personal, it can be business-related, and you wrote an amazing book, maybe we can talk about that a little bit, too. What would that advice be?
Anna Kupisz:Well, I would say just to all the entrepreneurs, just remember that business is about more than just surviving, it is about thriving. And as you said, you just need to focus on your numbers, and you figure sooner or later they will catch you. As you said, start cooperating with your accountant. Accountant can deliver you all the numbers you need. Then, you can just simply start thriving in your business once you know your numbers, and you just simply know what kind of business decisions you can make, then you can thrive in your life. If you have money from your business, then you can start thinking about thriving in your life. And I think this is why really we start running our business. We want to thrive in our life either, it will be like better quality in our life, or we just want to impact like million lives in this world. We need money to do that.
Susanne Mariga:Exactly. It’s a sad thing when you look at the statistics like how many business owners sacrificed their lives when they frankly could have made more money working on a job, and probably had less stress. And so, to get out of that hamster wheel, what happens is, you have to really start with the end of the mine and then create that reality through the use of your numbers, and then align that to your action. So, Anna, in terms of like, how do we reach you? How do we find you in order to ask more questions to work with you more?
Anna Kupisz:So, first of all, of course, you can find me on my website. This is AnnaKupisz.com. However, it may be easier to find me even on Facebook because I run my own group on Facebook and this is called a Wealth Expanders. So, it’s all about creating wealth in your life. So, then you can either make your dreams come true or carry on with your mission. I’m live there each week. So, probably this will be the best place. Just join my group or visit my website, so you can read different articles. You can watch my show, training, so you can go there or just simply reach me via Facebook.
Susanne Mariga:Thank you, Anna. And, what I’m going to do is, I’m going to put Anna’s contact information in the show notes, so that you’ll be able to find her Facebook group and reach out to her. And, I thank you so much for joining us today and sharing just your wealth of information with our listeners and our viewers.
Anna Kupisz:Thank you very much for having me.
Susanne Mariga:Thank you.
Susanne Mariga:I want you to have your most profitable year ever. Yes, no matter what’s going on in the economy, no matter what’s going on in the world, you can have your best year ever. And I want to show you how. Join me in our private Facebook group where I will be hosting our Free. Yes. I said, Free Profit First Masterclass on Facebook, please join the Profit First Masterclass with Susanne Mariga. Again, I look forward to seeing you there and watching you have your best year ever.

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