YNAB for Small Business | Using Profit First in Your Budget

hi i'm ben and i'm ernie and i'm laura and this is budget nerds it was all in your mind you are not alone no you are not and ernie and i are not alone either because we have lara with us today welcome laura hello so happy to be here so happy laura is a part of the ynab team it works in support and right away at the launch of budget nerds reached out and said guys got to be on this show sometime so laura we are happy to finally have you on budget nurse i know it's true check our slack history between the three of us i reached out i said i just watched the first episode of budget nerds and i need to be on the show wow it was the first episode then awesome love it maybe the first or second yeah and we told you definitely at some point and 10 months later here we are all right so you need to reveal your nerdiness right so prove to us all that you're a budget nerd actually you don't need to prove anything but why don't you just kind of tell us a little bit about the ynab jersey uh journey so you know when you discovered ynab and then maybe when you started working at ynab and all that good stuff yeah sure well i wish i had a perfectly documented you know history of exactly when i found ynab but i don't fully remember i think it was a facebook ad or something like that i had already been using quicken for a while and i don't even remember why i decided to switch or anything but i got into ynab i believe it was 2013 it was in the days of ynab four and i just you know i just really liked it and i just immediately fell in love with it um so i've been using it ever since then now you said quickly and yeah and i immediately i immediately switched to the web version when that got released in 2016. i think my yeah my old budget started on january 1st 2016. so that was pretty sweet it was the same for me i remember i was skeptical and i like set it up and i was like i'm gonna run my y94 budget and my and the web one i'm gonna do both for a little while and then i just i i got used to pretty quick and switched over so yep well it's funny and it's funny because i you know i used windup four for a couple years but at this point like i barely remember it it's like it's lost in my his in my you know in my mental memory so i'm all for still have it the current one on my computer and i'll pull it up every once in a while just to just for a nostalgic trip wow that's impressive that's a true budget and to also further prove my nerd status i used to binge the white board wednesdays when those were a thing guilty that was my dress those were awesome yep yes if you don't know what whiteboard wednesdays are jesse used to come on with a whiteboard and it's so nerdy i mean it's not like the original the og budget nerd just sets that up oh yeah so you can you can imagine my utter delight when i got to visit the location where whiteboard wednesdays was filmed and i saw the whiteboard so that was pretty awesome it is a tiny room it's smaller than you think it's like a tiny little closet there you go so it sounds like laura that your nerdiness goes way back because you mentioned using quicken oh yeah so oh yeah back in high school days are you balancing your checkbook like how far back does this go um no so it all started when i was going off to college my parents had agreed to pay for a portion of my expenses i don't remember exactly what they were paying for but the agreement was we will pay for x percentage of your college costs and in exchange you will track all of your spending and quicken and review it with us every so often just to see how you're doing good so that was the agreement that's what got me started with tracking but it you know it it wasn't like they had to pull me pull my hair i really you know i took to it pretty easily yeah cause i couldn't imagine there's a number of parents who have done his daughter and their kids didn't track anything but you know and i actually don't really have any memory if we've ever if we ever actually reviewed the spending it just i just started you know okay i was responsible they just wanted you to get in the habit of that it sounds like your parents are pretty nerdy too that's pretty cool yeah they especially my dad he's been using quicken you know he still uses it to this day so yeah i might i stay with my dad i was he was using quicker forever just got my parents to switch over to y nab pretty great oh wow that's fun they're tired and they're like oh gosh we need a budget so uh so there you go so yeah shout out to you guys if you're watching but all right so laura true budgeting nerd now the reason we have you on the show because uh we want to talk business small businesses and ynab because your husband owns a small business right and you're very involved in that and so why don't you tell us a little bit about that small business and then your role in it yeah sure so my so there's a business called coder kids um it was founded by our friend jeff back in 2016. and my husband originally came on to work with our friend jeff as an employee in 2018 so after the business had been up for a couple years and he worked as an employee for i think i don't remember how long at least a year a year and a half and then at that point they actually switched their arrangement where he was no longer an employee and he was going to be a basically a licensee licensed to run our coder kids classes so we teach our you know teaches technology and gaming classes to kids both in person and online so at that you know at that point when the when the agreement changed my husband became self-employed and opened his own single member llc and so now we're technically self-employed but he still you know primarily only works for coder kids which is our friend's business yeah and then my role is i um basically do the why nabbing that's i wanted to be in charge of it so i i volunteered myself so i mean i i don't you know i'm not technically an employee of the or whatever i'm not technically able to play the business but you know i'm the wife so i'm in heavily involved and i do all the you know make sure all the category all the transactions are in everything's balanced in ynab and then i do run the payroll each week now i'm assuming i know the answer here but have you always run the business in ynab yes okay yes we have so that was it was june 2020 when we became self-employed okay so we started our business budget yep nice so the business has been around for a few years but you know our personal llc has only been around for about a year so you didn't feel the need to pull out quicken or anything like that in fact when you guys invited me on one of my hesitations was you know like i'm not a business expert like i've never used quickbooks i've never used really anything that most businesses use we just use wine up and it's working well cool cool yeah i think it can work really well for especially for smaller businesses yeah and it depends on the type of business as well i mean our you know we get we get paid in very regular intervals and it's we just we have very simple expenses so it's we don't have any inventory we have to track so it's very easy to use ynab now you mentioned well let's let's talk about pay yeah because you're kind of using the profit first principles is that right so yeah tell us a little bit about that i really don't know anything about profit first i mean i've heard it mentioned so profit first is a book um it's written by mike michalowicz and i don't remember where i first heard of it but i did buy the book when we started our llc and basically the book what its purpose is is to help businesses get their cash flow under control um and so if i had to summarize it and once again i'm not a profit first expert so go look up the book if you want to know more but um basically the principle is like you know how like here's an example like you know how if you have a project to do and you have a week to do it you'll basically probably take that whole week to finish the project but if you have one day to do it you'll figure out a way to do it in one day right so it's kind of this principle that you know you're going to fill up the space you have or you're going to demand is going to fill whatever area it has to work with that's the principle it's based upon and so this book teaches you how to um you know once you have your initial revenue that comes into your business typically you know that the typical definition of what profit is is like you have your revenue then you subtract your expenses and whatever is left over is your profit that's the traditional definition and this book tries to flip that on its head by basically saying here's your revenue now before you do anything else set aside a percentage of that for your profit set aside a percentage of that for your taxes set aside a portion of that for your owner's pay and then what's left over that's your expenses you have to run your business on what's left over so that's kind of the basic framework of it and it works super well with ynab i mean i think ynab and profit first are just like they fit together like hand and glove it's almost like the rich dad poor dad like pay yourself first principle kind of thing but it's like for business right you you you pay yourself and then you work with what's left over instead of doing all your stuff and then working with what's what's left over after you run your business exactly that's really clever you know and since we just you know since we started our business with these principles in mind at the beginning um and luckily our business has plenty of margin so that it wasn't too difficult but you know right from right off you know right out of the gate we already know this is how much money we have to run this business we got to figure out how to do it right right so does that help with the the variable income because you know you talk to self-employed people and they're always pulling their hair out because their income is all over the place absolutely i guess because you kind of have more of a steady personal income out of your business right yeah so you know we have a i have a pretty systemized process i go through each time we receive our revenue from coder kids because like i said we get paid a portion since we're licensees we get paid a portion of all the businesses revenue so that comes into our bank account and from there i distribute it into our wine up categories according to our percentages that we've set from the ref you know from the recommendations from this book that's where we've gotten kind of our first set of percentages that we use so you know um the percentage that we put into our owner's pay category that's the category that we can pay ourselves from so whatever's in that category is you know i don't want to say guaranteed but you know it's set aside to be for us to pay us to pay ourselves and then from there we have like a certain amount that we give ourselves per week and so i can look at that category anytime and know like how many weeks of pay do we have for ourselves because i can just take that number and divide it by you know the amount that we pay ourselves per week just to see how far out we you know we have some have our salary interesting and then like on the personal side it just makes things a lot easier oh yeah because on the personal side it's like we're getting a steady paycheck on the personal side you know every week i'm depositing the same amount from our business every week i mean unless something unless we're going through a really slow time and that owner's pay category is getting closer to zero then you might see some fluctuation there but if it's a healthy amount in that category yeah you're seeing the same amount every week in our personal budget do you get paid like how regularly do you get paid uh on like does the business get paid uh yeah so our so our llc we get paid once a week so i do this whole process once a week okay okay i'm curious what your category structure looks like because you have all these buckets it sounds like you're dropping money into the budget probably has to be organized around those right yes absolutely yeah so i think ben's probably gonna put some screenshots up on the screen but um basically you know i have a category at the top called income and that's where i put the money whenever money comes into our checking account i put it immediately into that income category because i cannot leave money and ready to assign it's like right now i think you guys have talked about that before but yeah so any money that comes in that's where it goes and then um the next category you'll see on the list is our contractor fee so if you read the profit first book you'll read that before you do any of your percentage um distributions you first have to pay your contractors because those are the that's the payment that gets you your revenue in the first place so we pay our contractors yeah exactly so we pay our contractors first and we um you know we every week we'll have our our instructors who teach all of our online courses they submit their um they submit their timesheets of how much they need to be paid so then we know how much to pay them so i move money from the you know i act well actually what i do since we're getting nerdy i'll just tell you exactly what i do yes so i put the money in the income category and then i move it back to ready to assign when i'm ready to actually do all my budgeting work right yeah so the income is just exactly the place and so so first i have to move money to contractors to cover you know our weekly bill for them and then from there i split it up via percentage into our other section so some goes to profit some goes to taxes some goes to owner's pay and then the rest goes to operating expenses for the business and it's interesting so i guess you kind of have this arranged by by priority and you put the contractors ahead of owner's pay because like you said you're not going to have a business if you don't have these contractors or if you had regular employees it'd be like a payroll well regular employees are different they're down in the office area because that oh so you have a good voice too well we have one assistant so we know we're very small but regular employees are different because that's a that's a labor cost that doesn't change depending on how much revenue that comes in whereas contractors literally like if i teach one class we have to pay one instructor if we teach two classes we got to pay two instructors so it's a proportional to the amount of revenue that comes in so that's why that's good so for your assistant you can kind of just have a target and it's just yeah exactly she gets paid about the same every week depending on her hours of course but um yeah so that's more of a steady a steady expense interesting okay yeah but the but the contractors are you kind of put that at the top because you know when you're distributing the income yes yes that goes first and then and you'll and you'll notice that i don't know i mean i don't know if you can see this on the screen but i've actually moved the profit and taxes category to the very bottom of the budget because those are like the do not touch categories you know for this system that we're using to really function well you've got to put money in those categories and it is sacred do not touch those categories if you do you're messing with the ability to pay your taxes you're messing with the ability to have value coming out of your business you know for a profit distribution so i like to set those at the bottom and you know they don't even need really need to be looked at very often let's start uh i have lots of questions i'm so curious about it let's talk about the difference between owner's pay category yeah and profit because i think when you own a business and you're also paying yourself a salary i think there's a lot of confusion about what's the difference between profit and like a salary for yourself yeah and yeah sure so once again i'm not a business expert but you know we learned you know in reading the profit first book we learned that you know in order for like a business to really serve you and be a blessing to you you need to be able to pay yourself from this business and not just like reinvest every single thing that you know every single leftover dollar back into the business i mean some people choose to do that some people choose to go without a salary for a while to build up the business but that's we weren't we weren't in that situation and we needed to pay ourselves so um yeah so that's that's kind of the idea behind owner's pay is you know you have to be able to pay yourself in order to keep operating the business and you know supporting your family um and then the profit is as far as i understand it that's just like making sure that the business isn't eating up everything it brings in it's like that little crush yeah it's the profit i mean there's no other way to really describe it it's that cushion and what happens to that category is in the profit first system every quarter you take the money um you leave half of that money in the category to just sit there as an emergency fund for the business and the other half you get to take as a distribution for yourselves to celebrate cool okay yeah yeah because you have like two roles in your business i mean or at least your husband james does like yeah james is is a employee of the business technically because he works in the business so you get the salary for that yep and then also the owner so as an owner you get a distribution of the profit yes yeah so that's really interesting so i'm curious so it's a and so this system is good because it's like it's a way to help ourselves know ourselves what we could realistically pay ourselves as owners pay without jeopardizing other aspects of the business now backing up a few comments you mentioned some of those sacred untouchable categories um i'm curious do you take that extra layer of protection and maybe put that money in different accounts or do you just kind of keep one business account that everything runs through that's a really good question so there is one way that we do not follow the profit first method to the t and i and i will be heretical for saying this but when using when using profit first according to the buy the book you would have separate accounts for all of these categories because most people maybe don't have ynab so right they would they would have a separate account for taxes separate account for profit a separate account for owner's pay you know so the book i think in like the first or second chapter of the book they're telling you go to your bank and open seven checking accounts wow and so that can that can really really work for some people and kudos to those who that works for that's awesome it helps you kind of break that habit of bank account budgeting you know which is one of the things that wine up helps people break too but for us we just didn't really feel like we needed it because we're just such power wine abbers that the categories is enough for us and we check we don't spend based on our bank account balance we don't have a habit so i guess in reading the book they were saying that lots of business owners might have a habit of checking their business checking account balance to make decisions about the business but we don't do that because we're wine ebers so we just check our categories so that's enough separation for us that makes sense i mean essentially creating a new category in your budget is like creating a new account in real life it's just it's just none of the hassle of i've seen i've seen other people on youtube i've seen another wine ever on youtube who also follows profit first who did open up a tax account just for an extra layer of protection there's nothing wrong with that right yeah yeah and i mean and if you're running a business that you know gets to scale you might get to a point where you're like i'm a little uncomfortable with how much money i have in this one account you know this might be good separated yeah and who knows maybe we'll get to that point we're not there yet but we feel comfortable with it all being in one checking account yeah well it's so cool because you can do the private first without having to go to your bank and open something checking your accounts which just gives me anxiety like i i i oh gosh i don't want to i just don't want to deal with yeah yeah like i've just just gotten so used to using it and why not you're just so much more nimble which that and that nimbleness might scare some people who don't you know aren't or maybe just first using wine app or yeah or don't especially if you don't have wine up at all that's the only way to separate your money you know so yeah that's really interesting that's kind of a summary of what we do so that's what i do every week on saturdays as i allocate the money into our categories and i pay the contractors with our payroll system and then my very favorite part is getting to see like how much do we have in profit how much we have an owners pay what do we have in our operating expenses you know that's the fun part so it sounds very similar to just running a personal budget in ynab i mean are there any differences between personal business i mean just ways you need to approach things or is it all the same i mean it's pretty similar i mean it you know in terms of it's it's all wine up so it's all categories it's all moving money um i would say the biggest difference is probably just there's a little more structure i don't know though because we have a lot of structure in our personal budget too but you know with these very specific percentages that we're trying to so that's that's a little bit of a difference in the business budget i have you know the only percentage i think i have in my personal budget is tithing that's kind of a sacred percentage but other than that you know i don't have a percentage for housing or food or anything like right you're probably just using we have targets on our categories like normal right targets there and then percentages on the business that makes sense and i guess you know if your business got real big or maybe you even took on like another i guess another job and there's like another you got paid by another business or something like that um you might need to change up your structure a little bit but it has a small business i'm sure this is well and in the profit first book it gives you percentage suggestions based on the size of your business so as your business grows your percentages actually would change right right yeah and it's funny because jesse's talked about this a lot you know how he was like having a cash flow problem at the beginning of of the ynab business and he's like i'm just having this problem and he was like wait a minute i have a product that i created that helps with cash flow problems it started using wine up for business but now i mean we still use wine for for a lot of our our budgeting but we need some other tools because uh they have we have to do accrual accounting it's a whole thing it's like yeah i don't know what all that's when you get bigger you get complicated right right so so but yeah especially for small business it's it's definitely all you need really so what are some of the other resources obviously profit first made a big impact with you and your your husband james other business resources just to stay sharp um i would say that i'm really loving the beginning balance podcast with jesse and mark i'll plug that for ourselves yes i've um to all the episodes yeah they're just really they're just too smart guys you know and they and they don't just talk tactics they even talk like emotions behind it all which is really cool um yeah if anybody doesn't know we have a new podcast uh we've had the wine app podcast for years and years and years but now now we're a fleet of podcasts we have two and we have a podcast called beginning balance with with jesse and mark butler so uh yeah check that out we'll put a link in the description bring it off um and other than that i'm trying to think you know there's lots of business books out there that can be great um my husband's right in the middle of a book right now the four hour work week by tim ferriss he hasn't finished it yet but so far he's finding a lot of interesting insights there in terms of how to automate things and just get out of the small stuff and thinking bigger picture i think that's that's our challenge right now is with the stage that we're at my husband's kind of basically doing everything you know he has one assistant but he's basically doing everything and he can get really bogged down sometimes so that's our you know we're kind of on the hunt for resources to figure out how to get him a little bit more out of all the day-to-day stuff yeah that's what i was gonna ask you is like what what do you see happening like do you think you guys might grow or like you might hire more employees or what are you thinking yeah i think we definitely want to grow um we were just we actually just had a um a coaching call with mark butler which was pretty awesome oh cool and um we were talking about what maybe our next step might be for our business and we think that we need to focus on marketing is our next step because we don't really have a we don't really have a great marketing strategy right now so we need to get that in place and just get more customers coming in that's our next our next goal i guess you need a new category right i know right well now you're going to get on the podcast circuit right you appear on budget nerds yeah we'll see about that we'll see how this episode goes if it gets zero views we'll know just kidding well let us know if you like this let us know awesome well thanks so much guys if anybody has questions about um about using ynab for business uh let us know we'd love to hear more and we're i think we're we're moving in this direction to talk more about this because we found there's a lot of people already doing this people like laura people like uh i'm sure a lot of you budget nerds are using using the ynf for business so let us know what you're doing i'd love to hear it cool well thanks so much laura really good having me on the show yeah thanks for having me it's a lot of fun all right everybody happy budgeting bye see you later

2021-10-01 02:28

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