Keep more money by focusing on these 3 things

The number one way to increase profits (and what profit even is)

The real secret behind every 6 figure biz on IG

What profit percentages are and what yours should be

I get asked this question a lot "what should my profit percentage be?"

So often in fact, that I recorded an entire episode around what profit percentages are, why they're important, and what yours should be. Listen to episode 34 here.

You might not like my answer because it's not exact. You'll start to notice that trend with me. Accountants typically love precision and exactness, but I am different. I like custom fits and flow, so here's my answer:

Your profitability is unique to your business and your business alone.

Let's back up and clarify that when I'm speaking of profitability I'm talking about your profit percentage which is profit divided by sales and essentially shows you how many cents you got to keep per dollar of sales made.

Example: You sold $10,000, but your costs were $4,000. That makes your profit $6,000 and your profit percentage 60% (6,000/10,000).

Soooo.... is that good?

You tell me. 🤷‍♀️

How did it feel?

First of all, if your profit percentage is 60% and you made $100 of sales, the answer is going to be different than if your profit percentage is 60% and you made $100,000 of sales, right?

But another thing to consider is how much you had to work for that.

I have clients who earn $50,000 of sales a year, keep 80% of their sales as profits, work full time with no team members, and wind up with $40,000 for themselves (before taxes, of course).

Comparatively, I have clients who earn $625,000 of sales a year, keep 30% of their sales as profits, and wind up with $190,000 of profit for themselves while working part time.

In these examples, 30% profit seems arguably better than 80% profit, but the truth is there's not a "better" option, it's just the one that feels right. Maybe the one working full time and making $40k profit loves her job, hates managing a team, pays all of her bills and then some, and is happy. In that case, she's doing everything right.

My point is, there is no exact science to how you run your business.

All that being said, profit percentage is one of my favorite metrics to share with clients!

Why? Because you have something to compare YOURSELF to. You can watch your percentages rise as you lean into what works or you can watch your percentages fall as you grow a team and kick back your feet, but a drop in profit percentage doesn't always mean a drop in profits.

I hope you find this tip more freeing than frustrating, as you learn that the only person you are in competition with is yourself and it is impossible to mess up as long as you are progressing.

Separate business & personal funds - the #1 tip to making bookkeeping quick & easy

Why Keep it Separate?

Keeping business and personal funds clean and separate allows you to potentially get a bit behind on your bookkeeping without it hurting so badly. Once you do go in to play catch up, at least you’re just tallying up income and expenses in one easy to find place.

Keeping things separate also ensures you properly report your business income and expenses for tax purposes, which is important so you not only know the true picture of how your business is operating so you can make informed decisions, but so you don't run the risk of:

Overpaying your taxes by missing deductions (Uncle Sam won't complain but. your wallet will)
Underpaying your taxes by missing income (no one wants the tax man knocking on their door)

How to Keep it Separate?

You can keep things separate by opening a separate business checking account and depositing all business income to this account and making all business purchases from it.

I recommend taking your business seriously and taking the time to get a true business checking account for this purpose. My personal favorite might be Chase bank. It allows you to connect to bookkeeping software, has good reports, can avoid bank fees by maintaining a minimum balance, can add a read only accountant for free, and you can send Zelle payments for business.

In the absence of that, using a separate personal checking account just for business is better than mixing up all your personal and business transactions.

If you use PayPal, you should have a separate profile for business and personal. Your business profile should only be linked to business accounts. You can edit this in PayPal under Pay & Get Paid > Banks & Cards > and then delete any accounts that are not business.

You can also open credit cards just for business. My favorite are Chase credit cards. More on that in another section and also in this podcast episode. (episode 27 of Profits + Prosecco: The Podcast)

No matter what system you use, just be sure to keep it separate.

What if you need to move money between your business and personal accounts?

If your expenses exceed your income: make a transfer from your personal to fund the business until it catches up. These transfers are equity "Owners Contribution", not taxable business income.

If your income exceeds expenses and you need some of that money to pay personal expenses: make a transfer back to your personal account and then pay your personal expenses from your personal account. These transfers are "Owner's Draw", also equity and not a deductible business expense.

Hope you find this tip helpful! If you have any questions, feel free to drop them in the Facebook Group, The Profit Pursuit Community.

Open a separate account to save for taxes

Set and review sales goals monthly

Use business credit cards to earn money

If you’re not using a credit card in your business, you are likely leaving money on the table.

Some people hesitate to use credit cards out of fear of debt or high interest limits, and believe me, I get that.

When you're disciplined and strategic, business cards can benefit you.

Recommended Listening:

Episode 27 of Profits + Prosecco: The Podcast covers how to actually earn money with the strategic use of credit cards. I've heard thousands not just in points, but in promotions using credit cards in my business, all while paying $0 of interest.

Click here to listen to the episode.

Recommended Reading:

I also wrote a blog on how to use credit cards while avoiding getting sucked in to debt and things to consider when getting a business credit card.

We want to ensure your business credit card will work for you versus against you.

Click here to read the full blog post

Here are some highlights:

Charge only what you can afford
Pay your balance in full
Get a card that earns rewards
Make sure the rewards category is the one that will earn you the biggest rewards
Sign up for a card when they’re running promotions and you’ll often get hundreds of dollars, if not over $1,000, in rewards for meeting certain purchase thresholds
I hoard rewards like a hidden savings account and redeem them on rainy days
If you ever accidentally miss a deadline by a day or two, call the bank and ask that they reverse the late penalty and interest as a one time courtesy based on your excellent payment history

My favorite cards are Chase Ink cards. Which one I recommend depends on how you spend:

If you run Facebook ads, I recommend Chase Ink Business Preferred, which offers 3X rewards for ads as well as a $1,000 cash back reward if you spend $15,000 in the first 3 months after opening your card. This card has a $95 annual fee, but is typically more than worth it.

If you are looking for 0% cards, I recommend either Chase Ink Business Unlimited or Chase Ink Business Cash. Both cards offer 0% APR for 12 months, have no annual fee, and offer $750 in rewards after you spend $7,500 in the first 3 months after opening your card. The difference is really only in the regular rewards. So compare them side by side and see which categories you spend in most.

How to stop paying late fees

How (and why) to manage receipts

When your business need more cash

Contractor or Employee?

Determining if a new hire is an employee or contractor is not a choice. It's a matter of which one the IRS would determine them to be and ultimately it comes down to control.

The IRS has a 20 point test to determine if someone is a contractor or employee.

The 20 factors are listed below (reference this article):

Level of instruction. If the company directs when, where, and how work is done, this control indicates an employer-employee relationship.

Amount of training. Requesting or requiring workers to undergo company-provided training suggests an employment relationship since the company is directing the methods by which a worker performs their duties.

Degree of business integration. Workers whose services are central to the business operations or significantly affect business outcomes are likely to be considered employees.

Extent of personal services. Companies that insist or demand that a particular person performs the work have asserted a high degree of control, which indicates an employment relationship. In contrast, independent contractors are typically free to assign work to anyone.

Control of assistants. If a company hires, supervises, and pays a worker’s assistants, this control suggests an employment relationship. If the worker gets to control the hiring, supervising, and paying of assistants, they could be defined as an independent contractor.

Continuity of relationship. A continuous relationship between a company and a worker indicates an employment relationship. However, an independent contractor arrangement can also be an ongoing relationship that spans multiple, sequential projects.

Flexibility of schedule. If a company gets to dictate a worker’s days and hours of work, this degree of control suggests an employer-employee relationship.

Demands for full-time work. Workers who work full-time hours suggests a company has control over most of their time, which indicates an employment relationship.

Need for on-site services. Requiring someone to work on company premises — particularly if the work could be performed elsewhere — suggest an employer-employee relationship.

Sequence of work. If a company requires work to be performed in specific order or sequence, this type of control suggests an employment relationship.

Requirements for reports. If a worker has to regularly provide written or oral reports on project status, they could be viewed as an employee.

Method of payment. If a worker is paid hourly, weekly, or monthly, this could suggest an employment relationship, unless the payments simply are a convenient way of distributing a lump-sum fee. It is more characteristic to pay freelancers upon project completion or commission.

Repayment of business or travel expenses. Independent contractors are typically responsible for paying for travel or business expenses, and most contractors set their fees high enough to cover these costs. In contrast, reimbursement of travel and other business expenses by a company suggests an employment relationship.

Provision of tools and materials. Workers who use company-provided equipment, tools, and materials to perform their work are more likely to be considered employees. Work largely done using independently obtained supplies or tools supports an independent contractor classification.

Investment in facilities. While independent contractors and freelancers usually pay for their own work facilities, most employees rely on their employer to provide work facilities.

Realization of profit or loss. If a worker’s earnings are predetermined and have little chance to realize significant profit or loss through their work, they are generally considered to be an employee.

Work for multiple companies. Workers who provide services for multiple companies concurrently are likely to qualify as independent contractors.

Availability to the public. If a worker regularly makes services available to the general public, they could qualify as an independent contractor.

Control over discharge. If a company has the unilateral right to discharge a worker, this suggests an employment relationship. In contrast, a company’s ability to end an independent contractor relationship generally depends on the terms specified in the contract.

Right of termination. Most employees can terminate their work for a company unilaterally without liability. Independent contractors cannot quit their work engagements without liability, except as permitted under their contracts.

What happens if you hire an employee?

How to pay contractors & 1099s

How to handle W9 requests from your clients

Things you can and can't deduct (and the risk and responsibility you have as a taxpayer)

For the most part, you are able to deduct expenses you pay from your business for the purpose of generating income that are necessary and ordinary in your line of work.

It gets tricky when the expense can double as a personal expense.

If you have a question about deductions, ask your CPA .

Here are some deductions and also things people often get wrong:

If you take the standard mileage deduction (see Business Mileage below) you cannot also write off gas.

Clothing for photoshoots is not a business expense if it can be worn personally.

Your Amazon purchases can be written off if you are purchasing office supplies or other business expenses, but your personal Amazon charges should be paid with your personal card.

Apps used for business can be purchased on your business card, but your personal apps should be paid personally.

Meals can be deducted if there was a business purpose, but a family and friends dinner or your morning coffee or afternoon UberEats cannot.

If your Amazon, Apple, Target, Meals, or Travel purchases are truly for business, you should swipe your business card, save the receipt, and document the business purpose of the purchase.

The risk if you get it wrong and whose responsibility accurate reporting of taxes are:

If you deduct expenses that are not truly for business, and you get audited, it is your responsibility to have receipts to back up your deductions.

If you have taken non-business expenses as business expenses and therefore underreported your taxes, you may be subject to having to pay the tax you should have paid, plus penalties, interest, and the cost of representation under audit. You should consult with your CPA regarding deductions and also understand your responsibility and risk.

You should also work with a reputable one, trust your gut, and do your due diligence in who you pick. Ultimately, proper reporting of taxes is your responsibly as a taxpayer even if you hire a CPA, so be careful who you choose. A whole riff on that is on episode 71 of the podcast. This podcast is spoken to bookkeepers, but completely relevant to you as a taxpayer and business owner.

Business Mileage

There are two ways to deduct auto expenses

The actual method - allows you to deduct the business use percentage of actual auto expenses including gas, maintenance, insurance, and lease payments or depreciation (a specialized calculation of the cost of your vehicle over time). The business use percentage is found by tracking all miles and dividing business miles by total miles driven.

The standard mileage - allows you to deduct 58.5 cents per business mile driven. This means that for each 2 miles you drive you can deduct more than $1 worth of income and save money on your taxes. This adds up!

My recommended method

I recommend the standard mileage method because it's less complex and less likely to get audited if you're doing it yourself. If you're working with an accountant, it's a good idea to ask them which one is right for you and exactly what you need to do to take the deduction.

My recommendation is based on the fact that my audience is mostly solopreneurs who might still be DIYing their taxes, and this way is the least likely to mess up while also still saving you money in taxes.

You need to log miles in either scenario

Tracking your miles is simple. You just need to note the date of your trip, where you went, the business purpose of the trip, and the miles driven.

My Google Sheets mileage log can be accessed on your smart phone and allows you to easily track miles without needing to pay for an app. It does all the calculations for you, whether you choose the actual method or the standard mileage.

You can purchase my mileage log separately (or it is included in the Small Biz Starter Kit).

The best time to log miles is when they actually happen so you don't forget or have to go back and figure it out later. I drop my destination in my GPS and take the calculation from the round trip and drop them in my mileage log and then forget about it until tax time when I can take the information off my log and use it to save money in taxes.

Easy!

What counts as business miles?

Simple! Anything that you're doing for business!

Examples are:

business meetings
networking events
shopping for office supplies
trips to the post office

What doesn't count as business miles?

Commuting does not count as business miles. Commuting is going from your home to your regular place of work. So if you rent an office or work for one client and make the same trip daily, unfortunately that is not counted as business miles. Traveling between clients or to different clients does count.

Something to be aware of

If you're choosing the standard mileage method, you don't pay for gas, oil changes, auto tag renewals, or car payments from your business. Those are all included as an estimate in the 58.5 cents per miles (for 2022, this rate changes annually) that you are allowed to deduct and claiming both can get you in trouble.

What is NOT included in the standard mileage rate that can be included is parking and tolls so be sure to pay for those from your business account when traveling for business.

Estimated taxes

Have me on your podcast

Have me as a guest expert in your group/program

Sign up as an affiliate for my Starter Kit

Kajabi - my marketing platform

ADP - my preferred payroll partner

Gusto - my 2nd preferred payroll partner

Google Workspace - professional, branded email

Bobby Klinck - legal templates

Chase credit cards - 0% APR and high incentive points

CRM systems for service based businesses

If you run a service based business you need a CRM (customer relationship manager). I'm going to break down what the purpose is, how to figure out which is best for you, what I use, and some discounts and promos of my 3 favorites once you find your fit.

Check out episode 68 on CRMs to listen instead of read. This is through the lens of a bookkeeper but can absolutely apply to any service based business.

What’s the Purpose of a CRM?

Before I dive into my recommendations, I want to talk about the point of a CRM or marketing platform in general. This will allow you to have an online presence and bring clients in to build trust and save time on both ends, for your clients and you.

There are five important elements that you need in a platform or system that allows you to bring a client from lead capture to quoting. They are:

Landing Page - A simple website - shows information about you and allows people to take the next steps in working with you
Intake From - Where you gather the information you need about the client to decipher if it’s the right fit on both sides and allows you to pre-qualify the lead.
Scheduler - This allows you to set times you can take calls and allows the potential new client to choose a time.
Contract System - This element allows you to send a contract to your new client and obtain their e-signature before working together.
Way to Get Paid - An element that allows you to get paid, set up auto-pay with clients, follow up on invoices, and so on. Automating this makes it a lot easier.

Quiz: Finding the Right CRM Platform for You

Each person has their own goals and preferences as far as CRM or marketing platforms go. I highly recommend taking my quiz at this point to see what your needs are out of a CRM, which will make the process of choosing a CRM or marketing platform much easier. Access the quiz here.

The quiz will take you to a result as far as what platform is best for you and a handout that compares these platforms to one another.

Here are some things that the quiz touches upon:

What do you want the platform to do?
Do you already have a website?
How do you feel about technology?
Do you plan to sell digital products for courses?
How important is budget for you?
Do you plan to blog?
Which bookkeeping software do you prefer and use?

This quiz can really help you connect which platform is best for you and your business based on your goals and what’s important to you, so I HIGHLY suggest you take it!

Platform Comparisons

Let’s get into some quick comparisons of these three different platforms.

Each of the three platforms I recommend allows you to do the following:

Create a client intake form
Receive intake forms and reply with a customized, automated email
Accepts payment directly to the platform
Set up auto-pay

Honeybook and Dubsado allow you to do the following:

Use a native scheduler (Kajabi does not have one, but I use a separate free platform for this)
Accepts electronic signature (Kajabi does not do this, but I use HelloSign for free or EverSign)

This is a quick and dirty comparison on some major feature differences I’ve noticed that I think are worth pointing out as you work towards making your decision.

My Experience With Kajabi

I use the marketing platform Kajabi. It has a few things that the other platforms don’t. Those elements are:

The ability to host an entire website - you can customize your site very nicely with this platform
Ability to sell digital products - This is a big thing for my business that brings in nice additional revenue for me.
Leverage Affiliates in Your Network - Kajabi allows you to use your clients as affiliates that refer people to your digital products, which is a great feature
Blog and Podcast Functionality - Additional functionality that will help you grow your business and drive traffic to your site
Email Marketing - Kajabi allows you to send out emails (not newsletters) in an easy and fun way. Nurture your audience with these messages with efficiency thanks to this feature.

For the cost of these, the breakdown is as follows:

Kajabi - $149 a month or $1,428 annually
Dubsado - $40 a month or $490 annually
Honeybook - $39 a month or $390 annually

I have special discounts and promotions for each of these:

Start your Extended 30-day Kajabi Free Trial by clicking here
Start your Dubsado free trial by clicking here. When it's time to pay, use code "katieferro" for 20% off
Take $200 off your first year of Honeybook by clicking here.

Important bookkeeping, financial, and general info you should know as a biz owner.

If you have any questions...

Oh hey, I'm Katie.

Profitability in your business