Master the 3 Most Important Resources for Your Coaching Business: Time, Money and Energy (with Jos Willard)

The illusion of “We've always done it this way” for coaching businesses 

If you're in operations, coaching, or helping others improve their business, you should already know this feeling. Are we stuck? No. We tend to get comfortable and resist change, especially in the online coaching world where everyone has a solution. When starting out and struggling to reach $10,000, $20,000, or $30,000 in monthly revenue, learning from others and trying different approaches can accelerate progress. 

Eventually, we discover what works for us. We find our unique way because blindly following others leads us to blend in with the crowd. But you've surpassed that stage. At this point in your business, you have a brand and mostly solid marketing. Perhaps you make minor adjustments for better effectiveness, but you and your target audience know who you are. It's tempting to settle into that comfort zone.

The business hierarchy of needs

We need to examine every business from a certain perspective. My preferred perspective is derived from Mike Markowitz, with whom I collaborated as one of his founding fixers on the "Fix This Next" book and program. It's called the Business Hierarchy of Needs, based on Maslow's Hierarchy of Needs. 

The first fundamental requirement for any business is cash flow, which is achieved through sales. Without sales, you don't have a business; you have a charity or a hobby.

The next level is profit, where you generate more revenue than your expenses in acquiring and delivering your products or services. This establishes stability, and many of us are either at this stage or struggling with it. 

Following that is order, which involves creating efficiency. 

Finally, we reach impact and legacy, representing transformation and long-term existence.

We often find ourselves stuck between profit and order. If your business earns one million dollars in revenue per year, you should be pocketing at least $200,000, and typically, if you're involved in the business operations, that amount can range from 40% to 65% of your top-line revenue. 

The online coaching industry typically has low overhead costs unless you fall into the trap of allocating large portions to closers, setters, bonuses, delivery personnel, advertising expenses, and so on.

These distractions can divert our focus from the core of our business. Our primary objective is to facilitate transformation for our clients while also ensuring profitability.

The concept of Profit First

The concept is simple: prioritize taking your profit first. It challenges the conventional mindset that revenue minus expenses equals profit. Often, we think, "Whatever is left at the end of the day is our profit." However, this approach allows business expenses to grow unchecked, consuming all the profit.

This phenomenon is known as Parkinson's Law. It's commonly observed when hiring contractors for projects such as a website or funnel development. Typically, contractors provide estimates like "two weeks and $10,000" to complete the task. Surprisingly, it often takes them exactly two weeks and costs around $10,000. 

However, if you approach the same contractor with a request like, "I need this project done in a month, and my budget is about 20 grand," it will likely take them a month and cost around $20,000 for the same work. 

This happens because psychologically, our demand for resources such as time, energy, or money expands to match the available supply. It's how our brains function.

Profit First, let's dive into Profit Flow focuses on three vital resources: cash flow, time flow, and energy flow.

Cash flow

To fix cash flow, which takes precedence in the business hierarchy of needs, follow these steps:

1. Conduct an instant assessment, either on paper, a spreadsheet, or your tablet notes. Create five buckets to categorize the money flowing through your business.
2. The first bucket is real revenue, which excludes materials and subcontractor costs. For example, if you manage ad spend for clients, their payment for ad spend is not considered part of your real revenue.
3. Evaluate the portion of money in the real revenue bucket that translates into profit, representing the business owner's earnings.
4. The second bucket is to determine how much money from the real revenue bucket is allocated to compensate the owner for their work in the company. If the owner is actively involved in the business, they should receive a salary equivalent to someone else performing their role, such as the CEO.
5. The third bucket is for taxes. Calculate the amount of real revenue from the current or previous year that should be set aside to cover income tax and corporate tax obligations.
6. The fourth bucket pertains to operating expenses, encompassing costs like rent, utilities, and employee salaries.
7. Lastly, assess the portion of real revenue that contributes to the last bucket, which represents profit. This evaluation provides insights into the incoming money and its allocation, playing a crucial role in cash flow management.

After accounting for profit, owner compensation, taxes, and operating expenses (opex), the remaining funds represent your opex or operating expenses. This bucket encompasses all business-related expenditures.

The instant assessment is a quick way for owners and operations managers to monitor cash flow, but it doesn't replace accounting or bookkeeping functions. It solely provides awareness of how money flows through the business without impacting official profit calculations for tax purposes.

The goal is to gain awareness and change how money is managed in your business. To initiate cash flow improvement, start by allocating 5% of every dollar as profit and leave it untouched. You can run your business with the remaining 95%, assured of its sustainability.

Time flow

We'll use five boxes to categorize our time. Unlike cash flow, time is fixed for everyone, with 24 hours in a day. 

1. The first box, just like the profit box for cash, is purpose. It refers to your personal purpose outside of your company. What is the reason for your existence? Why do you build your company? How does it enable you to pursue your purpose? That's your purpose time. Consider the percentage or number of hours you get to invest each day in fulfilling your purpose. 
2. The second and third box is earning, indicating the amount of time you trade for money. If you're the business owner, refer back to the cash flow slide and the owner's compensation box. How much time are you dedicating to earning that income? Many individuals are alarmed when asked about their self-compensation, believing they aren't paying themselves enough.
3. The next box is life tax, although I'll find a better name for it. Neglecting fiscal taxes leads to severe penalties, and similarly, neglecting life taxes such as sleep, nutrition, and exercise has adverse health consequences. It's crucial to allocate time for personal well-being to avoid losing everything.

Lastly, there's the life investment box, representing the remaining time within 24 hours. This time is dedicated to others, relationships, hobbies, and activities that enrich your life.

By performing this quick assessment, you become aware of where you stand. When implementing this approach in business, it's essential to apply it to your employees and team members. As a leader, understanding their dreams, purposes, and aspirations is vital. Help them allocate time accordingly to pursue their goals.

Furthermore, having all the money and time in the world is meaningless without the health and energy to utilize them effectively. 

Energy flow

Health comes first when addressing energy flows. Unlike the previous two aspects (money and time), energy is a constant flow that cannot be created or destroyed. However, we can manage and utilize our energy effectively. Recharging and optimizing energy is crucial.

Consider the following factors:

1. Fuel: Pay attention to the food you consume and the beverages you drink. Your "why" or purpose in what you do can also provide energy.
2. Rest: Ensure you are getting sufficient sleep.
3. Intention: Set clear intentions and focus your energy towards specific goals. This helps conserve and direct energy more efficiently, similar to the sharp blade of a knife or the point of a nail.

Pressure: External pressure, such as deadlines, can provide a burst of energy and motivation. Establishing accountability partners or clear deadlines within your team or business can generate this type of pressure.

Understanding how these factors impact your energy management will significantly improve the effectiveness and efficiency of your business operations. 

What should coaching businesses avoid?

Avoid these mistakes when trying to make shifts in your business:

• Cold turkey: Don't make massive changes abruptly, such as cutting expenses by 40% or changing your work schedule drastically. It can shock the system and lead to an unsustainable business.
• Lottery tickets: Don't invest massive amounts of money, energy, or time on one thing that's supposed to pay off big one day. Have systems, make informed decisions, and consider the return and risk.
• Unicorns and sheep: Don't do the same thing as everyone else, but don't try too hard to be completely and utterly unique. Spending too much energy, time, and money to be different may not make a big difference for your business or clients.

Fudge: Don't get too caught up in just enjoying the sweet things in life. Put effort back into the business and face difficulties and challenges to grow and stretch. Take small baby steps when making changes.

3 Steps for guaranteed profit flow for coaching businesses

So when we talk about profit flow, our deal is profit guaranteed. Here's how you're going to guarantee your profit in three easy baby steps.

1. Open a bank account

Allocate 5% of all deposits to your profit account. Run your company on the remaining 95% of the money. If you can manage to run your company on 100% of your current revenue, you can run it on 95%. 

2. Open a purpose account

If we call it 5%, that's equivalent to what we do for profit. It amounts to 72 minutes per day, which is 1 hour and 12 minutes, or 8.4 hours per week. You can dedicate a full day to working on your purpose, focusing on what's important to you and the reason for your existence. Alternatively, you can allocate 1 hour and 15 minutes per day, perhaps in 15-minute increments or two sessions of 45 minutes each. The specific breakdown doesn't matter as long as you set a purpose appointment in your calendar and treat it with the same importance as a sales call.

3. Take regular breaks

For energy, here's a useful trick: Our energy fluctuates in a high-performance pattern, with peaks and crashes every 60 to 90 minutes. To optimize your energy levels, take regular breaks. If you choose to break every 90 minutes, make it a 10 to 20-minute break. If you prefer hourly breaks, set a timer for 55 minutes of work, then take a five-minute break and step away.

Key takeaways from this presentation

Embracing change and prioritizing profit is key for coaching businesses. By adopting the Business Hierarchy of Needs and implementing the Profit First concept, we can optimize our operations and ensure sustainable growth. Allocating resources effectively and taking regular breaks to recharge our energy is vital. Invest in yourself, and your team, and maximize cash, time, and energy to achieve success. 

These are three actions you can take: apply them to yourself, and your team, and witness the remarkable changes in your business. 

However, if you take no action, nothing will change. So, invest in yourself, invest in your team, invest in your people, and safeguard and maximize your return on investment for cash, time, and energy—the three essential resources we have to achieve everything we desire in the world.