#168: Profit-Conscious Business Decisions with Serena Shoup

Gina Onativia: Serena, welcome to the podcast love having you here. 

Serena Shoup Awesome. Thank you so much. It’s always an honor to be able to be on other people’s podcasts.

Gina Onativia Hey, okay? So let’s just dive in. Because that’s what we do on this show. What does it mean? You’re kind of, you hang your hat on this idea of profit conscious business decisions. What? What does that mean? 

Serena Shoup: Yeah. So there’s a couple of different like camps of people that I’ve no, I’ve noticed over the years of business owners, right? We have the business owners that are like kind of their head in the clouds, and they’re like everything’s gonna work out. I just know I need to launch, and like the money will just flow to me right? And that’s an Ok. That’s we all. I’ll figure it out somehow. It’ll just happen right? And then we have the other like complete opposite end of the spectrum of business owners that are like really, really nervous about spending like kind of white knuckling things right? And where I see, like the most success and good business decisions happening is when there’s a mixture of both. So like that’s the middle where it meets in the middle where you are like. You know, you’re open to possibilities. You are comfortable with, like your ability to make money, but you’re not like just throwing things to the wind and being like it’ll work out somehow. I don’t know how, but it’s gonna work out. And you’re also like making good decisions on and aware of your numbers. So you’re you’re not too afraid to like spend on certain things you need to spend on and and things like that. So that’s where I kind of developed. I was like, what can I call the middle ground. And so I came up with profit, conscious CEO, because the other thing, too, is especially in the online business world, is probably honestly, in every type of business. There’s the vanity metrics of like, oh, we’re making a million in sales and stuff, but it’s like but you have a huge team. You have lots of overhead. You have all this spend that’s happening. What are you really taking home at the end of the day? And that’s your profit. And what? So I try to work with people of really paying attention to that bottom line. Number your profit. You’ll hear lots of like accountant jargon from people right where they’re like bottom line, top line. Blah, blah, blah. And so I try to like bring everybody back to like, okay, you’re gonna hear this word and this word, these all mean the same thing. So bottom line means profit. That’s the number you really want to be paying attention to, and what I like to do with my clients and and people that I mentor is backing into the revenue that you need to make to get to the profit that you want. So we start with like, what do you wanna bring home? That’s your profit, basically. And then we reverse engineer your revenue goal, and then it doesn’t matter whether you’re making 6 figures, 8 figures whatever, because you you already know what your end goal is the profit. And so you don’t end up chasing these like vanity metrics, and you can be confident and calm around what’s actually happening in your business,

Gina Onativia: Yeah, and you can grow right year to year, and you can continue to to scale, which is what we all want. Okay, I love what you’re saying. And I love. And you’re right. We throw around a large jargon, right? And II don’t want us to be afraid of the jargon right? I just want us to know what we need to be aware of. And you said, aware of your numbers. So let’s talk through what numbers we need to be aware of. So you talk about 4 key performance indicators for our online businesses. So talk to me about number one revenue by product. What? What does that mean? 

Serena Shoup: Yeah. So one of the big things that I noticed when I started helping business owners and taking over, maybe from other bookkeepers or a business owner that was doing. Their own bookkeeping is when you set up your quick books online, or whatever you’re using, it gives you a defaultyou know, categories. And it’s usually sales or product sales. Or maybe you have both in there. But with online business we generally have a lot of several different revenue streams. You might have one on one coaching. You might have digital products. Like affiliate revenue, a podcast. 

And it’s really important to track all those separately, because then you know where you need to turn up the dial where you could possibly scale back. What are the things that are not making money that you might have thought were that happens a lot. And so what I like to do is every month with my clients. We look, well. We make sure everything’s set up appropriately. We create rules and we and set up their bookkeeping so that it makes it easy to track things the way that we need to be able to make decisions right? And then we start looking at the numbers every month and looking at the product mix. So that would be like, what is of the total revenue? What is our signature program making percentage wise versus affiliate revenue? And then we’ll track like, okay, this one is always your biggest earner. So if we can just slightly turn up the dial on that, you might be able to really scale and then sometimes there’s the sometimes what happens is we will look at those numbers, and the client will be like this membership, or whatever I know, is my bread and butter. But it is very draining. So they’ll make a conscious decision to cut the program, knowing that they’re going to lose that revenue stream. But they are. They know what is gonna happen from it. And so they’re already planning to replace it, or whatever. If you don’t know how much that revenue stream is, and you just cut it. You could, you know, really debilitate your business. 

Gina Onativia: Okay, I love what you’re saying here, because sometimes I’ll talk to course creators who say, Oh, I love this. Maybe they have a membership right? And they have a community that they’re selling into. And they put 60% of their time into it, but only generates like 10% of their revenue. Right? Yeah, it’s like, you’re putting too much time and energy. It might feel fun to them.  right? Because they’re like, Oh, I get they get their needs met like going back to my Tony Robbins days, and that’s why they spend so much time there, but from a profit perspective, it doesn’t make sense. But you don’t know that unless you know your numbers right?

Serena Shoup: Exactly, and sometimes you do end up being like, I know this is a in the business world. You call that a loss leader when it’s like this is how we’re getting people in. We know we’re kind of losing money on it. But the back whatever we’re selling them into or getting moving them into this other product. we have to have that stepping stone. So sometimes it makes sense to keep it. And it’s kind of the same thing with events like in person events, especially if you host a mastermind. And you’re like, we’re gonna include 2 events per year, whatever. That’s usually what gets people into the mastermind. But if you’re not careful that can. Just events are expensive. They’re rarely profitable. So you have to go into it knowing that like this is what is getting people into the mastermind. We have to have other products or other upsells, or coaching, or something to recover the cost of the the mastermind. But just you’re not going into it blindly.

Gina Onativia: So yeah, I think that’s so smart. And that’s like tripwires. Right? So we talk about tripwires on this, podcast, you’re not gonna make money on your tripwire right? But it’s gonna be those great leads that hopefully by your mid or higher price point course, or it leads to your mastermind, or whatever it is totally great with that if it’s a loss leader, but just knowing that though, and knowing, and then putting that time and energy into it, just being smart right? But again, you can’t do that unless you know your numbers. So I think that’s so great. Okay, tell me about the next key performance indicator. It’s also about profit net income. Okay, tell me the distinction on this one. 

Serena Shoup: Yeah, so on the on the guide. Which I think we’re probably gonna link in the show notes. There’s the number 2 indicator is profit. And then there’s a dollar sign. It is also known as net income. So some people will call it net profit, net income, net operating income. There’s lots of various names for things. But this is basically your revenue, minus all of the expenses it costs to run your business, or you can also calculate this based on product or department. If you are, you know, tracking things that way. So, or even on a project right? You could have. This is the revenue from this project. These are all the direct expenses for it. This is our gross profit for this, for this project, or whatever. So tracking your profit like I kind of talked about at the beginning, is really important. to know, like what is left over after running your business, that you can pay yourself, and most small businesses are LLC’s. So when you pay yourself, you don’t see that as a line on your profit and loss statement, you are basically taking out of the profit to pay yourself. So that profit number is very important. If you are a business structure, like a corporation or something, you would probably be on payroll, so you would see your salary as a line item. But you still want profit left over in the business. That’s what’s gonna allow you to create an asset that is maybe sellable in the future, or to use that profit to reinvest into the business. So it’s still a really important thing to maintain. And the other thing is which we’ll get into in the fourth Kpi, which is net profit margin. And you’re just looking at that as a percentage. But in online business this is one thing that a lot of. I have a lot of business owners be like. I want my profit to be higher than this and that and whatever. And I’m like, you do realize that, like most other brick and mortar businesses and other industries in the world, their net profit is like way less than we’re able to achieve in online business. So a lot of it, too, is like just putting things in a perspective and comparing these to your own numbers or to industry numbers month over month.it’s not very valuable to just look at a standalone month of your numbers. because then there’s no context like, Okay, great. This is what it is but like, how do I know if this is good or bad? Well, that’s why we either compared to your your company last month, or we compared to the industry averages things like that. So that you have the context. And you can figure out, okay, this is good.

Gina Onativia: Right? Right? Right? I just wanna go back for a second, Serena. So I know you mentioned quick books. We have quick books. We love it. When do you know? And you might say, like Gina immediately. When do you know when you’re ready for something like quick books or fresh books?

Serena Shoup: So for for me it kind of there’s. I would say you’re ready for a system if you don’t know how to create spreadsheets. If you’re not gonna like, really stay on top of things. Because the what? What what quick books, or Zero or fresh books do for you is they allow you to link your bank accounts and automate all those transactions going in and out. So it eliminates a step of like manually plugging things into a spreadsheet, which you could totally do if you wanted to. But with online business we tend to have a lot of transactions, and so that could get very monotonous

Gina Onativia: I’m in nowhere without quick books. No nowhere.. I don’t even have. I’m terrible at spreadsheets. 

Serena Shoup: So that’s my recommendation there, honestly. And most of the time when people use a spreadsheet they’re not going to stay on top of it. So it is an added expense to your business, right? It’s a software cost. But you can use the basic the basic quick books and or Zero or whatever, and just get started. It’s kind of like I like to compare it to personal finance.

Because most people I feel like are kind of aware of personal finance. But it’s like, if you had to look at your personal credit card statement and manually record what was going on every month like, would you actually do it?

Gina Onativia: No, but like these people used to balance their check. I think people still, some people do that right, balance their checkbooks. And I mean, I’m dating myself now. But yeah, not that person. So, and if you know you’re not that person. Get it automated like that, expense is justified. Especially, we are building businesses for the long term. We’re just not one offs here for listening to this podcast so that’s why we need that system. Okay, that’s great. Now tell me about the third indicator, which is about our how much we’re putting out there right? Our operating expenses. 

Serena Shoup: Yeah. So this one I have as a percentage. So you calculate it by taking your total expenses for operating your business. And that’s gonna include your software, your wages, contractors, everything that you’re spending, basically and you divide that by your total revenue to get your operating expense percentage of revenue. And this is a really good thing to track, because it’ll show you like proportionately of. Am I spending too much of my revenue right? So there might. Especially with fluctuations in revenue like, you might have a really big revenue month, and when you compare the total expenses, it’s relatively low, but if your revenue dips, it can indicate an issue, especially if it continues over time where it’s like, Oh, man, our expenses are 80% of our revenue. That’s only leaving you 20% profit at the end of the day. And if your numbers aren’t huge that 20% might not be enough for you. So that’s something that we track monthly and we’ll compare this month to last month of the per. You know of the percentage, and we’ll also compare to the last quarter, if it’s a quarter end or the same time last year. So that’s what you can do with all of these numbers, and it provides the context right of like, if it’s decreasing. We you might be like, well, maybe we missed recording something because it should have been higher than that, or if it’s increasing, you can pinpoint we will actually look at the the profit and loss. Every single expense line item, as a percentage of of revenue as well. Because there’s certain things that we we want to control our expenses. And it’s like for wages or salaries. It’s like. Okay, our benchmark for mum for our company is to not spend more than 30% of our revenue on wages.Because otherwise, if it gets higher than that. We might not have enough money to pay the rest of our owner of the company. So you can kind of create your own benchmarks of what you’re comfortable with, and then you you operate your business according to those those benchmarks, and then you’ll you’ll know if, like things are getting out of hand. It’s like, okay. Well, normally, our advertising is 5% of our revenue this month. It was 10 or 15.

Let’s look to see what happened? Are we getting a return on that investment? Maybe it was during a launch. So that’s to be expected, those kinds of things. Sometimes it’s not just because something pops out like that and looks different than a following month. That’s where that’s where it illuminates like, okay, let’s dig into this and see what happened. Sometimes it’s like, it’s okay. It’s legitimate. But that’s that’s you getting comfortable with your numbers looking into things and just making sure that things are correct. The other thing, too, is if you have people helping you in your business, and access to some of your like bank accounts, or credit cards, or whatever. It’s even more important to monitor these things, because having an anomaly of like that where it’s like, oh, this one category jumped way up higher. If you’re not paying attention to those things, you could be. Some people could be stealing from you. You know what I mean, or something, or, a double charge. 

Gina Onativia Right, we have a great bookkeeper who will flag that like she, she is very vigilant. And she’d be like, Okay, what’s what’s happening here to my husband and I, and I love that because I know she’s keeping an eye on that right? So my listeners might not be quite there like maybe they have quick books, but they’re managing themselves to start, and then they hire a bookkeeper. So I’d love to eventually get that in their phase. But but you’re right. And I think sometimes, too, Serena, like we love like getting the pings that we get a sale right? But then but we’re not vigilant about the other numbers, right? We like, we love the adrenaline hit of seeing those numbers. But then we’re like, okay, it’s just let’s just trust in the system. And like that’s just. We have to be vigilant, I think. And do you set like a certain day like you said you check in monthly like, do you? Every 20 fifth of the month. Do you have something on your calendar where you’re like, okay, time to pull the reports? What’s a good system for that?

Serena Shoup: Yeah, for me personally, internally, with my own numbers. In my businesses I have 2 businesses, I actually check in with my bank accounts weekly, and then monthly after. So I have someone on my team also doing the bookkeeping for my businesses. We’re a team of bookkeepers, and I’m somebody looking at it. But when she’s when she’s done around the fifteenth she’ll be like, Okay, it’s you know, it’s already like, and then I’ll run the reports, and I’ll sit there and just kinda comb through stuff. Sometimes. Still have questions, too, and this is how we operate with our clients as well of like. If there’s something we don’t know how to categorize or something wasn’t reconciling, she’ll just leave me a note and be like, will you look at this categorize these things because I didn’t know where to put them. And so yeah, I do that around the fifteenth of every month. and depending on how frequently you have your bookkeeper doing the bookkeeping. For for instance, most of our clients, we actually do the bookkeeping just once a month at the very beginning of the following month, and they get they they get their reports by the fifteenth but if you’re a larger business with lots more activity, you might want to have your bookkeeper do something weekly, so that maybe they’re not running reports weekly, but they’re reconciling and categorizing everything weekly, so that you can go into your quick books and look at your real time reports. So that’s always a possibility, too. Like, if that’s something you need. Ask your ask your bookkeeper, or or when you’re looking to hire a bookkeeper, tell them I really would like to look at my numbers weekly. Is that something that you can do

Gina Onativia: Right and see if they can accommodate right? And that’s part of seeing if they’re the right fit for you. Okay, let’s get to the fourth indicator, which now we’re talking about net profit margin. Okay, what does that mean? That’s a percentage one, too. Right?

Serena Shoup:  Yeah, it’s a percentage. So you’re calculating it the same that you would calculate your: your operating expense margin where you take your your profit, number, your net income, number, your bottom line number. All means the same thing right? That bottom number on your P. And L statement. You take divide it by your total revenue to get your percentage, and you can call it your net profit percentage. You can call it your net income percentage or margin margins. Another way of saying percentage. Right? So and this is another one of those things that maybe not so obviously. But this needs to be a positive percentage. It needs to be a positive number, not negative, because if it’s negative, then that means that you are. Oh, you’re spending more than you are bringing in and we want this to either grow over time or have an app. You know, a comfortable average here today. So I know with the launch model it gets sometimes if you look at your numbers monthly and you have, and you’re launching. It is scary because there are going to be months 

Gina Onativia: where it’s gonna be dips right like, maybe over the summer you went up for the launch right? And then you know that though you have to build, you have to build that in right? 

Serena Shoup: Yeah. And so what I like to do is we always look at the monthly numbers, but we also always look at the year to date numbers, which means your total for the year. So right now we’re in October. So we just closed Q through quarter 3, which ends in September, and so all of our clients got a set of quarterly financial statements that showed each quarter as a whole instead of just monthly, so that they could compare quarter over quarter which is really helpful with the launch model, because typically you do something every quarter. Some sort of rip renew generating activity in the quarter. And so it helps, It helps. You see, your quarterly profitability, and then your year to date is just the total of the year, and then we’ll compare that to like what happened last year this time. So it’s like, is our profit percentage higher than this time last? Is it about the same? Is it dipped? If it dipped, why? Oh, we launched one less time than last year. So yeah.

Gina Onativia: So knowing that, I think I think the whole beyond. And this is why I wanted you on this episode, too, Serena. It’s just not being afraid of the numbers, right? And I think setting, even if it’s once a once a month to start, and maybe you do twice a month, but just getting used to pulling reports like, if you’re doing this on your own and checking the numbers and taking the fear out of it. Yeah, right? Because that you are empowered when you know your numbers.

Serena Shoup: Yeah, I totally agree. One of the things that I’ve done. I’ve done a talk on becoming a profit conscious CEO at Ver in various programs and retreats and stuff. And I asked the audience to make a pact with me, and that pack is to like, don’t ignore, or avoid your numbers. It’s gonna be uncomfortable. But, like, can we all agree that we’re trying to run a business and it’s kind of right.

Gina Onativa:  And this is part of being a business owner. This is part of being the CEO of your business. Yeah. So I love that make a pact that’s great. 

Serena Shoup: So I’ll ask the listeners today, too, like, just like, like, let’s make a pact that we’re not gonna avoid. It might not look pretty at first when we start looking at it. But you’re not gonna know what to correct or how to make changes. If you don’t, at least look to see what’s happening. 

Gina Onativia: Right. If you don’t. And right, you aren’t aware and understand these numbers. Okay, this is so helpful. Thank you for breaking it down. You break it down in a way that even my brain can understand, which is great. So because I’m struggling with my fourth grade. Fourth graders math right now. So there’s that let our let my listeners know where they can learn more about you and I. Yeah I’ll link to the key indicators. Pdf, and then where else can they find you, Serena?

Serena Shoup: Yeah, I’m on. I’m on Instagram at, of course, bookkeeping, and also pretty much all the places with that I’m on Linkedin. I’m just Serena Shoup CPA, “S H O U P”  is how you spell my last name, I should pop up. And you can also just go straight to my website and email me, or fill out the contact form. It’s, of course, bookkeeping.com. I’ve got some resources up there as well.  And yeah, I’d love for you to connect with me on Instagram and let me know if this was valuable. and if you like, if you had an Aha! I’d love to hear about us.

Gina Onativia: Let us know. Did you had a money. Aha! Did you have a profit percentage? 

Serena Shoup: Yeah, or even any questions. Honestly, if you want clarity on anything I talked about, I’m open to having conversations. I just want people to to not feel scared to reach out for help around this, because there’s definitely some accountants out there that…

Gina Onativia: Make it scary. 

Serena Shoup: Feel stupid right? 

Gina Onativia: And they make you feel. And that’s not. That’s not okay. So and thank you for making us feel empowered instead of feeling like dumb that we don’t know this. So really appreciate that. Thank you.