Payroll costs are one major issue I’ve seen with my clients that can affect service-based entrepreneurs when they are growing their business and trying to expand their profits.
In today's episode, I’m talking about payroll costs, how to tell if your payroll costs are too high and what you can do when your payroll starts to eat into your profits.
Join me in this episode as I share six specific action steps you can take to reduce your payroll costs, so you can focus on expanding your profits and improving your team.
In this episode I also discuss:
- Finding the balance between serving your team and serving your clients 2:39
- Finding the payroll cost in your business 7:04
- What it really means to know your numbers 13:21
- SOP’s and why they’re so important 13:42
- Improving your team culture 20:12
Episode 67 | https://kickstartaccountinginc.com/ep-67-preparing-for-tax-season-with-1099-contractors/
Episode 46 | https://kickstartaccountinginc.com/ep-46-s-corp-webinar-with-sarah-fox/
Connect with Danielle:
Website | Kickstart Accounting
Facebook | Kickstart Accounting Inc. – Home | Facebook
Instagram | Kickstart Accounting, Inc. (@kickstartaccounting) • Instagram photos and videos
Twitter | Kickstart Accounting Inc. (@KickstartAcct) / Twitter
Book your FREE Discovery call: https://kickstartaccountinginc.com/book-a-call/
Test your Financial Health: https://kickstartaccountinginc.com/checkmyfinancialhealth/
Learn how to pay yourself as a CEO – https://www.kickstartaccountinginc.com/getpaid
Full Episode Transcript:
Hello, and welcome back to entrepreneur money stories, I am so happy to have you here it means the world to me that you are tuning into the show entrepreneur money stories has been something that we as a team have had the honor of pouring our heart into, and really being able to have the opportunity to share with you the listeners, some of the struggles that we've seen our clients go through. And the best part about that is that now, because you found the show, you don't have to go through them too, right, you get to learn from all of the experiences of us working with hundreds of other women entrepreneurs who were in and are in your shoes. So we get it. And I just want to say thank you to my team. And I thank you for continuing to tune in and be here along this journey. And we just want to continue to be a resource for you. So if you can, like, share, and subscribe, that would mean the world, right. So if you could share this with one other business owner who you know, needs help in working with their money mindset or needs to, or should or could improve how they're handling their finances, we as business owners have to stick together, this is not an easy thing we're doing. This is brave and breaks the mold. And we have to be here to support one another in this great adventure that we're on. So today, I want to talk a little bit about payroll costs. And what we can do when payroll starts to break our biz. They break, it's breaking our business, it is starting to eat into our profits, what do we do so throughout the years, the number one trend or issue that we've seen, especially for service based business owners, is payroll cost. And it's really finding the balance because it can be a double edged sword sword, we need our team to help us serve our clients, we cannot be the only ones to serve our clients because we are going to hit capacity. And I know that you are on a bigger mission, you are here to serve more, you are here to develop your team and to serve more of your clients. And the only way that you can do that is to build out your team, right. And as we build out our team, we're building a culture we're building a brand, and we want to be able to pay our team market wages or above market wages so that we can empower our teams right here at kickstart accounting, Inc, we're not just serving our clients, but we are serving our team, we are creating careers, we are creating opportunities for women to be able to serve other women to be able to shine, finding empowerment in our team, and empowering our clients. So this is building a brand to help our capacity and service to our clients. But we're also serving our team members. And then depending on the season of our business, this can be a major shift, right? This can be a major adjustment as you move from the primary role of a service provider to a leader. So as you continue to build your business, you might have been the primary service provider. And as you build your team out, you're bringing on people to help you with the backend operations. You're helping people take off a few of your hats in your business, get support so that you can build the business that you want. And then you're hiring people to work directly with your clients. So you're increasing your capacity to do more of what you do. So how much is too much? Right? That is the question that we get from our clients when we are reviewing the numbers with our clients. So every single one of our clients that kickstarted accounting, at the end of the month, we reconcile their accounts and then we send them their financial statements. And we create what I like to call a narrative or modern word would be a highlight reel, a summary of what's going on financially in the business. And the number one question that we get back all the time, is, are those numbers okay? Right, like, Okay, that sounds great. But is it Okay, should I be spending more? Should I be spending less? I really don't know. And so when what we suggest to our clients is that the payroll costs range between 30 and 50%. Now we've done some research, the US Census Bureau states that the professional services industry, on average, is about 40%. Now, this might be higher or lower, depending on what season of your business you are in. If you are in a season where you are really embracing the leadership role of your business and you are not working Roughly with clients as frequently are at the capacity that you, you were previously, this payroll cost might be higher, because you are paying yourself as a leader slash manager, as well as your team to actually complete the work. Now, this might be lower, if you are still completing some of the work on your own, if you are still actually in client work yourself. And you have not yet built out that team, I heard the phrase a long time ago that not all profit is equal. So if you are doing a lot of the work on your own, and you are working more hours, that is not the same profitability. So we tell our clients we want a healthy percentage to be at for profitability is 15%. And so if you are working 80 hours a week, and you're not paying anybody else, and and this isn't sustainable, but you have a 50 to 60% profit, that's not the same as somebody who has a five to 10% profit, but has a team that is supporting them, so that they are working at a at a pace that is sustainable for the long term. So just want to say, this doesn't mean that everybody needs to be up here. 40% you need to think about the season of your business that you're in, and then compare that percentage then determine where you need to be at. Alright, so I hear your wheels turning. I'm right, I feel it. How do we get to this number, right? So I just threw out a bunch of percentages. And you probably might be like, Danielle, how did you even get there? What is 40? What is 30 to 50%? Even me, so I want to be very clear, I you guys know, I like to give you specific clear action steps and reports and where you can find these numbers. Because we don't just talk about theory around here, we want to take action. So you can go directly to your quickbooks file and run the profit and loss as a percentage of sales report, I always recommend running this report for the last 12 months don't do it for last month, that's going to give you a very limited view, we want to create space, we want to look at it for the last 12 months. And we're going to look at the area of income statement where we have all of our payroll costs grouped together. Now, if you are not working with the money team, if you are not working with a bookkeeper, you might be using QuickBooks as it came out of this system, right like QuickBooks will spit out a chart of accounts for you. And that means the accounts aren't grouped together. So you might have to group a few numbers together. So you can do this in Excel or just a calculator. They want you to add up the following numbers: you're going to add together commissions and bonuses, owner's drawers, health and life insurance, not liability insurance, but health and life insurance for you and your team. employer retirement plan contributions, taxes, employee your taxes, on unemployment insurance, and state disability insurance. So all those insurance that's coming through your payroll payroll system, once you add all those together, that is your fully loaded payroll cost. Now, that total that you just created, you're just going to divide that by your total revenue. And again, I want you to do this for your last 12 months. So if you do not have your QuickBooks set up in a way, that groups all those accounts together, you will simply add together, commission and bonuses, health IT life insurance, and employer retirement plans, taxes, and insurance like unemployment, disability insurance, add all that together, and then divide it by your total revenue for the last 12 months. This is going to give your fully loaded payroll amount. Now, what about owner salary, so there's owner salary and then drawers. We've done a lot of content around S corp, and how to pay yourself on payroll or or as an LLC. So I don't want to go too far into internet space, we will link up the episode for s corpse in the show notes. If you are not yet paying yourself as an employee of your business, if you are not showing up on payroll, if you are not a business expense to your business, it's time to talk to your money team about are you eligible? Is it time for you to do that? If you are not paying yourself an on salary, so you are not on the income statement. For this analysis, I do suggest you take the owners drawers that you've taken over the last 12 months and just simply add this into the calculation because I want you to know how much payroll costs you have including you as a business owner. Now what if they're up over 50% Now we've had clients who've come to us and they said I hired too quick I hired too many people I don't you know, the revenue didn't come in as fast as I thought it would or I added in too many layers of of lead are short for management. Now, what the heck do I do to start to reduce my salary costs? What can I do to think about that? So I want to give you six specific action steps that you can take to reduce your payroll costs. Step one is to understand the difference between contractors and employees. If you are struggling with this, you can go back to Episode 67, preparing for tax season with 1090, nines and contractors where we really dig into the difference between employees and contractors. But this is a great place to start to look at. Are you paying your contractors or more? Or are you outsourcing services that you could be bringing in internally and reduce those costs by having dedicated employees to your business, this isn't something that's talked about very often, a lot of times that we hear in the entrepreneur space to hire specific contractors and companies who niche into one specific market that can help you with one specific thing in your business. But as you grow as a business owner, it might make more sense to bring on employees who can really do more than one thing for you in your business, and be that expert for you. In that area. We're not always increasing the cost by bringing on employees, just because we're paying payroll tax, sometimes we're paying more to our contractors or specialty experts. And so we might actually be able to reduce the cost by bringing on employees, this is constantly re evaluating. Do I have the right people in the right seats? So am I listening to this podcast right now you have food for thought, we're planting the seed on what you can start to look at to evaluate your numbers. You always hear the quote, know your numbers, and a lot of our clients say to me, what the heck does that even mean? This is what it means, right? This right here? This is what it means? It means taking a moment to look at what my payroll costs? How much am I paying my contractors and employees? And do I have the right people in the right seats? Number two, we want to improve the productivity and efficiency across our team members. So are we cross training our employees? Have we considered automation by systems? And are we using flexible labor like part time or temporary help? So can we better use or optimize the usage of the skill set of our current employees? Our current team? Can they cross train across different departments? Right, I'm going to err quoting departments because we might not think of our business of having departments but different areas, different seats within our business, can we cross train employees so that they're able to do more, and we consider automation or creating SOPs, standard operating procedures in our business, so that we can increase the efficiency of our current team. Now, I was really hesitant around SOPs when we first started doing it. My team will listen to this and laugh. I didn't want to become too corporate. I was like, Look, guys, I get the value. But I want to stay in a small shop, I want this to be a nimble, small business. But we actually found freedom. In SOPs, we found freedom because we were able to step into each other's shoes and have the SOPs in place. Now, we simply recorded a series of loom videos, and created a template in a Word document for each SOP. So it doesn't have to take a lot of time. But we found freedom in being able to have a systematic strategy that we followed, month after month, for our bookkeeping, for our financial clothes, and how we present things to our clients, how we talk to our clients, how we hold calls, and then back end, how we do our billing, how we onboard clients, how we off board clients, how do we do all the small things in our business, it creates freedom and efficiency. Number three, we have to constantly be assessing our talent pool. I talked about this a little bit in step one, but do we have the right people in the right seats? Number four, let's start to focus on our culture. When's the last time that you took a step back to think about the culture that you're creating? I think we have a tendency as business owners to focus a lot of time and energy on our clients going through the client journey thinking about how we're closing leads, how what is our lead journey, what is our customer journey? How are we onboarding? How are we off boarding clients? But are we spending enough time on focusing on our current culture, reducing turnover of our current team, and therefore reducing hiring cost? How can we create efficiency by focusing on culture and focusing on inclusivity? And I'll share a few things that we do to focus on our culture today. In order for us to consistently be pouring into our team, every day, we do a daily huddle. So every morning for 15 minutes, we go through a daily huddle. And this is an opportunity for the whole team to come together, we have one word open, we have three metrics of scorecard metrics for them to report on, when and a struggle, it's less than 15 minutes, and our whole team has an opportunity to be heard, to be seen. And to come together and talk you know, sometimes we get side conversations. You joke about stories, Mondays, we do a weekend when Friday, we do a little game. But we get to know each other, especially in this virtual environment, where we're spending a lot of time alone in our homes, staring at our screens. We also do open office hours. So every day, there is one hour where they can go into open office hours with an account manager, ask any questions, to talk about any issues, get clarity on anything that they need clarity on, we do a monthly team meeting. It's an opportunity for us to gather, go over any announcements, celebrate birthdays, anniversaries, I really just come together every month. We're doing a town hall this month. So it's really exciting. And then we also do team training together, usually once a quarter. So what things can you think about on how you focus on your culture, how you can improve your team journey, how you onboard team members off board them, how you support them in the way that they work. This sounds like it might increase costs. But in the long term, you're reducing costs because you're reducing turnover, you're reducing hiring, and you get to make a freaking difference, right? You get to make a difference. You are creating a home for these individuals to be proud of where they work. Right? They want to be proud to represent you and your brand. And this is a great way we get to do that. Alright, number five. Now, the hard stuff, assessing our staff pay, are we consistently looking at our benefits and payroll. Have we shopped for our benefits recently? Have we looked at our payroll providers gusto? You've heard us talk on the podcast before about gusto. It is an inexpensive payroll provider that offers you a chance to look really freaking professional. You can use QuickBooks right click fine. I've seen a lot of errors with QuickBooks over the years, you have the option to not have them withhold your taxes and pay it on your behalf. So we've seen a lot of people get in big trouble with payroll taxes. gusto doesn't give you the option. They withhold your taxes, they file the 940 ones for you, they pay it for you. And it's build your culture. The team can go on self serve, change their address, change their withholdings get their paycheck stubs at year end get their tax forms. So it's a really efficient way. It's inexpensive, so we're increasing our brand and decreasing costs. And then think about our the way we're paying our team. How are we paying hourly salary? Have we thought about using incentive pay for productivity or revenue goals and then minimize overtime. So one thing that we do internally, again, is any time any overtime actually has to be approved. And we do this for a few reasons. It's not just cost. It's brand and culture. I don't want a team. I don't want my team to show up to work, tired, crabby, over extended, we need to have work life balance. And every single team member deserves the opportunity to have a meal with their family, right to not have to get their laptop back out. We want to support them in their life, right? We want them to be individuals. So this goes back up to focusing on your culture. So we minimize overtime, reduce costs, and support the culture that we want to have as a firm. Alright, lastly, study and understand your business trends and capacity. This goes back to looking at your numbers and the seasonality. Is there a normal trend or seasonality in your business? And can you create staff incentives to stagger the staff cost during the seasonality periods? And is your workforce stretched too thin or at capacity? Right? So
We have to constantly evaluate What are the seasons. What seasons are in my business? And my industry? What are the business trends that I see right taking that moment to step out of your business to work on your business, not in it, reviewing the numbers, seeing the trends, three flow acting on it creating whitespace so that we can reflect on on those periods, and then determine how can I align my workforce so that they are not stretched too thin or so that they are at capacity, right? So we want to utilize everyone's talents. And we want to utilize everyone's time. And this might be offering part time and full time, so that you can have that ebb and flow and flexibility in your time that you're offering for your team. So again, there's a lot that we can do to build our culture and our brand for our team, while we're keeping an eye on the costs, and the profitability of our business. So these are six specific action steps that you can use right now, to go reflect on your numbers. I want to encourage everyone to do a few things. Go talk to your money team, go talk to them, I want you to send an email to them right now. ask them the question that you've been thinking about, ask them, they want to help you. Send them the email, book the call, talk to your money team, if you want them to help you with some of these pieces of information that we talked about today. Ask them for help. That's them. They want to help you. And then I want you to book some time in your calendar, to do the steps to take these steps. I know that we can get a dopamine hit. When we listen to these podcasts. I do it myself. I'm with you. I know. But we have to actually take action. And so for me, I am taking Friday afternoons to reflect on anything that I've learned for the week, digest it, you know, decide what I want to do with that information. So decide what works best for you. Maybe it's Monday mornings, maybe it's Saturday, maybe it's Wednesday, I've heard a few people say finance Friday or Monday, Monday. You don't have to get creative. I don't have mine called anything. But it is a space that I know I'm going to be reflecting on my business and, and looking at at a higher level and actually taking action on the things that I've learned this week. So go put it in your calendar right now so that you can take these six action steps in your business. It's not about just knowing your numbers. It's doing something with the information. Alright, if you liked today's episode, don't forget to like, subscribe, share this podcast with one other person. And if you need help in your business, come to kickstart accounting inc.com You can book a call, you can talk to our team directly about your specific situation. We have the five day video Bootcamp on there and just learn more about what the team and I are currently up to and all the creative ways that we are looking to serve you and to continue to be a resource for you. I hope you enjoyed today's episode and I will see you back here at the same time, same spot next week.
Transcribed by https://otter.ai