Episode•February 23, 2023•22 min

How To Create A Profitable Business - Expert Tips From Rocky Lalvani | Ep. 207

Are you looking to take control of your business finances and make your business more profitable? In this episode, Rocky Lalvani shares his insights on how businesses can remain profitable by utilizing the “drip” method. Learn about creating an income account, allocating funds into different accounts such as operating expenses, taxes, and profits, and using the “drip” method for controlling your finances. Tune in now to learn more about how you can increase profitability for your business! About Our Guest Rocky Lalvani started with nothing when his parents immigrated to the United States when he was two years old, and his parents were in their 40s. It was his parents' second time starting over in life as they moved here to experience the American dream. In spite of a lot of struggles and his mom passing away when Rocky was 7, he has been able to achieve financial and life success. Rocky loves to share his journey and inspire others to achieve their dreams even faster. If you want to add the business part: Rocky serves as Chief Profitability Adviser for business owners. He teaches them how to ensure they get paid and make profit a priority! He implements Mike Michalowicz's Profit First System as a certified Profit First Professional. We change the accounting formula of Sales - Expenses = Profit to Sales - Profit = Expenses. This ensures Profit comes first! (PS. It's not about money at all costs; people come before money!) Connect with Rocky Facebook - https://www.facebook.com/ProfitComesFirst/ Instagram - https://www.instagram.com/richer.soul/ Twitter - @rockylalvani Connect with Tiffany Facebook: Money Talk With Tiff Twitter: @moneytalkwitht Instagram: @moneytalkwitht LinkedIn: Tiffany Grant This podcast uses the following third-party services for analysis: Podcorn - https://podcorn.com/privacy OP3 - https://op3.dev/privacy

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Key Takeaways

1
Reverse the traditional profit equation: Sales - Profit = Expenses
Traditional formula (Sales - Expenses = Profit) treats profit as an afterthought
Taking profit first ensures automatic profitability and forces expense constraint
Small businesses must be profitable unlike venture-backed companies
2
Use the envelope/bank account system to allocate funds automatically
Create separate accounts: Income, Profit, Owner's Pay, Taxes, Operating Expenses
Allocate percentages on a set rhythm (weekly, bi-weekly, or monthly)
Hide profit and tax accounts to avoid temptation to spend them
3
Start with just 1% if cash flow feels tight
Begin allocating 1% to profit and tax accounts immediately
Review 12 months of expenses by vendor to identify cuts
Negotiate with vendors and consider switching to fixed-cost alternatives
4
Use the 'drip' account method for irregular or seasonal income
Create a drip account to hold excess revenue above monthly needs
Drip funds out as needed to maintain steady cash flow
Prevents overspending when large payments arrive
5
Audit recurring expenses and pricing regularly
Cancel unused software subscriptions and negotiate better rates
Test price increases - losing difficult clients can improve profitability
Focus on converting leads and measuring key business levers

Intro

Tiffany interviews Rocky Lalvani about implementing the Profit First system to help small business owners prioritize profitability and manage cash flow effectively.
Rocky Lalvani is a Chief Profitability Adviser and certified Profit First Professional who teaches business owners to implement Mike Michalowicz's Profit First system, flipping the traditional accounting formula to ensure profit comes first.

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– The Profit First Mindset Shift

Rocky explains that the traditional formula (Sales - Expenses = Profit) treats profit as leftover money that often gets spent. The Profit First approach reverses this to Sales - Profit = Expenses, ensuring profit is allocated first.

Everyone is told it's sales minus expenses equals profit, which means that profits are leftover. It's something of an afterthought.
– Rocky Lalvani

– The Envelope System for Business

Rocky introduces the envelope system concept applied to business finances. Money is allocated into separate accounts for profit, owner's pay, taxes, and operating expenses, mirroring the old cash envelope method for personal finances.

When your money comes in, we put money aside for profit. We put money aside for your pay because what I find is most business owners pay themselves last.
– Rocky Lalvani

– Starting Small and Cutting Expenses

For businesses struggling with cash flow, Rocky recommends starting with just 1% allocation. He advises reviewing all expenses, negotiating with vendors, and eliminating unused subscriptions. Tiffany shares her success negotiating lower Adobe rates through a chat session.

Just start with 1%. Take 1% and set it aside. $1 out of 100, right? I'm sure we can find $1 out of 100.
– Rocky Lalvani

– Why Multiple Bank Accounts Are Essential

Rocky explains that business owners look at bank balances, not accounting software. Separate accounts provide instant visibility into available funds for spending versus protected profit and tax money. He recommends hiding profit and tax accounts to prevent spending them.

If my operating money is mixed in with my profit and my tax, I'll spend my profit and my tax and I won't realize it.
– Rocky Lalvani

– Managing Irregular Income with the Drip Account

For businesses with irregular or seasonal revenue, Rocky recommends creating a 'drip account' to hold excess funds above monthly operating needs. This prevents overspending when large payments arrive and ensures steady cash flow during lean months.

We want to put that in the drip account. So we're hiding it... So now I go to my drip account and I take 5,000 out and I add it to the 5,000 this month.
– Rocky Lalvani

Books Mentioned

Profit First by Mike Michalowicz

Resources

Profit Answer Man Podcast
Profit Comes First

Topics

Profit FirstSmall Business Finance Cash Flow ManagementBusiness ProfitabilityAccounting SystemsExpense ManagementPricing StrategyBank Account ManagementFractional CFO Business Budgeting