Tara Newman: Hey, Ron! I’m here today with Ron Saharyan, the co-founder of Profit First Professionals alongside Mike Michalowicz from the book Profit First. And I’m so excited to have Ron here with us today to talk about what Profit First is and why Profit First is important, who should be implementing Profit First, when you should implement Profit First, as well as talking about some other things with Ron. Because he’s known as Obi-Ron Kenobi in our group. He is a sales master, and I really want to just have him talk about sales for a bit as well. So, welcome Ron. Welcome to the podcast.
Ron Saharyan: Thank you, Tara. I’m excited to be here. I’m excited to be sharing with your audience all good things about Profit First and the great work that you’re doing.
Tara Newman: So, I want you to first tell everybody your background. Because I heard a little bit of your background, and it’s quite fascinating. So, what was that first job you had, and how have you progressed through your career?
Ron Saharyan: Sure, so well one of the first professional jobs I’ve had was as an investigator.
Tara Newman: This is what I’m talking about.
Ron Saharyan: Yeah, an investigator for the Public Defender Service of Washington DC, investigating felony ones: murder, rapes, arsons. And that was a very difficult job. It opened my perspective to a lot of things that I never was aware of before and it really helped shape how I was approaching various situations that I approached differently in the past before, and that only helped me. Then, got into professional staffing. I really enjoyed helping people get jobs. Loved it, really kicked butt at it, and helped grow a company where the owner was able to purchase the Baltimore Ravens.
Tara Newman: Wow.
Ron Saharyan: Then I got recruited out of there and took another company, niche specialization, very niche focused, pharmaceutical and financial staffing services, all IT, all high-end IT. Got recruited out of there, took a company to its all-time high in revenue, consultants, and margin. Niche specialization, but we went towards more media and entertainment companies because we were out of New York City at that particular time. And so I’ve been good friends with Mike Michalowicz. We grew up in the same town. He’s two grades ahead of me, and we’ve always been buddies, even on the same sports team and lunchroom and stuff like that. And as we were growing our careers, Mike absolutely took the entrepreneurial route. I took the more corporate route. But we would always get together. We would always be talking about businesses, and he was always recruiting me, recruiting me to help him start these companies. And I’m not an entrepreneur but I’ve always felt that there was something more out there for me, something that was a lot more than what I was doing.
And so, before Mike and I started this, I was able to get that company, like I mentioned, to its high revenue in margins and that stuff. Then I was done. We were told we were done scaling. And I’m a guy that you don’t tell to stop scaling because I just can’t help myself. I have to go, go, go, go, go. But I was four years there. And my daughter was born when I first started, and I was noticing that my relationship with my wife and my daughter was really becoming distant, really becoming distant. And so when I was told we were done scaling, it kind of hurt me in a way like, “What the heck have I been doing for the past four years, sacrificing my family time for money?” And a lot of money can often cloud happiness, right? And so when we peeled that onion back, I was like, “I ain’t happy.” And so I sent out my notifications.
Mike said, “Hey, Ron. You’re not going to believe this. Want you to read my manuscript and talk about building a company together.” “All right, here we go again,” right? And so I read Profit First, his manuscript. I’m like, “Oh my god, Mike, I do this.” “What do you mean you do this?” “I do grandmother’s envelop budgeting methodology.”
Tara Newman: Yes.
Ron Saharyan: I have formulas, right. I have formulas in staffing where I’m always adding on what my desired profit was going to be. That’s how I was able to get that success that I had in the divisions and the companies. I’m like, “People don’t know this?” He’s like, “No, people don’t know this.” I’m like, “Oh my god.” And so over a bottle of wine, him, his wife Krista, my wife, Mary, and I said, “All right, let’s do it,” and never looked back.
Tara Newman: I have a deep, ancestral lineage of the envelop system as well which is why I really love it and got on board with Mike’s work, one of the reasons actually. It’s just it works.
Ron Saharyan: Yeah, exactly. And so, basically, if your audience doesn’t understand, my grandmother taught my mom, taught me, my brother.
Tara Newman: Yes.
Ron Saharyan: Right? One envelope was for food. One envelope was for rent. One envelope was for charity. The other one was for savings, right? And so we practiced that. But what we’re doing now is we’re bringing it to the 21st century.
Tara Newman: Right.
Ron Saharyan: We’re using bank accounts, simple back accounts. And it’s the easiest thing since sliced bread.
Tara Newman: Yeah. So, I just want to back us up because I want to talk about just for the people on this podcast, I know some people… So, when I survey people, I say, “Where are you with Profit First?” What is Profit First? Haven’t implemented it. Profit First-ish, what I call Profit First-ish where they think they’re implementing, but they’re not really implementing it because they’ve set up the bank accounts but they don’t understand the behavioral science behind it. And then advanced. And most people fall into that first category where they’re either like, “What’s Profit First?,” or Profit First curious kind of thing. So, what is Profit First and why should people care?
Ron Saharyan: Okay, awesome. Profit First is a book, okay? Profit First Professionals is the organization that we built to support the teachings in the book. Profit First is a system. It’s a cash flow system. It’s a pay yourself first system. We’ve all been told all our lives that we need to pay ourselves first, but no one teaches us how to do that. And that’s what Profit First is. So, every business owner out there understands that we need to have systems: marketing systems, hiring systems, service delivery systems, onboarding systems. Yet, if you go to a coach, you to an accountant, you go to a bookkeeper and you ask them, “What is the cash flow system that I should be implementing to ensure that I’m paying myself?” They’re going to look at you and say, “Well, it’s simple, you sell, sell, sell, occur expense, manage your expenses, and whatever you have left over is the profit, and that’s what you pay yourself with.” What? That’s a problem, okay?
And so the sell, sell, sell, occur expense, whatever you have left over is the profit, that’s backwards. Because with profit, you can hire. With profit, you can pay down debt. With profit, you can be philanthropic. And so by putting profit last, from a behavioral standpoint we’re saying it’s an undesirable, it’s the leftover, it’s the crumbs, right? And so Profit First flips the equation. We’re all familiar with sales minus expenses equals profit. Profit First is sales minus profit equal expenses. In essence, we’re sell, sell, selling, taking our profit, running the business on what’s left over.
Now, it’s not all about profit. That P, that capital P is representative of, one, paying yourself, two, having money for Uncle Sam, three, a profit. So, in essence, it’s sell, sell, sell, take a predetermined percentage of that revenue, pay yourself with it. Take a predetermined percentage of that revenue, move it aside for Uncle Sam. Take a predetermined percentage of that and put it in a profit account. Run the business on what’s left over. It is a scalable, repeatable system.
Tara Newman: Yes, it is. It’s also not accounting.
Ron Saharyan: Nope.
Tara Newman: And it’s not bookkeeping.
Ron Saharyan: Nope, not at all.
Tara Newman: It’s a way to manage your cash.
Ron Saharyan: Yes. And that’s the problem, right?
Tara Newman: I passed my Profit First certification.
Ron Saharyan: Yes, there you go. There you go. But it sounds so conceptually simple. All you’re doing is taking a predetermined percentage of money and putting it into a bucket with a purposeful name, okay? The devils are in the details like everything. Just like the stock market. You want to get rich in the stock market? Buy low, sell high, right?
And so there is a lot of nuances that come into it. But one of the sticking points is, that we were talking about earlier, bank accounts. Going to bank accounts.
Tara Newman: Yeah, Profit First is famous for having at least five bank accounts. And I’ve heard a rumor that Ron and Mike have upwards of 20.
Ron Saharyan: Yeah, it’s 20. We have 20 different bank accounts. And actually, it’s funny that you mention that. We made a significant investment in upgrading our internal software and profit assessment tool. We’re redoing that and all that great stuff, right? And so we’re adding another account, and it’s our software development account. That’s going to be 21. And so we literally have 20 different bank accounts. Each one of them has a specific percentage and a specific purpose, everything from paying ourselves to tax to profit. But also, we have a family account. We have a charity account. We have a new employee account. We have a rent account. We have a retirement account. We’re funding all of these important things, and then running the business on what’s left over.
Tara Newman: But to start, we have five accounts.
Ron Saharyan: Yep.
Tara Newman: And let’s just chat about this for a second. So, you have a revenue account where the money flows into.
Ron Saharyan: It’s a holding account.
Tara Newman: It’s a holding account. And then you have a profit account, a CEO pay account, a tax account, and an op-ex account.
Ron Saharyan: Exactly, yep.
Tara Newman: Those are your envelopes or, electronically, bank accounts. And so what I find is this opening the bank accounts bit seems to be a big hurdle. And I do a lot of coaching around getting people to open these bank accounts. People get very overwhelmed by the thought of having five separate bank accounts.
Ron Saharyan: Yes, because they don’t have the understanding that all of these accounts, except for the op-ex account is the only one that you’re reconciling and paying money and money going in and out of. The other ones are simply holding accounts. You’re not collecting income into it. You’re not writing checks out of it, right?
And so the way the banks are set up today, it’s so easy just to click on an account, take up the percentage of the dollar and move it into your op-ex. That’s all you’re doing. There’s not an additional reconciliation. There’s plenty of banks out there that have free accounts and minimum-balance accounts. And it’s just an excuse. But I understand because when Mike and I first were doing this, we were the guys walking in, we were the account guys. Not accountants. “Oh no, you guys want to open another account, don’t you? Hee, hee, hee, hee, hee,” right? “Yes, we do.” Right?
And so then a funny thing happened. Other people were going to that branch and they were bringing the Profit First book. And they were going, “Are you familiar with this book?” And they would say, “Oh no, you want to open accounts, don’t you?” And they’re like, “Yes.” And they said, “Okay.” They got it. So, it does take some time. It does take some awareness. But the reason why you want to have those bank accounts is because of the behaviors, okay? We’re putting guard rails in place. You don’t want to do this on spreadsheets. You don’t want to do this in an accounting system. It’ll mess you up. It will really mess you up. So, by making it as easy as possible for you to allocate the money using proper banks. Tara has lists of banks that are Profit First friendly. And it’s simply just going there and say, “Hey, I’d like to open up a couple of bank accounts.” “Why?” “Well, because I want to squirrel money away in them.” I mean that’s pretty much it.
Tara Newman: Or say, “It’s the envelop system. But it’s an electronic version of the envelop system.” Or I really dare you to say, “It’s none of your business-
Ron Saharyan: Yes. It is none of their business.
Tara Newman: … why I want to open five bank accounts.”
Ron Saharyan: Well, here’s the thing. Most businesses have a lot more than a couple of bank accounts, right? I mean FDIC, you only can have $250,000 insurable. So, people have multiple banks and multiple bank accounts in those banks, right?
Ron Saharyan: And so the bank account makes it so much easier, right?
Tara Newman: It does. It does. And so the other thing that I want to talk about around Profit First is whenever I survey business owners, even people, not just business owners but we’re talking about business owners here, around what is really important to you. The first thing they say is financial peace of mind. But what does that mean? Because it’s not a number. I can think of times where I’ve had a lot of money, and I can think of times when I’ve had not a lot of money, and my financial peace of mind is not tied to that. I find that our financial peace of mind is tied to having a line of sight.
Ron Saharyan: Oh, you’re the best. You’re nailing it.
Tara Newman: Ding, ding, ding. And what Profit First does is it gives us a line of sight. Once I started implementing Profit First, I noticed two really interesting things. One, it calmed my nervous system. I was no longer cycling and worrying about money because I could easily open my app and see I have plenty of money to pay myself. I have money here. Oops, I don’t have a lot of money here, I need to go make sales. It helped me really stabilize my business in that sense, but it also freed up my mind where I was no longer worried about money. So, I was able to then go take that energy and effort and focus and put it on something like sales.
Ron Saharyan: Boom, drop the mic. Once people get over the hesitation of a new system, because change is difficult… But the way things have been done over and over and over isn’t working. So, if you’re sick and tired of living the lifestyle that you’re living, if you’re sick and tired of not having clarity, focus, or understanding of your finances, well now’s the time to take a step forward. Because the first thing that everybody experiences once they implement Profit First, or actually they just set up the framework, the profit blueprint, the assessment just to have an understanding, a game plan, is relief. Okay, relief. I have a system now. I have a system that I can follow, okay?
Tara Newman: Yeah.
Ron Saharyan: That’s the first time. Next is when you’re actually moving the money from one account to the next account.
Tara Newman: I think that’s the funnest thing ever.
Ron Saharyan: It’s empowering, right? It’s empowering.
Tara Newman: And we’ve created a calculator for our clients that they just plug the amount that they have in their income account, their revenue account, into the calculator, and it splits it out for them based on their Profit First percentages. Every time, they just open the calculator, put it in, and it just tells them what they need to transfer.
Ron Saharyan: So, this is empowerment. It’s the first time that many business owners are in control of their money. That physical act of controlling the money and paying yourself, moving money into profit, into tax, is extremely empowering. Now, following your line. Okay, one, relief. You have clarity. Two, empowerment, okay? You’re feeling good. Next is focus. Focus on your business. Focus on your craft. A huge weight is lifted off of your shoulders because you have a system that you can follow. You have clarity. You know how to operate it, right? So, now I can focus on my game, my jam, whatever my business is that I’m looking to grow. Because I’m not worrying about how am I paying myself.
Tara Newman: Yeah, and I have one more benefit to add that I think is really important and that I’m finding with the women that I work with in the sense that Profit First gives them a language around their money. It gives them a way to communicate about their money to usually their partner or their spouse who’s at home and oftentimes is not a small business owner. They may be getting a paycheck from an employer. And they’re breathing down their spouse’s neck who owns the business saying, “When are you paying yourself? How much are you paying yourself? When is the money coming in?” And women get very flustered around that because… I remember this quote by Tony Robinson. He said, “When two people walk into the room and there is rapport, the one who is most certain will influence the other.” And this gives my clients certainty that when they have the conversation, whether it be with their accountant or most likely their partner, their spouse, they have that certainty and that language. So, they’re having better conversations in their home and throughout their life. And it’s really become a framework from which they can communicate on.
Ron Saharyan: Yeah, absolutely. Apply this in your home business, right? That’s what it was… I mean your home finances.
Tara Newman: Yes, we do too.
Ron Saharyan: But one of the things when you have a spouse, women have their own business, the spouse may be getting a salary, they’re not as supportive as they should be, right? And it’s unfortunate. And sometimes we’ll go to the accountant that’s already been doing our taxes when we’re on salaries. It’s probably a guy accountant or a CPA. And you’re there, you’re trying to share your business, you’re trying to share what your dreams are, and you’re getting minimized. You’re getting thumbs down, right?
Yeah, and it’s bullshit. And so if you find yourself in that situation, you have every right. Stand up and say, “I’m paying you, okay? You’re here to help me in my business, not to minimize what I’m doing but to help and support me,” right?
Tara Newman: Yeah.
Ron Saharyan: A lot of doctors, a lot of lawyers, a lot of accountants have horrible bedside manner.
Tara Newman: Yes.
Ron Saharyan: Keep in mind that this is your business. You are responsible for the success or failure of it. If that accountant, that coach, that business person is poo-pooing your dreams, fire them. There’s plenty of others that will absolutely put their arms around you and help your business succeed. Don’t take any bullshit.
Tara Newman: Yeah, I’ve had women come to me and say, “Oh, I can’t make this investment in myself or into the business because the accountant says I can’t,” right? And that’s to me such BS. Whereas when you have Profit First and you know what your numbers are, you can then make an informed decision, whatever that decision is. Whether you have the money and it’s easy or you’ve saved ahead of time, or you’re going to make an intentional choice to stretch yourself in this area, you have that information, you have that knowledge, you can make those decisions, back to your empowerment.
Ron Saharyan: Absolutely. Absolutely. You’re taking the bull by the horns and making informed decisions based upon what you see in the business with the cash flow. Chances are your CPA hasn’t talked to you in a year anyway. And the truth of the matter is is that 83% of businesses are struggling check to check, okay? That includes accountants, right?
Tara Newman: Very much so sometimes.
Ron Saharyan: I know, I know. And so doing the same thing over and over and over and expecting a different result is what? The classic definition of insanity, okay? And you’re probably being driven to insanity by those telling you, “Oh, you can’t do this. You can’t do that,” or, “No, you don’t have the money.” You can do it. And Profit First is not a get-rich-quick scheme, okay? We start slow. We start small. We start with one account, one percent. We start to build. And by working with Tara, you’re working with a personal trainer that’s going to make sure that you get the results you want faster and you don’t hurt yourself or the business. Tara’s trained, we’re trained to not just go in there and like a bull in a china shop and upset the applecart. No, we’re going to strategically implement this system, hold your hand and guide you on the success that you’re looking for. And it’s not going to happen overnight. It’s not.
Tara Newman: That’s really actually what I love about Profit First is it’s about incremental small steps. I think what actually happens when you work with someone who’s not a Profit First professional and hasn’t been certified, they don’t realize… That never happens, right?
Ron Saharyan: Oh, it’s the worst. I just lambasted somebody on Facebook right now. Literally just 10 minutes before we got on here. Some guy’s talking about he’s teaching Profit First and this and that. I’m like, “Oh my god,” I’m cringing. Because just because you read the book doesn’t mean you’re an expert.
Tara Newman: Yeah, and what happens is they take the percentages that are in the book and they coach on those percentages. And those percentages, when you read them in the book, are for financially elite businesses and are most likely not where your business is. And getting you from where you are today to those percentages is a year to 18 months depending on where you are, what kind of business you have. And so I love that it’s incremental, that it’s small steps, that it’s a slower pace, and that you’re really looking to create behavior change with this system.
Ron Saharyan: It is, but it also puts guardrails in place to prevent overspending. My brother and I had the same parents, we were taught the same envelope story, but guess what? He can’t walk down the street without money jumping out of his pockets, right?
And so he needs to have more guardrails in place. And so Profit First is flexible. It really is. It’s a wonderful tool to help with clarity. But again, it’s not accounting. It’s not bookkeeping. But the devils are in the details.
Tara Newman: The other thing that I heard you talk about that I want to talk about, it’s really important, I teach this as well, is how to use Profit First to determine your revenue goal.
Ron Saharyan: Nice.
Tara Newman: Yeah, let’s talk about that.
Ron Saharyan: All right, awesome. So, one of the things that we start off with is something called income targeting, right? We know what the percentages in the book are. We know the money that we want to make. So, the first thing that I like to do, we like to do is, “What is your desired owner’s pay? What is the lifestyle that you want to live?” Right?.
Not just what your obligations are. But say, for example, you want to make 200,000, okay? Right? You put 200,000 in the owner’s pay calculator. Of if it’s 50,000, right? You put it in there. And then we take a look at the charts in the book, and we can reverse engineer to determine what the top line is based upon your desired owner’s pay, which is very good.
Tara Newman: And I have something really exciting.
Ron Saharyan: Oh, you do?
Tara Newman: We created, my team created a calculator–
Ron Saharyan: Nice.
Tara Newman: … to do this for them.
Ron Saharyan: Can you send it over my way, please?
Tara Newman: I will. But what’s important is anybody listening to this, and you want to identify what your revenue goal is, go on over to the show notes, and you can grab that calculator for yourself which will take you through documenting all of your expenses.
Ron Saharyan: Oh, it goes that deep? Oh, wow.
Tara Newman: Yeah, so what they do in this calculator is they document all their monthly expenses. We left extra lines because maybe you’re saving for a vacation, maybe there are some upgrades in your life that you want to account for.
Ron Saharyan: Or you’re in the East Coast and you’re going to need a new roof, a new boiler, a new something.
Tara Newman: Anything, right? Your kids want to go to camp, I mean whatever. So, what it then does is it tells you how much you need on a monthly basis. It annualizes it. And then it takes that annual number and puts it in the CEO pay category and reverse engineers, without them having to do anything, where that puts them in terms of revenue, what you would pay in taxes, what you would have for op-ex and all those things.
Ron Saharyan: Wow.
Tara Newman: And we’ve really been working to get this because my CFO is also, he’s underneath me in the Profit First program. So, we have a Profit First firm. And so we’re really excited about that calculator.
Ron Saharyan: Which is brilliant.
Tara Newman: So, yeah, anybody who’s listening who wants to figure out what their revenue goal is, they can go and… What’s really interesting about the calculator is if your income is starting to creep up into that area where it would throw you over the $250,000 revenue mark, you have to change it, right? Because then your percentages change. So, we have a toggle that allows them to put themselves in the next income bracket for Profit First, to reestablish their percentages. And what’s really fascinating to see is how much more money you need to bring in in revenue to hit that number. It’s like that 250,000, if you want to be a company of one, you want to be really profitable and lean and you just want to do 250,000K, 300, year after year after year, you can really build wealth and support your family with a six-figure salary with doing that amount of money in revenue.
Ron Saharyan: Yes.
Tara Newman: It’s a sweet spot actually. Because once you start creeping up over that and your percentages start to change because you need a little more to run your business and expenses, you start to really see the value of deciding if you want to be a company of one, a really powerful little operation like that or if you want to grow and take your business in this direction.
Ron Saharyan: I love that because 100 grand isn’t what 100,000 grand used to be.
Tara Newman: No, no.
Ron Saharyan: Right? And so 250, 300, 400, that’s what we should be shooting for. That’s the ideal target, right? And as a solopreneur with maybe an assistant or one or two other people-
Tara Newman: You can do it. It’s doable.
Ron Saharyan: Oh, absolutely.
Tara Newman: I can get you there.
Ron Saharyan: Yeah. Yeah, I know. And it’s great. And the thing about Profit First is that you can gamify it, right? It’s fun. How are we going to get to these percentages? “Hey, if I can increase my margin by 2% across the board, what is that going to do for my take home?” Right? “If I can reduce my expenses by 10%, what is that going to afford me the ability to do?” Right?
Tara Newman: Yep.
Ron Saharyan: And you can model situations out. “How do I know if I can hire, if I should hire?” Well, we can open up a bank account. We can test the elasticity and the cash flow. And if whatever based upon the total investment would be, we’ll model it out. And then when that bank account is full for your new employee, you already have it and you’re able to pay. So, there’s a lot of advanced strategies that this system, properly implemented and worked, will provide unlimited benefits.
Tara Newman: You’re really able to plan for your growth in that sense. And I think we’re segueing actually into an important topic. So, Ron is known in the Profit First Professional as Obi-Ron Kenobi because he is our Jedi sales master. And the one thing that Profit First has done for me as a coach and as a consultant in this area, it’s really emphasized the sales pieces. Because the biggest gap in a business owner’s skill set in my opinion, from my research and from the people that I work with, is their sales skills.
Ron Saharyan: Right. And so I’m going to say it may not necessarily be their sales skills. It may be their fear of sales, right?
Tara Newman: Right.
Ron Saharyan: That worry itself.
Tara Newman: And, honestly, offer creation. So, that offer creation and their sales skills. So, I teach selling in a framework called EMS, energy, mindset, and strategy, in that order. So, we have to talk about the energy behind sales, the mindset behind sales, really getting at your thing that you’re talking about. And then the strategy. Because most people actually understand or naturally are decent sellers, especially if they’re coaches or whatever. They have a good sales ability there, but it’s that whole piece. But really the point is is that we need to have a greater focus and emphasis on selling in our businesses.
Ron Saharyan: Yes. And I don’t teach sales training. We teach response training, right? And so with sales, it’s generally responding and articulating the value and the benefits of working with you and/or your product.
Tara Newman: This is where Ron is going to talk about value pricing because he does it really well.
Ron Saharyan: Yeah, right. But even before we get into Goldilocks pricing and the three tiers and all of that great stuff, the business owner is the number one salesperson in any organization.
Tara Newman: So, if you’ve been listening to my podcast for any length of time, you know that I’ve said your number one role is a commissioned salesperson.
Ron Saharyan: Absolutely. It’s more impactful. You’re more passionate. You understand the products more than anybody. And you know what? If somebody doesn’t buy your product, screw them. Their loss, right? Because you know how good your product is. You know how good your service is. There’s always going to be people out there that can’t afford it. And there are always going to be people that say, “Holy cow, what a bargain.” Right? And so by having a robust sales system, which can be complex but it doesn’t have to be, by having a script or an outline that can guide you on communicating the value and the benefits, and then to simply ask is this of value to you. Is this something that you would like to move forward with? And so one of the things, if you’re in a sales capacity, and I am, I am our sales guy, our chief sales guy. I take all of the sales calls pretty much. And, for the most part, I start off my meetings like this: “I have nothing to sell to you today. My job is to hopefully provide you tremendous value, answer your questions, fill in the blanks. And, together, we’ll determine whether or not this is a mutual fit.” It’s that simple. Right? And here’s another thing. It’s not your price. It’s not the price.
Tara Newman: It’s not the price.
Ron Saharyan: It’s not the price.
Tara Newman: You tell them, Ron. It’s not the price.
Ron Saharyan: It’s not the price. And price dictates perception.
Tara Newman: Yes.
Ron Saharyan: Right?
Tara Newman: Price dictates perception, yes.
Ron Saharyan: Absolutely. And depending on what type of firm or business you want to be, I’ll use the restaurant industry, right? You have three types of restaurants: fast food, ma and pa, fine dining. Each one of them is a great business model. Each one of them is marketed differently and run differently. What type of restaurant do you want to be? Because if you’re selling 99 cent burgers, you’re using price attraction. You know what you get, you know what the quality is. You’re selling $75 burgers, well guess what? You’re using price discrimination because you don’t want people in there bitching and moaning. And then there’s the middle which is a blend of both. So, what type of product or service or firm do you want to be? And then you can build that knowing it.
But if you want to really move your product, price dictates perception. And I’ll give you an example. Say Tara and I are walking down Main Street where our home base is. And we see a jewelry store. We look in there, and we look at this really nice necklace. We’re looking at it, and it says $25. Tara and I know immediately it’s cubic zirconia. It’s not gold, it’s not platinum, all that great stuff. Now, if Tara wants to buy it, she goes in there and buys it. Great. Maybe her kids or whoever wants to see it. “No problem, here you go.” I don’t know if you have a dog or cat, but if they get it and it ruins it, okay, no big deal. You’ll go get another one. Now, we’re walking by that same store. We see the exact same necklace, $15,000. Tara’s like, “Yeah, I’m buying it.” Why? Because you can already assume it’s better quality. It’s going to be real diamonds, real platinum, all of that great stuff. But if we’re fortunate to buy it, Tara’s going to treat it better, okay? The pets aren’t going to play with it. The kids aren’t going to play with it. We’re going to lock it up, and it’s going to be an heirloom, okay?
A funny thing happens when people buy an expensive product or service. They tend to treat it better. They want to make it work. They want to help out, okay?
Tara Newman: I’m just going to start giving Ron snaps right now because nobody wants their neck to turn green from cubic zirconia.
Ron Saharyan: Right, no. Right? But the fact of the matter is price dictates perception, right? And so if you’re throwing out low prices, you’re on a race to the bottom. There’s no way anybody can offer the very best product and service at the absolute lowest rates. It doesn’t happen. Right? So, I know it’s hard for me to… Not hard for me to say, it’s easy for me to say raise your rates, raise your prices. And I also follow my own… I walk the talk. We just raised our rates. We raised our rates by almost 40%. And that’s scary, but guess what? We’re doing it because the value is there.
Tara Newman: You also do a great job at walking the talk because you had a brilliant Facebook post the other week about how you swung and you missed a whole bunch of sales calls in a row.
Ron Saharyan: Oh, it happens. It happens.
Tara Newman: This is a guy who’s closed millions and millions and millions and millions and millions and millions of dollars of sales in his lifetime, right?
Ron Saharyan: Yes.
Tara Newman: And you had a string of 10 nos or something like that.
Ron Saharyan: It happens, right? It happens where it’s, “No, no, no, no, no, no.” And the first thing that I think is, “Oh my god, it’s the price.” No, it’s not the price. I went off-script. I did something different. I over-regurgitated the value. I oversold. I didn’t do a good job, right?
Tara Newman: Yeah.
Ron Saharyan: But I know it wasn’t the product. I know it wasn’t the price. It was how I was communicating this, right? We’ve all been there. We’ve all done it. Even the best salespeople in the world just like the best athletes in the world, they practice. They have a coach. They fall down, they get themselves back up. They practice, practice, practice to get better, right? And so by working with Tara, she’s going to be your coach. Everybody should have a coach, first and foremost. And a lot of business owners think that they shouldn’t because of some wacky thing, “Oh, I need help, I need a coach.”
Tara Newman: God, I have more than one.
Ron Saharyan: Yeah, right.
Tara Newman: I have multiple.
Ron Saharyan: Yeah, Mike and I have a relationship coach too, right? And so it’s work. But know in your hearts and minds that you can do it by simply taking the steps. Now, if you don’t have the clarity on finances, you don’t have the clarity of the systems, you don’t understand how to pay yourself, that’s all going to take away from you selling your very best, right? So, Profit First is a system and a methodology that will, one, provide you clarity, two, will empower you, three, you’ll now be able to have focus on growing your business.
Tara Newman: And I find that you should apply Profit First from the very beginning.
Ron Saharyan: As we start up.
Tara Newman: Yeah, I mean I have calls with people all the time where they’re like, “I’m thinking about starting a business.” And we map out some Profit First numbers for them. Because it directs their attention, effort, and energy as to how much you have to sell, and when you’re going to have to sell it. It actually reduces that feeling of burnout among business owners.
Ron Saharyan: And also, plus, it busts the doctrine of sacrifice, right?
Tara Newman: Yeah.
Ron Saharyan: Because all along we’re told, “Oh, you’re not going to be able to pay yourself for a couple of years. Oh, you’re not going to be profitable for year five.” Bullshit. That’s because you’ve been doing the same thing over and over, and it doesn’t work. But by implementing a sound system as your financial foundation, all you’re going to do is grow a straight building versus the Leaning Tower of Pisa.
Tara Newman: Yep. Now, as we kind of roll us out of here, I want to ask you a last question.
Ron Saharyan: Okay.
Tara Newman: I know that you’ve been doing a lot of thinking about how to help business owners during this time in our economy and with everything that’s going on. We’re now almost a year into COVID. So, I’m just curious about some of the advice you’re giving people right now that’s very relevant to the time we’re in.
Ron Saharyan: Understand that it’s not what you’ve done, okay? There’s no going back and crying over spilled milk. Know that the situation that you’re in today is the situation that you’re in. It does not mean you have to remain in that situation, okay? You started a business. You had a successful business. That happened. Now, there’s an opportunity to rebuild properly, to be fiscally responsible, to open up a core capital account so that you can have four to six months of operating capital should a pandemic or a regional disaster hit, to architect the bank accounts and the cash flow system to not only alleviate the pains that you have but also to look further down the road to achieve the wants that you have and to take it methodically. Don’t bite off more than you can chew. Understand where you are is fine. It is what it is. But know that you can get on the right path and architect your business to, I wouldn’t want to say eliminate financial stresses but brace yourself for any uncertainties that you may have.
Tara Newman: I would say mitigate them.
Ron Saharyan: Yeah, yeah.
Tara Newman: Yeah, I would say mitigate them. Again, because of the line of sight that you have. You could make better decisions and you can be more intentional and discerning in how you navigate a crisis. I really feel like COVID was kind of like the business case for Profit First.
Ron Saharyan: It is. I mean cash flow, cash is king. Everybody knows that, right?
Tara Newman: Yeah.
Ron Saharyan: But yet no one tells you how to manage your cash flow, except us. And by having a vault account, by having an expansion account, by having the foreword thinking of noticing that shit’s going to happen again, right?
Tara Newman: Yeah, it just is.
Ron Saharyan: It just is. It just is.
Tara Newman: It’s what can you control and what can’t you control. You can’t control that this is going to happen again, but you can control how you’re prepared for it when it does happen.
Ron Saharyan: Exactly.
Tara Newman: And you do that by implementing Profit First. I did learn an interesting lesson that proved out really fascinatingly. I knew this in theory but then it proved itself out last year. And I’m just curious to know your thoughts on it. So, I’m a big proponent of do not cut your prices in an economic downturn.
Ron Saharyan: Right.
Tara Newman: That is like death. Do not do that. You can offer a separate item that is lower priced into your offer mix. But don’t cut your prices on established programs. And so I had two programs. And I suspected, just because I survived the last economic recession… My husband and I had a business. We wound up going bankrupt. It was a very Mike Michalowicz type story but that happened during 2008 and 2009. And so I’ve always been keeping an eye on this. And in 2018, my dad’s also a small business owner, my dad and I had breakfast and he’s like, “We’re going to have a recession.” And I’m like, “Yeah, I know.” And he’s like, “You should start preparing for it.” And I said, “Yeah, I know.”
So, in 2018, I created a program… Oh, by the way, he used to always… His first question my dad would ask me at breakfast would be, “Are you saving for your taxes?” And finally, I explained to him Profit First, and he’s not asked that question of me again. So, really thank you to Profit First for that. But I created this program that I was going to be priced lower for businesses who might be struggling or for businesses who might be scared to invest at the time. And it was a lower-priced product. And then I have my higher-priced products like my one-on-one and my mastermind. So, it was really interesting last year to see the hardest program to sell, my lower-priced program. The easiest program to sell, my very high, high, premium one-on-one and mastermind program.
Ron Saharyan: Right, right. And the reason is because of the accountability that is in those higher-end programs. A lot of the $97 things and a lot of the little things that people are putting out there, that’s a money grab at times in my opinion, right? It’s not really going… it’s going to help if you follow it, but there’s no accountability necessarily and it might not be everything. And so that’s why I see some of the higher coaching programs, the rosters get filled up.
Tara Newman: Yeah, I also think it goes back to your point about perceived value, right?
Ron Saharyan: Absolutely, yeah. I mean, listen, I know what I’m going to get for 99 cents. I know what I’m going to get for 10,000, right?
Tara Newman: Yep.
Ron Saharyan: But not a lot of people have the money to invest in that, okay? And so one of the things that I recommend to everybody who is listening, open up an additional personal development account. Selfishly, I want you to use it on an investment in Tara. But if for any reason Tara’s not a fit, at least you’re building for your personal development and your business development. We’re all learners. Maybe you want to use that money on a certification. Maybe you want to use it on going to a conference. Maybe you want to use it on hiring a great coach like Tara. Everybody who is in a business should have a personal development account.
Tara Newman: So good. So good. And I’m going to take us out of here with this. If you see people talking about Profit First, if you see people coaching on Profit First, please make sure that they are certified.
Ron Saharyan: You don’t want somebody guessing on your finances. I mean the book is the tip of the iceberg.
Tara Newman: Yeah, it’s important for the people who are doing this work to be in integrity with it and to be investing in their own education around this, their own continued development around Profit First, and their own certification around it. That’s why there’s a certification.
Ron Saharyan: You had to jump through hoops, right? It wasn’t just, “Hey, here’s a test. Here you go.”
Tara Newman: I sweated on that certification.
Ron Saharyan: I know. There’s an application process. There’s an interview. Then you have to go to three to six months of training. You have to practice. You have to do all this crazy stuff that ensures-
Tara Newman: And meet with your guide.
Ron Saharyan: Guides, everything. I mean this isn’t just, “Hey, here you go. Take this exam and you’re certified.” No way.
Tara Newman: I had legit anxiety taking that certification exam.
Ron Saharyan: That’s good. Yeah, and then you have to reissue a certification. Then you have to be in good standings. This is no joke that Tara is investing time and money in so that she can really help her customers.
Tara Newman: I really think that this work is so important. The mission for Profit First is around eradicating entrepreneurial poverty.
Ron Saharyan: Yeah, we’re a mission-based business. I mean that’s what we are. And so everything we do, everything and every decision that we make is, “Is this going to help us eradicate entrepreneurial poverty?”
Tara Newman: Yeah. And it’s something that’s so important because there are easier ways to make money.
Ron Saharyan: If we can help business owners pay themselves, have money for Uncle Sam, and a profit, even if that profit is 3, 3.5%, they can pay down their debt, celebrate the health of the company or hire.
Tara Newman: Build wealth.
Ron Saharyan: Yeah.
Tara Newman: Make hires. I was so fortunate this year that we had growth in 2020. And we have a separate account to bonus our team.
Ron Saharyan: Yeah, we have a profit account. Yeah, that’s another thing. We have a profit account, yeah, we give to the employees.
Tara Newman: And so I was able to share in the wealth-
Ron Saharyan: Awesome
Tara Newman: … and profit that I’ve been creating and share that with my team. And that’s really why I do this is to build wealth for myself and others.
Ron Saharyan: That’s what it’s about, man. It’s a lot more fun giving than receiving. And having a tithing account or a family account or whatever, I mean you can’t be charitable or helpful if you don’t have the money or the time.
Tara Newman: Yeah. Yeah, that’s like so many people I hear. They have these impact goals, and they want to make an impact and they want to make an impact. And I’m like, “You have to make the income first.”
Ron Saharyan: Yeah.
Tara Newman: And it’s hard to make an impact of a sizeable portion that they want to make an impact in if they’re not financially running a healthy business, if they themselves don’t have financial health. And then they can go and have this impact.
Ron Saharyan: Yeah.
Tara Newman: Yeah. Thank you so much, Ron, for coming on.
Ron Saharyan: Oh no, thank you, Tara, for inviting me and doing what you do. And thank you listeners. Don’t forget to like, subscribe, and share this with everybody.