We’ve read Profit First by Mike Michalowicz and it’s an awesome book. The premise of it isn’t anything you haven’t heard before. We have all heard the adage to “pay yourself first” time and time again. It is good advice. The few of us that actually implement it – Richest Man in Babylon style – do reap the rewards.
It feels great to have money in the bank.
We know this works well in our personal life. Now on the business side of things, we’re not sure why it never really occurred to pay ourselves first in a similar fashion. Afterall, the purpose of a business is to make money and serve its owners. However, it is very easy for us as business owners to get caught up in trying to grow so much so that we don’t remember to put something aside for the work we do.
We have toyed with the idea of setting up escrow accounts for the annual expenses of property taxes, insurance, future down payments and the like, but actually implementing the idea is another issue entirely. So, starting at the beginning of 2016 and we decided to try something new for our business. (To get different results you have to try different things.) The rental housing business had a small savings account that we started putting money in just so we would have some sort of a cushion. When we got started it only had $200. (naked truth!!). But after reading Mike’s book, we are happy to have something to start with.
On the right track…
Even before we finished with the book, we could tell it would be helpful. We were on the right track it seems but just hadn’t put on our adult britches to actually do it. Well folks, the time has come. We implemented the Profit First strategy in our business and so far so good. We had some shortcomings in terms of the expenses we had, so we had to make a payment plan with those vendors and cut out some of these unnecessary expenses to stop the bleeding as Mike says. It really feels nice to have a better framework for managing the cash in the business.
Paying bills multiple times per month
Richelle is notorious for complaining about having to pay bills multiple times per month. Why can’t the utility companies all get in synch and send out bills at the same time!?!? #suchislife Mike actually suggests paying expenses on the 10th and 25th of the month. Perfect! No need to feel like such a screw up anymore. We already do our invoicing/billing on the 20th of every month. Setting aside days to do the bills just made things that much simpler.
If you’re interested in the managing your cash flow better, we suggest you give it a read. For a one sheet overview of the book and what it suggests you implement – visit the resources page of Mike’s site and download the PDF.
You start out by doing an ‘instant assessment’ on your business. This helps you identify where you have areas where you may be putting too much cash and the areas where you may be under-funded. This is helpful if you have been generating sales for a year or more. If you are just starting out, have no fear! You’re probably in better shape because you can start off right from the beginning.
If you want to see how your business stacks up then check out the instant assessment handout here. For real estate and landlording businesses, the ‘subs’ line item would also mean any bank financing/debt you have because it does come off first before any profit, etc.
Happy business building!
Just as a bit of a calibration, we want you to know that we didn’t go crazy and adamantly proclaim that we were entitled to have my 30% profit above all else, no matter if we can’t pay our bills. We only started with a 2% target to get in the habit. It really helped us look for ways over time where we could reduce cost and move more of the cash into the profit account instead of letting it go out the door.