Keeping us clothed is a $1.5 trillion industry that consumes a lot of resources and casts a large environmental footprint.FULL STORY
Build Your Business: Management
The ‘Profit First’ Wave: Part 2Decorated-apparel professionals discuss their experiences implementing this new accounting system.
Rockford Art Deli’s Jarrod Hennis says the Profit First model has helped him better track the company’s fixed expenses, loans and monthly payments.
Editor’s Note: In Part 1 of this series, which appeared in the August 2018 issue, the author reviewed the accounting practices touted in a new book by Mike Michalowicz entitled “Profit First: Transform Your Business From a Cash Eating Monster to a Profit Making Machine.” The premise of the book is to change how most businesses handle their money. He also spoke with Mark Coudray, Coudray Serigraphics, San Luis Obispo, California, who is a certified “Profit First Professional.”
This installment includes a question-and-answer session with decorated-apparel shop owners discussing the Profit First system and the process of implementing it in their shops. We also spoke with the leader of Profit First Professionals to get his thoughts on working with his group to implement the system.
Impressions: Have you seen bigger profits for you, the owner, than with previous accounting methods?
Kyle Robinson, Print My Threads: Assuming we keep pace, I should see no less than $20,000 raised this year through the quarterly owner’s disbursements. This is the first time since starting the business in 2009 that I feel adequately compensated. The business is finally starting to serve me and my family. I’m finally able to contribute toward paying down personal debt, I’m setting up a Roth IRA, and we are paying back all of the money that my wife and I have personally invested into the business. We are also looking into setting up a 401(k), offering additional benefits for my employees, and building up a reserve savings (“Vault”) account of $100,000 for the business.
These are all things that I’ve always wanted to do, but never felt that the business could afford. By implementing the Profit First model, I’ve realized how much money the business was wasting and literally turned that waste into profit. When I first read the book, I was hooked. I didn’t know if and how it could work, and my wife was super skeptical, but it does, and I have $20,000 in profit — in only three months — to prove it.
Shelby Craig, Rocket Shirts: Yes. Instead of wondering what the number will be at the end of the year, we celebrate every quarter. It’s exhausting to work your butt off for 12 months to only find out you didn’t make any money. Every quarter, we know exactly how healthy our business is and we can make adjustments accordingly to scale back or up. We are a two-year-old company that — after all the bills, owners and employees were paid, bonuses were given and taxes paid — we ended last year with $75,000 in the bank.
Tim Kelly, Howlers Ink: Yes. In the past when I would have a good month, I would pay some bills and go out for some fun, but never paid myself a salary until now.
Jarrod Hennis, Rockford Art Deli: Not yet, but we are just approaching our busy season. We are very excited to be in full swing when that hits.
Impressions: What has been the biggest hurdle setting up Profit First in your business?
KR: The main investment of time was getting the multiple checking accounts set up and then rerouting some of our auto draft payments. We already had a main operating account and a separate payroll account, so this wasn’t too bad. We kept these accounts and then added to them.
SC: The five accounts seem a little daunting to the business owner. But once you overcome that hurdle, it’s a breeze.
JH: So far, I would say it has been having enough money to allocate to each account bi-weekly. Paying your bills last is a big change in any lifestyle or business venture. We still are figuring out the sweet spots for each allocation. I decided to do weekly allocations because that felt safer and less intense.
Impressions: Why did you revamp how you think about the money earned from your business?
TK: I’ve been in business since July 2017 and I saw a decent amount of money coming through almost immediately, but operated out of one checking account. I always found it hard to pay myself, and always found myself wondering where the profit was. I read the book for that reason: finding the profit for myself. Being a visual person, having several bank accounts was the best way for me to see where my money was at any given time.
JH: I owned the audiobook for more than a year. It was sitting in my Audible library waiting for the right day. Since most shops are slow in Q1, especially the retail side of things, I decided to look into some new ideas for internal structure.
Impressions: Has there been an immediate benefit that you thought was surprising?
KR: By the end of the first quarter, we’d accumulated more than $20,000 in our “Profit” account. My wife and I couldn’t believe it and we’re both thrilled with the results.
SC: We have been profitable since day one. It is the No. 1 resource I recommend to a new business.
TK: The immediate benefit was seeing how much money I actually have. I did not fall behind with taxes this year because I had a tax account with more than enough to cover everything. I have an operating expense account and I know just how much I’m allocating to spend over a given time.
Most importantly, I’m paying myself a salary out of my owners pay account. Within a month, I have enough money in that account to cover my salary for two months. December through February has always been a struggle for me financially due to it being a slow time of year. This year, I’m on track to be able to pay myself through those slow months.
JH: It really has opened my eyes to spending and what fixed expenses, loans and monthly payments we have.
Impressions: If you could give one suggestion to anyone starting Profit First, what would it be?
KR: Start it now and don’t wait. Even if you can’t put much away at first, getting the system in place is a game changer, and the first step is getting your accounts and the model in place. If accounting is not your thing, and you don’t have someone on staff who can do it for you, then find and hire someone who can. If done correctly, the additional money you make and save should more than cover what you pay to implement and manage the Profit First model.
SC: Start yesterday. If you aren’t ready to make the all-in plunge, take baby steps. Set up your profit account today and begin transferring 1% of all deposits into that account. If you have a $400 check come in, take $4 and stash it away for profit. If your business can operate off of $400, it can operate off of $396. Then, each quarter, increase your amount by 1% until you hit your target profit allocation.
JH: Create your accounts because that’s free and easy. Contact a Profit First Professional and ask for help. It’s very hard to do it yourself, but it’s possible. If you are an owner/operator, you need the help of a professional to get things moving for you.
Impressions: Have you had to spend more time doing accounting tasks than normal with Profit First?
TK: Slightly more time, but it’s more enjoyable now. It’s almost a game every two weeks when I split my earnings up between my accounts. My wife enjoys it so much I let her do all the transfers. My QuickBooks accounting software still is a slight mess, so that’s the next project to tackle.
The Final Word
Ron Saharyan, co-founder and managing partner of Profit First Professionals, leads the group of accountants, bookkeepers and business coaches who guide entrepreneurs to high levels of profitability. He has more than 15 years of experience managing organizational growth and specializes in business cash-flow management.
Impressions spoke with Saharyan on topics from working with Profit First Professionals to expectations for revenue growth using the system. The following is what he had to say.
Impressions: What is the No. 1 reason that a company would need to work with a Profit First Professional, rather than implementing this system themselves?
RS: Profit First DIYers only have explicit knowledge. Certified Profit First Professionals have tacit knowledge. Explicit knowledge is something that you can get out of a book, you can get it from a PowerPoint presentation, a spreadsheet, a podcast etc.
Tacit knowledge is what is “sticky.” It is the stuff that is in your head. It is all the little tricks of the trade, the experiences you have learned. It is the craftsman’s way of knowing when to break the rules, or the surgeon who knows when to deviate from standard procedures. It’s tacit knowledge that’s so expensive to transfer.
Impressions: What is the percentage split between companies that handle Profit First on their own vs working with a Profit First Professional?
RS: Pretty much like the gym and fitness industry — 80/20. About 80% goes to the gym themselves, 20% use a personal trainer. Ironically, those 20% get a much better experience and results sooner.
Impressions: One of the biggest challenges that I’ve seen from speaking with companies is finding no-fee banks to use. Is there a master list available?
RS: Due to this we have begun to “certify” banks directly. The North West Bank of Iowa will be the first. There’s an article on our website, profitfirstprofessionals.com, that will help users identify banks. The website also has a link to our bank list.
Impressions: What is the bottom-line dollar impact on Profit First for revenue growth for small businesses that implement this system?
RS: We find that businesses that use Profit First generally are growing two times faster than their contemporaries.
Marshall Atkinson, owner of Atkinson Consulting LLC, is a decorated-apparel industry production and efficiency expert who focuses on operational efficiency, continuous improvement, workflow strategy, business planning and more. For more information or to comment on this article, email Marshall at firstname.lastname@example.org.
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