Is Your Business Profitable?

[Pesso]

Hey Square Readers,

Welcome back! We hope you had a great holiday season, and that you’re excited to get back into reading and bettering your business.

Today we’re starting our fifth book, Profit First by Mike Michalowicz!

This book is all about getting your business finances in order, by making sure your business is profitable and that you are getting paid. The book goes into both theory as well as practical strategies of doing this. This includes the author’s core strategy and method of working backwards from taking your salary first and then using the rest to budget what expenses your business can afford.

As we start reading the book, let’s kick off our conversations with a baseline of how your business is doing financially. For privacy and safety reasons, we recommend not sharing your financial numbers. If you do want to give examples, you can share in terms of percentages, rather than dollar amounts.

So let’s talk:

• Is your business profitable? Are you able to easily cover all of your expenses and pay yourself? 
• If not, how do you handle being short on cash flow? 
• If yes, what do you do to get and stay there? 

Start reading the book, and we'll be back next week with more discussions about the author's strategies.

For some extra fun, share a selfie of you with the book here in the comments! 

View and Subscribe to all threads about this book.

Happy reading,

Pesso

[maxpete]

Totally agree on how much of a juggling act this can all be! Also, I am a big believer in paying yourself and taking profit because you have to take care of yourself and all of the bills, etc. 

[JAP21]

Excellent suggestions, especially due to being self-employed. It is very important to plan ahead for those tax costs.

[Pesso]

Thanks for sharing, @CareyJo !

That's such a good point and way of looking at it -- pay yourself first because your business can't survive without you in it. Just like you wouldn't not pay your employees, you shouldn't not pay yourself. Taxes definitely are a must though, and another equally high priority!

Budgeting is absolutely key, and very much in line with the Profit First strategy too.

That does sound like a really big challenge when you need to shell out so much money in materials & equipment, and need to hold onto it until you get paid -- but I'm glad the deposits help at least a little bit. 

Rooting for you and can't wait to hear more of your thoughts and processes!

[HC_Charlie]

I haven't done my final taxes for last year 2023 yet, but based on a quick look it appears this has been the most profitable year I've had since I started my retail store five years ago. But most of the profit I think it attributed to starting wholesale about 1.5 years ago. My goal is to switch to solely focus on wholesale during this year 2024, so I'm hoping for larger profit at the end of the current year.

I've tried to implement the Profit First calculations earlier this year, and set up my own spreadsheets with some adjustments that fit my specific business/accounts. I really liked it and it seemed to make having more cash on hand and money in my own pocket (paycheck!!!) easier. I'm hoping to get back to working the system this year.

[maxpete]

Huge congrats on your most profitable year!! That is amazing 👏

[Pesso]

That's wonderful to hear that you're profitable and rising, @HC_Charlie ! So interesting that the wholesale is bringing you the majority of your profit. When you say you want to switch your focus, what does that mean?

Very cool that you have tried playing around with Profit First already! So great that it worked and gave you more cash on hand and more of a paycheck. Have you just tried it in a spreadsheet, or did you try out the accounts too? What made you stop?

[HC_Charlie]

@Pessoby switching focus in my business, I mean closing my retail store and focusing on selling my handmade items wholesale to other retail stores. I think I'll still keep a small selection of cards and gifts solely online, and see how that goes before I close off all retail selling.

When I worked with Profit First the beginning of last year, I set up a spread sheet according to the recommended accounts, and then I'd move the specific dollar amounts to a few different accounts in my bank. ( I chose the percentages to what I think I could afford to spread out and still have funds for operating expenses.) I then used Square Savings as one of my accounts to save for tax purposes. Here's a screenshot of the spreadsheet I setup with just a sample:

I stopped using the system out of necessity...my income during the Summer months really started to dry up, and most of it had to go to OPEX to make sure I could pay all of the bills. BUT I found this super helpful to make sure I was getting a paycheck.

[Pesso]

Oh wow, that's a big shift, @HC_Charlie ! What else goes into making a decision like that?

I like that idea to keep testing it first and shifting some things to retail online first.

That spreadsheet looks great! I'm so glad that it helped to make sure you got paid! That definitely sounds tricky when sales slow down -- I'd be curious to see how things work for you this time around!

Next week I'll be putting up a new post with more details on the Profit First plan, with the principles and the first action steps. 

Thanks again for sharing-

[GourmetOnWheels]

My Business is profitable, but sales are in the toilet. But I see some sunshine coming up

Hopefully, I will pull it out of the crapper by March 1st.

René

[maxpete]

Brighter days ahead!

[Pesso]

Thanks, @GourmetOnWheels -- So sorry to hear that sales have been down.

How are you remaining profitable when sales are down? 

What will you do to stay profitable if sales stay down?

[Doran]

So let’s talk:

• Is your business profitable? Are you able to easily cover all of your expenses and pay yourself? I

It was up until the building collapsed a year ago.  But, I wasn't paying myself as much as I needed to pay my real-life bills.  I was investing most of my money back into the business.  

• If not, how do you handle being short on cash flow? 

Until a few years ago I relied on Square loans and credit cards to get through short cash flow months.  This wasn't a great model.  So when the Square savings came out I started putting a bit into that each month along with paying off the loan.  When taxes and other big known expenses came up it was great to just have that money ready to go.  In 2022, I started putting money into Square Savings folders for different things with each transaction--- Sales Tax, Stock replenishment/COG, Quarterly taxes, savings for new lights, and a yearly bonus for myself.  Everything else went into my regular bank account.  It was HUGELY helpful when the building collapsed and I went to making $0 a month. I had that bit of money to get through the really tough first 4 months.  Sadly, that bonus for myself and the new lights fund went to paying rent BUT I didn't have to take money out of my personal savings or get a loan so it felt like a half-win.  This new Savings folder system has helped me be better at budgeting each month and I no longer rely on loans for short cash flow.  But, I'm still not taking home enough money to pay for life. 

I'm halfway into the book and realize now I need to be better about paying myself.  I've done a few things recently to get there and I'm looking forward to the rest of the book.  

[Pesso]

Thanks for sharing, @Doran --

That's such a hard situation to be in, when things are so far out of your control. What was the decision like to keep investing into the business at the expense of paying yourself enough?

I feel that. The Square loans and credit cards can have their place, but relying on any type of debt can be really hard on a business -- profitability is the goal! That's so wonderful to hear that the Square Savings automatic transfers helped you have your expenses put aside already. That's definitely in line with the Profit First method, so you're ahead of the game in a lot of ways. 

It's definitely a rough spot to be in to not be paying yourself enough, but I'm glad you're on the path to getting there. Rooting for you so hard! 

[Pesso]

Thanks so much for sharing, everybody!

As we're starting to read the book, our next discussion thread lays the foundations for the Profit First plan by looking at what profit actually is, why it’s important to be profitable, and the reasons why so many businesses don't reach profit.

Can't wait to hear your thoughts over there!