As a business coach and host of thelotco Business Podcast, I recently had the pleasure of speaking with Amy Bett, a certified Profit First Professional. We delved into the critical topic of managing cash flow in business, a subject that often intimidates many business owners.
Listen to episode here:
Understanding Profit First
Amy introduced us to Profit First, a book and system developed by entrepreneur Mike Michalowicz. This system simplifies cash flow management, making it more accessible to business owners. However, implementing it can be challenging, leading to the creation of the Profit First Professional certification. This certification equips accountants, bookkeepers, and coaches with the skills to help businesses gain control of their cash flow.
The Importance of Cash Flow Management
We discussed and highlighted that 80% of businesses fail due to cash flow problems, emphasizing the need for financial knowledge in a digestible format. Profit First aims to educate business owners without requiring constant attention to numbers. Instead, it focuses on downloading and interpreting reports to understand business performance. It also advocates for setting up a cash flow system with 5-6 separate bank accounts for better control and visibility.
Overcoming Barriers in Cash Flow Management
One of the common barriers business owners face in managing cash flow, such as feeling overwhelmed or lacking financial expertise. Amy shared her personal experience of struggling with cash flow in her previous business and the importance of getting it right for success. We highlighted the benefits of having a simplified system and setting up separate bank accounts to allocate funds appropriately.
Paying Yourself as a Business Owner
Do you currently pay yourself? Amy and I discussed the importance of paying yourself as a business owner. Amy suggested starting with at least an income account, a tax account, and an expenses account. By separating the income account from expenses, business owners regain control over their cash flow. Mel and Amy also emphasized understanding gross profit margins and recommended keeping the cost of sales below 50% of total revenue. If you want more help on this use my Pricing Guide to help you understand pricing your product.
Seeking Professional Help
We stressed the importance of seeking professional help when it comes to managing finances in business. Amy assured listeners that understanding and managing their finances is not as difficult as it may seem. She suggests allocating about 10 minutes a week or fortnight to manage cash flow, which involves opening bank accounts and organizing revenue and expenses.
Understanding Financial Reports
We discussed the importance of financial reports and how they can be easily managed using software. Amy introduced a new software called Thriday, which has a bookkeeping and accounting element, as well as the ability to set up bank accounts.
In thelotco Profitable Product Business Roadmap program we dive into understanding and reading your profit and loss and why focusing on your margin is so important!
The Bottom Line
We concluded by stressing the importance of understanding the financial health of the business and not just focusing on revenue. We shared personal experiences of avoiding bills and highlighted the importance of facing financial challenges head-on. We assured listeners that it’s never too early or too late to start managing finances effectively and that making changes and taking action can lead to positive transformations in a short period.
For more information, Amy suggests reading the Profit First book and reaching out to a Profit First Professional. Remember, understanding and managing numbers is a skill that can be learned and is essential for business profitability. Start by understanding financial reports, setting up bank accounts, and taking necessary actions like cutting expenses, increasing prices, or focusing on marketing.
To get help with your Retail store, ecommerce store or brand and make sure you are making a profit book in a free 20 min chat with Mel to make sure are focusing on the right areas of your business.
Comments +