Creating Stability with Profit First
Updated: Dec 23, 2022
Did you know that most small businesses don’t have any way to manage their cash flow? Maybe they have a bank account or two, but nothing else.
And maybe that describes you, too. That was me when I first started my business. Most small businesses start off with just a checking account and maybe a credit card along with it. But there’s a much better way to manage cash flow in your quilt shop, and that’s what we’re going to talk about today.
Fixing Your Finances
I focus on helping quilt shops because a few years back, I became the co owner of a quilt shop that was struggling. I’m a trained CPA with a license in both Tennessee and Utah. When I joined that quilt shop to help them with their finances, we were over a hundred thousand dollars in debt.
One of the goals we set for ourselves was to get out of that debt in thirty-six months. Another goal was to grow our sales by fifty percent year by year. Like a lot of businesses, the finances were really messy. So I got in there to fix the books, and we did everything we could to make sure we were fixing everything that was wrong.
But it was really frustrating, because after a year of work nothing had changed. We were making the minimum payments on our debt, but we weren’t making any progress on them. We were talking about the problem, and my partner commented that having a profit means paying taxes, but there’s no way to pay the taxes without cash.
And that’s when a lightbulb went off for me. We had bookkeeping and accounting, but I realized we needed a cash management system. That’s when we implemented Profit First.
Using a Cash Management System
After we implemented Profit First, we paid off that debt within eighteen months. Profit first is amazing. It brings clarity into your financial world. When you have that clarity, you’ll understand what you can spend on different things and how to create financial stability.
You’ve got to have a cash management system. You’ve got to do your bookkeeping and make sure you’re doing your taxes correctly. And you need to go deep into financial analysis. Getting your bookkeeping and taxes right means you won’t get in trouble with the government, but understanding your cash flow will help you understand how to create stability in your quilt shop.
If you have a cash management system, a bookkeeping and tax system, and a financial planning and analysis system, you have all three aspects of the financial triangle. You may not think of how you manage any of these three aspects as a system, but you need to be on top of them in some way.