Is Your Quilt Shop Profitable?: Financial Planning Strategies for Retail Shop Owners
Updated: Jan 4
Did your business make money this year?
As a Certified Public Accountant (aka CPA) and a certified Profit Professional, this is one of the most frequent questions quilt shop owners ask me.
And I typically answer with, well, let's review your Profit First assessment.
Why do I do this?
Because cash is king!
Cash keeps the doors open. When money is not managed properly, the business is in trouble. Early warning signs of cash problems include:
getting a payroll
paying a vendor late
needing to get large line of credits
maybe even a new loan
Every business must manage its cash, and the Profit First system is the best cash management system.
It's really just like grandma's cash envelope system, modernized and adapted for business. Profit First helps us to manage our cash, make more money, and find financial freedom.
So the cash pinch or the cash squeeze is stressful, putting a lot of pressure on business owners, especially in our current economy. We business owners must solve that cash squeeze problem to make money and to have financial freedom.
Financial Planning Strategies for Retail Shop Owners
Financial freedom is probably the main reason you start your business or own your store.
Financial freedom takes on many different forms, but it includes things like providing for the needs of the family, saving for college or retirement, paying off the house or leaving, making substantial contributions or donations to your community and charity, or maybe even going on exotic vacations.
Either way, the Profit First system is how you can achieve this.
So, what is the Profit First system anyway?
If you've been around for a while, you know that I always talk about this. Profit First is grandma's cash envelope system. It's just modernized and adapted for business. This means that you will use multiple checking accounts to manage your business's cash.
How do you get the Profit First system set up in your business?
You should have six checking accounts and nickname them after their purpose income, inventory, profit owner's compensation, taxes, and operating expenses.
So, before we dive into each of those, we need to understand the core principles of the Profit First system: to help us stay away from danger, make more money and find financial freedom.
The core principles are:
Use smaller plates
Hide your money
Enforce a rhythm
Financial Planning Strategies for Retail Shop Owners: How it Works
So instead of using one bank account like one big plate, the profit first system has us open multiple checking accounts. These are your smaller plates to really help us manage our cash for each significant area of our business. This will help us and stop us from overspending in some categories.
This is when you prioritize and assign your money to certain expenses. This helps us save money for inventory, emergency funds, taxes, payroll, and other essential business expenses.
Hide Your Money
And when we hide our money, we aren't really hiding it. What we are doing is we're hiding it from other significant areas of business, so we don't overspend in those categories.
No more are we going to rob Peter and pay Paul even accidentally. When a purchasing decision comes along, we must make do with what we've got in that specific checking account for that category.
Enforcing the rhythm
This is when we are intentional and don't go into crazy spending mode when the cash flows in. We don't go into panic mode when we feel that cash squeeze. When we get into a rhythm with our cash flow and cash management, you will have your finger on the pulse of your business, allowing you to adjust quickly.
How can I ensure I make money next year?
First, it's pretty simple. Every two weeks, you will transfer the balance accumulated in your income account to the other checking accounts based on some of your predetermined percentages.
Every quarter, you're going to . . .
make an extra debt payment on your debt
pay a profit distribution
pay your estimated quarterly taxes
adjust your predetermined percentages
And then annually, you're going to review your financial freedom plan with your certified private first professional.
I want you to go open up your checking accounts. I recommend having six checking accounts and nickname them after their purpose . . .
Profit owners compensation
Then work with a certified Profit First professional like me; you'll review the last twelve months of your financial records to determine what percentage of your business income you're actually spending in each of those major categories.
Side note: The major categories are income, inventory, profit owners compensation, taxes and operating expenses.
This is your Profit First assessment or your Profit First cash flow analysis. The percentages you determine here will be your starting point - where you're going to start from. Then you will make quarterly adjustments to these to help you find your financial freedom.
With Profit First, you can have that financial freedom.
I will show you why the Profit First system works and how to get it set up in your shop. Join me on November 17th for a free webinar. Click here to register.