How to take your quilt shop to the next level!
One of the most common questions I get after explaining the Profit First system is, “Do I really need all of those accounts?” But after they do Profit First for a while, I get a variation of this question, “Can I open more accounts?” And the short answer is “Yes.” Once you genuinely do Profit First, you will love its simplicity and clarity for your business. And it is because of this that you will want to open more accounts.
Today, I will review some of the most common additional or advanced accounts that I use and see in quilt shops.
To ensure we are all on the same page, I will share what the Profit First system is in a nutshell. Profit First is a cash management system that uses multiple checking accounts to manage the cash flow in your business, making sure that, as business owners, we are spending and saving the right amount at the right time.
The core bank accounts I recommend for quilt shops are income, inventory, profit, owner’s pay, taxes, and operating expenses or opex. If you just stick with these accounts, it will do wonders for your business. But sometimes, we want more clarity, or we have nuances in our business that need special treatment. And today, I’ll talk about a few accounts that you may find helpful.
A Sales Tax account is one of the very first advanced accounts that quilt shops open. Remember, the purpose of the Taxes account is to pay for the Income Taxes that the business generates, which are usually passed through to the business owner to pay. But we do not have an account to save for sales tax. Hence the Sales Tax account. This account is especially helpful if you pay sales taxes quarterly or annually.
Another common account is the Payroll account for quilts shops with employees. This account is helpful to ensure that you have enough to cover Payroll, including payroll taxes.
Similar to the Payroll account is the New Hire account. The purpose of this account is to set aside what you expect to pay your next hire. Each allocation time transfer the amount that you would have paid a new hire into this account. And do this for at least two months, three is even better. If you can operate without taking money out of this account for those two to three months, then your business can afford another employee. And as a bonus, you have just set aside a 3-month emergency fund to pay that employee in case things go sideways. But you cannot afford to hire if you need to use that money.
Another helpful account is the Customer Deposit account. This one is useful if you sell expensive sewing machines, like longarms. When a customer pays their deposit, you put that deposit into the deposit account to hold on to or buy the longarm, then when the machine is delivered, you simply transfer the deposit into the income account and allocate it as normal. This can also be used for classes or other events.
A Repair account may be useful if you need regular repairs to the building, your in-store longarm machine, or general repairs.
Setting up a Contractors account may be useful if you hire outside contractors or teachers for classes.
Or an Events or Classes account to help you save throughout the year for those events.
If you have a very seasonal business or you get large pre-payments for customers, a Drip account may be needed. A Drip account drips a little bit into the Income account each month to cover the basic monthly expenses. I see this mostly in farming and Christmas tree stands. But you may want to use this account if you collect the majority of your income in only a few months.
An Equipment account is helpful to save for purchasing new equipment that is typically pretty expensive. For example, I set aside a small percentage to replace my computers every few years.
Another account may be a Vault account. This is truly an emergency fund above and beyond the Profit account. This is money that you only touch as a very last resort.
An Already Spent account can help remember that you previously wrote a check or placed an order for inventory. We use this account in our shop to help us get a real picture of what we really have available in our inventory account and how much is on order. Here’s how it works. When we place an order for inventory, we know how much that will cost, so we transfer that amount to the Already Spent account to reduce our balance in the Inventory account. And then when the vendor ships it and charges our debit card, the money comes out of the Already Spent account. So just by looking at these two accounts, we know the amount in the Inventory account is the amount we have available to buy new inventory. And the amount in the Already Spent account tells us how much is still on order. Just make sure you add a little bit for shipping and that your debit card is linked to the Already Spent account to avoid additional transfers.
The great thing about Profit First is that you can add an account for almost anything, from saving for charitable donations to employee bonuses to repairs and maintenance to marketing funds. No matter how many accounts you have. Always keep a list of the accounts, the purpose for each, and the allocation percentage or transfer amount for each account.
We have gone over many advanced accounts today, and on May 17th, I am hosting a webinar on the secrets of a profitable quilt shop where we talk more about the Profit System. I would love to see you there, so please click the link to register.