Retail Observer

RETAILOBSERVER.COM NOVEMBER 2018 62 H ave you ever been frustrated because you don't have any profit to show at the end of the month? I'm sure this question has haunted a lot of business owners over the years. You work your tail off to make a profit, and at the end of the month there is nothing left. What went wrong? Let's step back and take a look for just a moment. Traditional accounting methods force you to claim all your revenue first and then deduct all your expenses at the end of the month before you claim any profit. If you spend all your revenue on expenses during the month, guess what? There's no profit. This scenario is very typical among small business owners. You see, most small business owners do what is known as checkbook accounting. They use their checkbook as the accounting tool, and if there is money in the checking account then they can spend it. And that's exactly what happens—they spend it. They run their business by their checkbook. And with that type of accounting mentality, there is way too often no money or very little money left at the end of the month. Now there is a better way! It is called Profit First accounting. The concept is certainly not new, but it is becoming more popular because of a book titled Profit First, by Michael Michalowicz. The tagline for the book is: Transform Your Business from a Cash-Eating Monster to a Money- Making Machine. Its basic premise is to take a percentage of your profits every month and set them aside into a separate bank account where the money is not easily accessible and is not set up for internet transfers. That may sound crazy but with today's online banking technology it is just too easy to transfer money from one account to the other. By setting up an account that you have to physically access, it makes you think twice about getting to the money. Not only does Michalowicz want you to set up a profit account, he also suggests you set up several accounts and transfer money into those accounts on a percentage basis for the purpose of making sure all your taxes, owner's compensation, payroll and expenses are paid. These accounts he suggests you set up are: • Income account — where all your revenue/income is deposited • Profit account — where a percentage of revenue is deposited as profit • Owner's compensation account — where the owner's salary is deposited • Tax account — where a percentage of revenue is deposited to cover the owner's taxes • Operating account — where the balance of revenue/income is transferred to cover all your expenses after all other percentages are deposited into the other accounts. The premise here is that you operate off the balance in the expense account only, and if the money is not there, you delay the payment of the expense until the next month. We are all creatures of habit, and if the money is there, we are more than likely going to spend it. So force yourself to take that enticement away and you'll learn to operate a leaner, meaner, more efficient business. If you have doubts about it working, just give it a test. Go ahead and set up a profit account and deposit into that account just 1% of your revenue each week. It's not a lot of money and you won't miss it. Then at the end of 6 months, see what's there. It's your money... your profit! Take it out and put it in your pocket. Now, what if you did that with 5%, 10% or even 15% each week. Wouldn't that be awesome? I encourage you to get the book and read it ASAP. You're leaving YOUR money on the table. Here's a link where you can order the book or audio download from Amazon: www.tinyurl.com/PSAProfitFirst Good luck, and best wishes. WHY NOT RECOGNIZE YOUR PROFITS FIRST? RO Don Harris founded Dependable Services in 1970, an HVAC, appliance and restaurant equipment service company now owned and operated by his son Brannon in Atlanta, GA. Don Harris currently helps service business owners improve their business operations by offering coaching, online resources and Mastermind Peer Groups. For more information, visit www.applianceservicesecrets.com or email don@applianceservicesecrets.com S E R V I C E D E P A R T M E N T

• Cover