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Prevent Cash Shortages in Small Businesses: Fool-proof Methods for Smooth Operations


 

There are no scarier words for small business owners than “cash flow.” Bills come in, employees must be paid, taxes are owed, and income isn’t always reliable. This is the nature of the beast; however, the beast can be tamed. That’s what SMG Business Services does best. We empower our clients with tools and solutions that help them understand and gain control over their flow of finances. We’re your everyday team of dragon slayers, ready for duty!

We’re big fans of Mike Michalowicz’s “Profit First” model for boosting cash flow. Here’s how it helps small businesses prevent damaging shortages:


Flip the (accounting) script.

The traditional accounting script rules that Sales - Expenses = Profit. Profit First rewrites this formula as Sales - Profit = Expenses (hence, “profit first”). A profit-first deduction ensures you get reliably paid as a business owner (versus playing a monthly guessing game), and you can more accurately plan your expenses based on what money is left versus risking overspending. Reassess your expenses every month based on what flows in so that you consistently stay within spending margins.


Cover all bases with five “Profit First” accounts.

Your compensation as a business owner is just one of five areas you should be allocating a percentage of each sale to (these percentages can be whatever you decide them to be). These five areas of savings should be represented as five separate bank accounts that will otherwise be known as your “Profit First accounts.”

The first account must be for income (this is where all the income from sales of your products/services will live). From here, your accounts will follow this order:

  • Profit (or bonuses) account: the reward for being the investor and creator of your business.

  • Owner’s pay account

  • Tax account

  • Operating expense account, or opex (i.e., rent, utilities, payroll)

The order of these accounts is crucial because of mindset, giving priority to our profit first.

Ready to take control of your finances? SMG is Profit First-certified and prepared to help you realize your business’ full potential. We’re also 100% woman-owned and -operated as well as bilingual. Start by scheduling a free consultation here!


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