March 30, 2020
Ep. 19 – Using Profit First To Manage Cash Flow For ECommerce Businesses – With Cyndi Thomason

Ep. 19 – Using Profit First To Manage Cash Flow For ECommerce Businesses – With Cyndi Thomason


Are you able to afford the business life that
you’re living? If not, then you need to make some serious adjustments. You need to be more
frugal or you need to be more efficient or you need to get more innovative. Those factors
really keep your business on the cutting edge. Welcome to Honest eCommerce where we are dedicated
to cutting through the BS and finding actionable advice for online store owners. I’m your host, Chase Clymer And I’m your host, Annette Grant. And we believe running an online business
does not have to be complicated or a guessing game. If you’re struggling to scale your sales,
Electric Eye is here to help. To apply to work with us. visit electriceye.io/connect
to learn more. And let’s get on with the show. On today’s episode of Honest eCommerce, we
welcome Cindy Thomason. She’s the author of Profit First for eCommerce Sellers and she
is also a certified Master Profit First Professional. Hey everybody, and welcome back to yet another
episode of Honest eCommerce. I am joined by Annette Grant and today we welcome to the
show, Cindy Thomason from bookskeep. Cindy is a professional accountant and she’s
going to introduce to our listeners the Profit First methodology, which we actually use at
Electric Eye for our business. Cindy, welcome to the show. Thanks, Chase. Good to be with you and Annette.
I’m excited to share with you all the things I’ve learned about eCommerce, accounting,
and Profit First. Oh, I’m super excited. This is going to be
one of the more unique shows. I think we have hammered home the point about optimization
on your website and making sure that you get second opinions. So this one’s gonna be awesome.
It’s gonna you… This is how you stay profitable as I stay in business. Yes, we’re very excited to have you on the
show. Thank you. Cool. So let’s just get started with a brief
history here. What makes you an expert in this field? Where’d you start at and how’d
you niche down into eCommerce and specifically the Profit First approach? Well, I was a generalist in many aspects of
my business. I hadn’t even niched down to accounting. I was working with several local
folks that needed help in contracting and hiring and accounting before I left the corporate
world and I decided to stay at home with my daughter. So as she was getting a little more independent,
I was helping out friends and working on different projects and I just realized I love doing
the accounting piece in my corporate job. I had installed three different accounting
systems in the time I was with the company. And so it was… bookskeep was just starting
their online program and my clients were needing that type of service. So I did… My first
decision was to just focus on accounting for a small business. And I was rebranding. I had a small client base of all different
types of clients and decided to go to the very first QuickBooks Connect show which was
in 2014. I was sitting in the most boring presentation ever, I don’t even remember what
it was about. It was after lunch. And the group next to me was laughing so hard in the
other room. And finally I got up and I left where I was
sat and went into this other room. It was Mike Michalowicz talking about Profit First.
It was when he was first introducing the book. And for the last 15 minutes, I laughed. It
was just hilarious. I mean, his style was just a lot of fun. And he gave away a book
at the end. I picked it up and I read it on the plane ride home and I immediately knew
that all the things I was seeing my clients struggle with, this would help. So, I introduced it into my business. I contacted
Mike, they were starting Profit First Professionals at that point in time. I’m one of the first
9 people that ever joined and there’s been no looking back from that moment on. I’ve
been on the Mike Michalowicz bandwagon to learn everything I can about small businesses. And that’s brought me to the place where I
realized I needed to niche down. I really needed to work with a niche to become an expert
in a niche. And I had a couple of really good clients –that were eCommerce clients– that
I was working on Profit First with them, and they started referring me out to their Facebook
groups. My niche just really picked me because, those folks… We’re just kind of were in
a similar situation. They were looking for like a second career, a lot of them. They
wanted the flexibility for whatever reason in their lifestyle and that’s where I was. So we just kind of connected and now we focus
entirely on eCommerce clients and really have since 2015. And that’s given me insights into
what they struggle with so that I can help them be profitable. Cindy, you said you started to use Profit
First in your business right away. Is that correct? Right. Okay. Can you tell our listeners a little
bit –who are not familiar with Profit First– exactly what profit first, and then we’ll
transition into how it works in eCommerce a little more. Okay. Well, Profit First is really a cash
flow methodology. And it’s very similar to the envelope system. Maybe your grandmother
had the envelope system where she would get her money and put some in the envelope for
groceries, and some to pay the mortgage, and some for gifts… And it’s a very similar
thing except we use it with bank accounts now. And we have multiple bank accounts for
the specific areas of our business. And the reason we do this is because one bank
account for your business, which is typical… Some people probably have this operating bank
account and then they have a checking account and then they may have a savings account that
gets very little attention. And when you do that, all your money goes into one bucket.
And it’s really hard to see how that money is pre-programmed that you’re going to have
to use it to pay rent or to pay your employees or pay your taxes, etc. There’s this behavioral aspect of the way
we handle money that’s working in the background for all of us and it’s called Parkinson’s
Law. And it’s this law that says… It’s an economic law called the Law of Induced Demand
but what’s behind it is, “We use what we got.” So if we have the resources available, we
find a way to spend it. It’s so easy to look at that bank account and see it growing and
thinking, “Oh, you know, I’ve got enough money I can launch this new product.” or “I’ve got
enough money I can get that new computer.”, not realizing that that money really already
is pre-programmed out for something else. Parkinson’s Law is really a fundamental aspect,
behavioral aspect of the way we work with our money. So understanding that and working with Parkinson’s
Law really helps people stay on track with where they need to be spending their money
in their business. Yeah, and then just coming from my end of
it, we are at the tail end of implementing this in our business. It has radically shifted
our business. Between Profit First and Traction. I don’t know how we were a business before
those two systems. Yeah. Traction’s a great book, too. Yeah. If anyone knows a Traction professional
that would love to be on our show, I would love to have that. I think I do know someone. Yeah, I can talk
to you offline. Ooh! Awesome. All right. Well, let’s get back into
it. (laughs) So I think one of the biggest things that
you mentioned is, everyone has had a bank account. Is there money in there? Are we doing
good? Those were the conversations me and Shawn are having months ago. We were like,
“This looks cool. But are we making money?” (laughs) But are we making money? Yeah. “Are we doing any good?” And we literally
couldn’t answer that question. We’re the owners of the company. We built this company and
I think most eCommerce brands built their company. It’s a lifestyle business. They want to be their own boss, they want
to make some money, they want to get paid to do what they love. Me and Shawn had no
idea what we could be paying ourselves because we just didn’t understand how it worked. And
then Profit First really radically shifted our thinking. Yeah, and that’s an important point. So many
people think, “I don’t want to pay myself in the beginning because it’s a start up.”
And there’s some myths out there that (says), on the first five years, you’re not going
to pay yourself. The reality is, if you don’t set it up from
the beginning where you pay yourself and you take care of taxes and you take care of profit,
then you’re going to always be in that position. It’s a habit. It’s not a milestone. It’s something
you do from the beginning. You engineer it that way. And by engineering your profits,
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first three months of a paid subscription, Check out Katana today. So everyone has their one bank account. Let’s
break down the ones that you kind of grow to have when you implement this system and
how they kind of work for your business. Well, I know you’d like to give your your
listeners actionable advice. So here’s the action I would take it as an eCommerce business.
I would say, you need to move from the one bank account to having three. Now, that’s not the full blown, complete Profit
First implementation. But this moves you in the right direction and it gets you started
with the methodology and the processes of how it works. And those three bank accounts
would be the existing one that you already have for operating expenses, another one for
inventory, and then a third one for profits. So those three accounts… If you will just
start by having those three accounts, you will start to get in the swing of how it all
works. Inventory businesses are challenging and inventory
has its own cash flow that’s really different from operating cash flow. So just separating
out inventory… And as you get payouts from your sites like Shopify or Amazon or whatever
platform you’re selling on, as you get those payouts, you need to look at the money you’ve
got in that payout and think about, “How much of this needs to go back into my inventory
account to replenish my stock?” Because that’s what people get into trouble. They get all of this money coming in from
their sales. Reordering is way in the future so they don’t really think about it. And then
down the line, they need to place another order. They need to put 30% down or whatever
their their arrangement is. They need some money to work with but that money’s already
gone out the door for something else to grow the business. Inventory is just… It’s sacred
(laughs). It’s the lifeblood of your business so when you get that money in from being paid
out, put it back in a separate bank account because you know you’re going to need that
to replenish. So that’s the biggest thing. The other thing then is after you’ve done
that, take 1% of whatever you’ve got left and put it in your profits account. And that
makes you… At that point, you’re profitable. Because every check that comes into your company,
you’re putting it into a profit account to start growing. And just those 2 actions will do a couple
of things. One, it’s going to create your operating expenses down at a level that really
should govern how you manage your business. Because you’ve taken out that inventory money
that confuses everything, you’re left with what money you have to really operate your
business. Take a look at that and understand, are you
able to afford the business life that you’re living? And if not, then you need to make
some serious adjustments. You need to be more frugal or you need to be more efficient or
you need to get more innovative. Those factors really keep your business on the cutting edge.
And if you’re living off of borrowed money, whether it’s inventory to be paid later or
you take out a loan, it really does mask the fact that you’re not operating at your optimum
level. So that’s the place where I suggest people
start. It’s just with those two additional bank accounts. A checking account for inventory
and a savings account for profits, in addition to the checking account you’ve already got. Yeah, and just because we just did this, I
kind of have a note on getting those bank accounts. If you’re with a major bank, they’re
probably not going to play ball and you’re going to need to talk to a smaller either
credit union or community bank in your area. If anyone’s local to Columbus, Ohio, you can
email me and I’ll give you where we went. I’m not going to say it here. But yeah.
That’s the route you need to go because when we were dealing with a major bank, they wanted
to charge us about $10 or $15 a month per account, or have a minimum balance in there
which was essentially paying thousands of dollars to not get charged $10 a month, which
sucks for them. We moved a lot of business away from that bank. Yeah. And I’ve got a list of Profit First
friendly banks. If you’d like I can send it to you, Chase. You can include it in the show
notes and then people can see what we’ve found across the country to be Profit First friendly. Absolutely. That would be awesome. And Cindy, how does
debt work into the Profit First methodology? When you’re taking on a new client and they
have debt let’s say from purchasing inventor, how do you deal with that? How do you help?
Do you help them get out of that? Do you think that is neutral? What’s the Profit First take
on that. Profit First, typically, is pretty adversarial
towards debt. I think that has a place but only if the business is running at an optimal
level. What is see a lot of times is people are using debt when they haven’t figured out
their gross profit margins. And they don’t understand how their business is performing
from a profitability standpoint. And so they bring debt in to prop up the business as opposed
to having the business working well and then bringing debt into a cheaper source of capital
than your own. So, from the Profit First perspective, what
we try to do is help people realize that they can self-fund, if they are operating at an
optimal level. They can use their own funds to self-fund their growth at their business.
And I’ve got a couple of clients that they just refused that perspective and want to
use debt. They think using someone else’s money is a better approach for them. And I’ve
got clients that are using the Profit First methodology. And I can tell you that whichever
methodology you choose, it’s going to perpetuate itself. I’ve never seen anybody that really was able
to say, “Okay, I’m going to get out of this debt situation.” Now, we work with our clients
that are interested in getting out of debt to do that and you can get out of it. But
if you’re bought into that mindset, that’s where you’re going to stay. That’s my point.
The way it works in Profit First is you as you fund your accounts, we try to pay down
the debt as quickly as possible. And one of the ways we do that is, if there is debt in
the business, when you take your profit distribution on a quarterly basis, you use those funds
to help reduce your debt in a more accelerated way. And you also start relying on your own funds
in your business, so you’re not continuing to build the debt. And between the two, –getting
out of the habit of borrowing and having a payoff plan for the debt that’s already in
the business– over time, we can wean people off of having to use borrowed money to operate. Support for our podcast comes from our friends
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email and live chat around the clock was Simplr specialists. Start your free seven-day trial at simpler.ai/honest. I have another question specifically about
Shopify and Amazon and how… In accounting, how do you deal with those beasts separately?
Because I think that they’re two different animals. And so what’s your approach there? I don’t really sell on Amazon. I’m getting
ready to get into that world. So what’s some advice that you could have for people that
are currently already selling on their own sites but are getting ready to expand into
Amazon or are already on Amazon? What are some tips that you can give those store owners? Well, going into Amazon from a platform that
pays out on a more frequent basis is a big adjustment because of your cash flow is tied
up at Amazon for two weeks. Typically the payout time is bi-weekly. So realizing that
you’re not going to have x is a big adjustment. It’s not insurmountable. I mean, most of my
clients, that’s the way that they’re operating currently. But if you’re coming into Amazon
after being used to a payout system that’s more frequent, you have to get used to that. So I would just suggest that if you’re using
something… If you’re selling on Shopify, for example, I would suggest having a separate
account for having the income, come into that money and then you transfer it out on the
15th or the 10th and the 25th. Because that gets you operating in a cash flow that’s very
similar to an Amazon payout, which is you’re only going to get your money every couple
of weeks. Now Amazon’s timing is different than that.
But if you get yourself working in a rhythm, –which is one of the tenants of Profit First–
of touching your money, funding cash flow on a routine basis. If you get yourself in
that habit first, then having a system like Amazon where you’re only getting your money
every couple of weeks is easier to adjust to because you’re already in the habit of
working, paying your bills, receiving that income and paying your bills. –that kind
of flow happens on an every two week basis– For an eCommerce business, what are some things
that are unique to that industry as opposed to other industries that you’ve worked with
as far as accounting and the Profit First mentality? You know, one of the one of the interesting
and nice things about owning an eCommerce business is that you don’t have to have a
brick and mortar store and you don’t have to have a team to be there to unlock the door
for and to scrape the sidewalks when it’s snowing. So you don’t have your hands around
the inventory per se. You can’t go and walk in the back room and know how many of something
you’ve got left. So it’s really a data business, and you have
to be really good at looking at those reports off of your selling platforms, and understanding
what it’s telling you. The data analysis piece of an eCommerce business, I think, is critical.
Whereas in a… It’s important in any brick and mortar store, but you just lose that tangibleness
of the products being where you can see them and see them walking out the door. And so
I think the data analysis is one of a double-edged sword, it’s a benefit but it’s also can be
a challenge for people. Absolutely. Not really pivoting but before
we kind of go here, is there anything else that you think that would really help impact
our listeners and anything that you’d want to share with them. I really think getting that inventory bank
account set up along with a profit account, that’s the biggest thing you can do. Understanding
that your inventory cash flow is a different cycle than your operating expense cash flow
and getting a handle on those two things. I think the biggest opportunity for eCommerce
sellers is to get their hands around what they’re spending and the timing of their spending
around inventory. I couldn’t agree more with that. I have some
inventory issues myself, but we’ll talk about those offline, Cindy. The number one thing
people can do today is download Cindy’s book. I binged on it I’m going to admit, it was
a game changer. So Cindy let’s tell everyone where they can find your book and start learning
immediately after the podcast. Well as they say, it’s available everywhere
books are sold. (laughs) (laughs) It is available on Amazon, which is probably
the easiest place for a lot of folks. But it’s available on all the platforms like Apple,
Barnes and Nobles Nook that kind of thing. Available at libraries. So anywhere you would go to buy a book, I
hope you can find it there. It is also available on Audiobooks. So if you like listening to
your books, it’s available for you to get there. And there’s a lot of resources in the
book and those are all available online at our website. Once you listen to the book,
we give out the website where you can go to get all of the tools that we recommend you
use. I did take a peek at all those tools by the
way. So for our listeners, Cindy’s book is Profit First for eCommerce sellers. And then
her website is bookskeep.com Like she said, it has those ancillary items that she speaks
about in the book to help walk you through so you can start looking at your profits immediately. Cindy, it’s been awesome. I was so excited
to have you on the show. I have to admit, Chase knows I’ve been geeking now. Excited
to talk to you, so… Yeah. Annette was like, “I want to talk to
Cindy.” And I was like, “All right, I’ll make it happen.” (laughs) Yeah, it was very exciting. So we are so thankful
to have you on the show. And more importantly, we are excited for our listeners. Please read
Cindy’s book. Read Mike’s book. Implement this immediately. It really can, not only change your business,
but change your life. I don’t say that lightly. I think our listeners should should do this
immediately. So thank you for being on the show, Cindy. Yeah. Well, thank you for having me on today.
I have to admit that one of the things I really enjoy most is logging into my email every
morning. Because in the book, I asked people to write me and tell me what they’re going
to do with that first profit check. And it’s just really great to hear that people
are making a commitment to getting on top of their finances and to be profitable. And
reading those stories in their emails is just a highlight every day so I really appreciate
you guys are helping me get the word out. Awesome. Well, thank you so much and have
a wonderful day, Cindy. Okay, thanks. You guys, too. We can’t thank our guests enough for coming
on the show and sharing the truth. links and more will be available in the show notes.
If you found any actionable advice in this podcast that you’d like to apply to your business,
please reach out at electriceye.io/connect. Please make sure to subscribe to Apple Podcasts,
Spotify or your podcast app of choice.

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