I am proof that an old dog can learn a new trick. After almost 30 years as an accountant and business advisor, I’ve stumbled on an approach that may have big benefits for you and your marina operation.
Are you sick and tired of not having enough cashflow at the end of the month to pay yourself? Every vendor, insurance company, employee, and the State of Florida get paid before you do. And sometimes, you have to explain to your spouse that you’ll need to dip into the rainy-day fund to pay your house payment this month. We doggedly persist in tough times, and sacrifice to leave every penny in our company. When we forgo our own payday we rationalize that we are continuing to invest in our business and that it will pay off someday.
So why is it so hard to squeeze out something for yourself? And, have you ever been frustrated that you don’t really seem to get useful information from the monthly financial statements you pay your bookkeeper for? Aren’t those financial statements supposed to help you manage your business?
I think I can speak for many small business owners when I state that preparing financial statements becomes a chore done primarily to satisfy the banker and to organize data for annual tax returns. One thing I’ve understood for many years is that GAAP accounting rules rarely provide the most important information we need for managing a small business. Financial statements are a snapshot from your rearview mirror. What happened yesterday. They do not tell me what I need to do for tomorrow’s profitability.
For my clients (and my own businesses) the challenge has been to develop practical management methods in addition to the accounting system. Tools which provide the information needed NOW to stay in control of a business.
Recently, I was in the process of creating a daily cash management process for a small manufacturing company, when I discovered Profit First by Mike Michalowicz. The instant I saw the book and the basic concept I thought “Hell yeah! Let’s see what this guy has to say.” As I read further I found myself nodding my head in agreement about the shortcomings of the established systems of financial accounting for small business owners.
I have no affiliation with Mike. I wish I would have known about this approach many years ago.
Mike’s premise is that your business must be honestly profitable, and that profit should be harvested right off the top of each sales transaction and placed in your personal funds out of the insatiable reach of the business. If you cannot do this, you are simply kidding yourself and should move on to a new endeavor before your equity is completely exhausted. Tough love! Skeptical already? You’ll need to suspend your skepticism for a bit and give Mike a chance to lay out his process.
Mike does a superb job of showing how you can transition your business from your current method of robbing Peter to pay Paul to his Profit First method. He shows you how to take immediate steps and to begin with small bites while gradually transitioning to your targeted profitability within twelve to eighteen months. His system will totally transform the way you manage your business and cashflows.
A very high level overview of his approach:
- Pay yourself first instead of last
- Determine profitability goals based on industry and size
- Segregate cashflows in separate bank accounts
- Make small changes at the outset (taking a very small profit) with consistent increases until you achieve your desired profit objectives
- Manage operations by living within departmentalized cash limitations – this drives creative solutions and forces hard decisions to be addressed NOW – not later.
- All of this is organized so that you can measure the health of your business in an instant.
As you study Mike’s approach, you’ll likely tell yourself this is no big deal. No rocket science here. And that is absolutely true. But Mike created a process. And by golly, his process is well thought out and very effective. All it requires is an open mind. Even if you give the process a try for a year, the worst that can happen is that you’ve opened a couple of additional bank accounts that can simply be closed. But my guess is that you’ll find a new management tool that is so helpful that you’ll keep those accounts open.
I am not proposing that you ditch your accounting system and fire your bookkeeper. No – this process fits within your existing accounting system – more like an overlay. Your tax gal and your banker will still get all the information they need, but most importantly, you’ll be operating much more efficiently and will have a daily, instant report card for the health of your marina. Oh – and some extra jingle in your pocket!