Greetings, Fellow Square Reader’s Book Club members,
Among the titles we've explored together, "Profit First" stands out as a personal favorite of mine. The simple concept within "Profit First" intrigued me from the moment I opened the book. Traditionally, like many of you, I managed my business finances in a straightforward manner: revenue comes in, bills are paid, and if all goes well, there might be some leftover for personal compensation. However, as you may have experienced, this approach often falls short of expectations!
After immersing myself in the book and tailoring its principles to fit my business model, I was astonished by how effortlessly I could prioritize both my financial well-being and the sustainability of my business. Essential expenses continued to be met, while non-essential expenditures underwent rigorous scrutiny. The book empowered me to safeguard "my" money for truly impactful business purposes, resisting the allure of unnecessary spending.
In this discussion, I'll outline how I adapted the "Profit First" methodology to my ice cream venture, now entering its twelfth season. My hope is that my experiences may prove beneficial or inspiring, particularly for those embarking on their entrepreneurial journeys, seeking quicker returns on their hard work. Believe me, I wish I had stumbled upon this concept years ago.
Before we delve into the details, a word of advice: if you haven't yet explored "Profit First," I urge you to do so before going any further. The following discussion assumes familiarity with its principles and their modest application in initiating owner compensation.
How I adapted “Profit First” with Square Savings Folders
Instead of relying on separate accounts at a traditional bank, we've opted for Square Savings folders to automate and allocate funds for specific purposes. At Piper's, our current folders include:
- Profit First: Reserved for owner draws, ensuring that partners receive their dues on a monthly basis.
- Debt Retirement: Prioritizing the complete repayment of pandemic-induced debt, diverting a portion of expected profits until this obligation is settled.
- Off-season Expenses: Set aside to cover operational costs during our seasonal closure from November to February.
- Sales Tax Liability: Accounting for both card and cash transactions, with an adjusted savings rate ensuring we meet our monthly tax obligations.
- Cost of Goods Fund: Accumulated from daily card transactions to facilitate timely supply purchases, contributing to cost management efforts.
Each day, we transfer the remaining balance after automatic savings from card transactions to our checking account, where all cash transactions are also recorded. This amount serves as our budget for covering operational expenses, strictly adhering to our commitment not to dip into allocated savings for unauthorized purposes.
In cases of emergency, partners engage in dialogue to adjust future savings percentages, prioritizing the preservation of existing reserves wherever feasible. As long as our checking account maintains sufficient funds to cover the next 1-2 weeks of expenses, we refrain from making alterations, recognizing the importance of consistency in effective financial management. A comprehensive spreadsheet aids in projecting cash flow over the ensuing four weeks, preempting potential liquidity issues.
A few other notes
- Startup Costs: To manage cash flow beyond off-season expenses, we leverage an online credit line provider, Credit Key, for flexible financing solutions tailored to our beginning of season inventory stocking needs. The money we spend using this credit line is easily repaid using our CoGS Fund.
- Determining Savings Percentage based on Card Sales Only: Since Square Savings is entirely based on card processing volume, this is a little more tricky. But basically we worked backwards. We started with a “goal” for each folder, determined how much we expected in card tenders based upon our previous year’s history, and then figured out how much of a percentage of card “sales” we needed to reach each goal. It’s a little messy at times, but if anyone wants to discuss how we did it I’m more than happy to do so. The point is knowing your own business and its payment history (card vs. cash, etc) to be able to do this intelligently and effectively. That takes time and patience. Thankfully, Piper’s is entering its twelfth season, so we have plenty of solid history to base our decisions upon.
This modified-for-Square-Savings "Profit First" methodology, adapted to suit our unique business circumstances, has revolutionized our financial management practices at Piper's. If anyone wishes to delve deeper into our implementation strategy using Square Savings, just let me know.
@PessoAlumni tagging you…
Chip A.
Square Expert & Innovator and member of the Square Champions group. (But NOT a Square employee, just a seller like you)
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