If you want to maintain good business relationships you need to pay your vendors on time. Let’s say that you pay all vendors on the tenth of every month. How does this work when you are allocating to your operating account on the tenth and the twenty-fifth? What you will do is allocate money to your operating account on the twenty-fifth. This is for paying vendors and the money will simply remain in the account. Then, on the tenth, you will allocate more money for paying vendors, adding to what is already there. And, you will pay vendors on time, each and every month.
Staying a step ahead of the game is what Profit First is all about. Start by creating separate savings accounts and then allocate to these accounts following the 10/25 rule on the tenth and twenty-fifth of each month. This is an organized approach that keeps your accounts easy to see and straight. The method is named for the practice of putting aside profit on the tenth and twenty-fifth without fail. But, it could also be called the putting money aside for taxes approach or the allocating money for vendors approach. Because all of our efforts in business are aimed at creating a profit, the name Profit First is the logical one. But the whole system helps you stay organized, pay bills on time, reduce debts, and put money aside for profit on a steady basis. At Exigo Business Solutions we help clients learn how to use and profit from the Profit First method.
Sometimes a person new to the Profit First idea thinks that money does not grow on trees so where does the money come from for the profit, taxes, owner’s pay, vendors, and the rest. The point is there is money coming into the business. Unfortunately, in too many businesses the budgeting and cash flow management are not up to the task. Thus, profit gets eaten up before it ever happens. When a business owner commits to using the Profit First method he also commits to using tools like QuickBooks custom reports to get a clear picture of the strengths and weaknesses of his business.
While the fun part of Profit First is seeing a profit every tenth and twenty-fifth, the other part is rolling up your sleeves and working to see the waste in your business and then take actions to fix it. Sometimes we have employees who spend too much time on a project. This is, unfortunately, a natural occurrence as noted by a guy named Parkinson many years ago. Knowing that this happens, a business owner needs to set budgets and time limits and needs to demonstrate hands-on management in order to keep essential parts of the business running efficiently. Here, by the way, is where using someone like Exigo Business Solutions is critical because our passion is your success and your profitability. To accomplish that goal with our clients we offer number tools and a depth experience.
If you still have questions or are interested in implementing Profit First in your business, visit our website, ExigoBusiness.com, or contact us at (816) 394-6818.
Click here to watch the YouTube video about paying vendors when doing Profit First allocations on the 10th and 25th.