Tomorrow all around the globe, a special green beer day is celebrated. Although I’m not to fond of the green dye added to a perfectly good beverage, I fully get the spirit of the Go Green on St. Patrick’s Day – green pancakes, green eggs, green hair, green, green, green….. On such an occasion, we as business leaders just can’t skip over the green in our business which is much better known as “Profit.” So as the green beverages and food and hair styles all turn green for the day, let’s focus on turning more “Green” for your business throughout the whole year.
As has been referenced in the past, JKL Associates is a large promoter (and user) of the Mike Michalowicz book – Profit First. Although JKL Associates does not play in the direct accounting services arena with our clients, we do suggest that owners of businesses take a strong look at the reversal of traditional accounting thought and extracting profit or green directly from the revenues of the business before traditional expenses.
The general premise of the approach is that as owners of the business you need to reward yourself for taking back the risk and liability of your role first rather than wait to see if anything is left over at the end after all the other expenses strip away the value of your business. Traditionally, the owner would gather revenue, subtract cost of goods and other operational expenses to find either a black or red number on the profit and loss statement. If the owner was good at maximizing their operations and expenses, then the bottom line contributing profit was greater. Unfortunately, way too many business owners are left to fund others pay checks while scraping by on their own financial quest.
One of the things that “Profit First” approach does is the reversal of taking profit from the bottom line and moving it to the top line. The details of how to do this are outlined in the book as well as Mike has a group of certified Profit First accounting resources which can give you direct implementation support if you are not comfortable with using the model from the book. From our perspective this is more about changing the decision making process on expenses rather than simply taking money – green first. That may very well be the trigger point but the down stream impact causes owners to structurally re-evaluate how the cash flow is consumed.
By using this approach the owner acknowledges that they are a real asset owner and that asset MUST be producing tangible results for them. Consider yourself owning stock in a major brand and your expectation is that the dividend is part of your financial portfolio. The same is absolutely true for a business owner. To the degree that as the asset owner, you own the greatest majority of the stock plus the risk and liability. It is time to get your value from your asset.
This approach also helps to bring your attention to various cash consumption points so you can see variances which need to be refined and improved upon so to add to more available expense money to grow the business. Rather than the owner funding the growth, let the business fund the growth. We have had clients shift their approach and have had significant results. To the point where they are building up “Vault” reserves which will allow them to self-finance their future growth rather than having to pay bank interest fees etc.
This week, do yourself a favor and purchase the book “Profit First” in book or audio format and introduce yourself to more green in your future. – Want to hear more about how this approach has impacted JKL Associates and our clients which use the system? Give us a call at FL (407) 984-7246 or MI (313) 527-7945.
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