Book Excerpt: ‘Profit First for Ecommerce Sellers’

Editor’s Note: Contributor Cyndi Thomason possesses Bookskeep, an accounting and consulting company for ecommerce businesses. She’s an advocate of Gain First, a money management framework to assist merchants obtain and retain profitability. Her book,”Gain First for Ecommerce Sellers,” is recently published. What follows is an excerpt from Chapter 2.

The Gain First frame works for many businesses. But it is only that: a frame. My company has taken this base and built a structure especially for ecommerce sellers. With these few additional methods, you’ll position your company for permanent profitability.

The Gain First solution doesn’t try to change who you are or how you act. That is impossible. The solution sets up a system that channels your current behaviour toward the result that serves you.

Foundation

The foundation of Gain First is establishing five bank accounts.

  • Income
  • Gain
  • Owner’s Payment
  • Taxes
  • Operating Expenses

This is the arrangement your gains will be built on. Set these up as checking accounts. The flexibility provided by assessing accounts far outweighs any minuscule interest from savings accounts. Most banks let you assign a title to the account that’s displayed on the internet and on statements as well as the account number. Name your accounts in accordance with their purpose.

4 Principles of Gain First

Let’s take some time to talk nutritional science. No groans, please. This material is fascinating.

Gain First for Ecommerce Sellers

In 2012, a report by Koert Van Ittersum and Brian Wansink at the Journal of Consumer Research concluded that the normal plate dimensions in America had increased 23 percent between the years 1900 and 2012 — from 9.6 inches to 11.8 inches. Running the mathematics, the report explains if this increase in plate dimensions motivates someone to consume only 50 more calories daily, that person will wear an additional five pounds every year.

But with smaller plates is only 1 factor. A Twinkie on a little plate remains a Twinkie. There’s more to a nutritious diet, and it’s based on four core principles of weight loss and nutrition.

  • Use Small Plates. Using smaller plates begins a chain reaction. When you use a small plate, then you get smaller parts, so you take in fewer calories. When you take in fewer calories, you begin to drop weight.
  • Serve Sequentially. If you eat veggies first, which are full of vitamins and nutrients, they will begin satisfying your hunger. When you proceed to another course — say, mac and cheese or mashed potatoes — you will eat less. By simply changing the sequence of your foods by eating your veggies first, you automatically bring a nutrient balance to your daily diet.
  • Eliminate Temptation. Eliminate any temptation from where you consume. People are driven by convenience. If you are anything like me, when there’s a bag of Doritos sitting at the kitchen, it happens to you — even when you aren’t hungry. If you do not have junk food in the house, you are probably not going to run out to the store to get it. You’re likely to eat the healthy food you stocked instead.
  • Enforce a Rhythm. Should you wait until you’re hungry to eat, it’s already too late, and you may binge. Then you are very likely to consume too much and stuff yourself. You move from starving to filled, and back to hungry again. These peaks and valleys on your hunger leads to way too much calorie intake. Instead, eat frequently so that you never get hungry. With no peaks and valleys, you may eat fewer calories.

Even though they don’t know it, the people from the diet industry know quite a lot about developing a wholesome business.

Here’s how ecommerce vendors apply the four principles.

  • Use Small Plates. When money comes into your Income account, it only acts as a serving tray for your other accounts. You then occasionally disperse all of the cash from the Revenue account into various accounts in predetermined percentages. Each of these accounts has another objective: one is for gain, one for owner compensation, another for taxation, and yet another for operating expenses. Together, these are the five foundational accounts to begin — Income, Gain, Owner’s Compensation, Taxes, and Operating Expenses. Advanced users will use additional accounts.
  • Serve Sequentially. Always allocate money based on proportions. Never pay bills . The money moves in the Revenue account to the Gain account, then Owner’s payment account, then Taxes, and ultimately Operating Expenses. You pay bills just with what’s available from the Operating Expense account. No exceptions. And if there is not enough cash left for expenses? This does not mean that you will need to pull from the other accounts. What it does mean is that your company is telling you that you can not manage those expenses and want to eliminate them. Eliminating unnecessary expenditures will attract more health to your company than you can imagine.
  • Eliminate Temptation. Move your Gain account from arm’s reach. Make it hard and painful to get to that money, thereby taking away the temptation to”borrow” (i.e., steal). Utilize an accountability mechanism to prevent access, but for the correct reason.
  • Enforce a Rhythm. Allocate funds and pay bills twice a month (specifically, on the 10th and 25th). Do not pay only when there is cash in the account. Get into a rhythm of allocating your income and paying bills twice a month so you could see how money accumulates and where the money actually goes. This is controlled, recurring, and regular cash flow management — not seat-of-your-pants management.

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