As I am writing this, Hurricane Florence is ravaging the mid-Atlantic shore. There’s no comparing the seriousness of a hurricane to business issues. But there are parallels. Residents at the hurricane’s vicinity wonder what path will the storm take, and if they will eliminate power or, worse, suffer property damage or bodily injury.
The worries of ecommerce vendors are much less severe. But they’re real, typically focusing on stock. Is it the perfect inventory? Is it enough? How will I meet orders and remain afloat during the busy season?
For the majority of my customers, Q4 is critical to their profitability for the year. In early January, we will assess the quarter, comparable to assessing hurricane damage when the storm clouds clear. Which products sold? Which products bombed and how will I move them? Can we make money? Do I have sufficient to cover the debt for my merchandise, pay taxes, and cover myself?
Do I have enough to cover the debt for my merchandise, pay taxes, and pay myself?
Amazon and retail ecommerce is a complex business model because of stock and the cash flow necessary to support it. Our customers that commit to and stick with the Gain First money management method have learned how to weather the storms and attain their profit and growth objectives.
Gain First, created by Mike Michalowicz, who’s also the author of the book”Gain First,” works with individual behaviour and offers a framework to handle financial activity in a way that builds in adulthood. The behavior is named Parkinson’s Law. It was created in the 1950s by C. Northcote Parkinson, a British naval historian. Parkinson proved that the ingestion of any source will rise to fulfill up with the number of the source available. This applies to time, cash, and any service or good.
Due to Parkinson’s Law, the conventional business equation of Revenue — Expenses = Profit is destined to leave little left over. Thus the Gain First equation is Revenue — Gain = Expenses
The mathematics works either way. From a behavioral standpoint, if you do not take your gain first, there’ll be none left over, as your expenditures will grow to satisfy your income. In contrast, if you take your profit first, the funds left over for operating expenses will be less. This puts pressure on you to function efficiently and frugally, and to be innovative.
The’Gain First’ Method
Gain First follows a 4-step procedure.
1. Creating multiple bank accounts divides your money into bank accounts made for certain purposes. Most businesses operate using one checking account for all activity. Ecommerce sellers, however, should produce two checking accounts: one for stock and another for managing expenses. In addition, sellers must create three savings accounts: for gain, owner cover, and taxes.
2. After a prescribed sequence produces a new behaviour around the bank accounts. As your ecommerce sales proceeds are deposited into your operating expenditure account, you may move funds into designated accounts according to a particular sequence.
- First, determine the cost of the merchandise you just sold. Transfer that sum into your stock account. This account will be used to replenish stock.
- Next, proceed 1 to 5 percent (whatever your cash flow permits ) to the profit account. This way, Amazon sellers will be rewarding with their following settlement.
- Eventually, the remaining amount will remain in your operating expense account. Look at your anticipated expenses coming due and be sure that you can cover them with the remaining funds. Otherwise, look at what expenses you can cut or decrease. Initially, you might have to use low percentages for the benefit allocation. But in the event that you can’t cover your operating expenses, then you could be living beyond your means.
3. Removing temptation is based on the understanding that new behaviors are tough to learn and maintain. If a developing balance on your profit account will tempt you, move that money to an account which is less accessible, such an investment account at another institution.
4. Implementing a rhythm maximizes the time you’ll spend managing your funds. To understand the flow of money, replenish the accounts as prescribed above in step two every 2 weeks. Most Amazon sellers, by way of instance, receive payouts biweekly. So this rhythm exists. Fund your accounts after the sequence, then cover any bills due before the upcoming payouts. If you are using credit cards and automobile withdrawals, then look at the upcoming payments and make certain you’ll have the necessary funds.
This is an abbreviated description of this procedure. Follow it for a couple of months to comprehend the money rhythm of your company. As soon as you’ve got a routine and a month or two of data, streamline the process by using proportions, for rapid calculations on a spreadsheet.
In my experience, the change in mindset works wonders for ecommerce vendors. As they start to understand their cash flow, particularly as it relates to stock, they gain control of their operating expenses. They could pay themselves. It is like the sun is coming out, bright and warm after the storm.