Profit First for Ecommerce Sellers by Cyndi Thomason

Author:Cyndi Thomason [Thomason, Cyndi]
Language: eng
Format: epub
Published: 2019-08-01T11:24:01+00:00

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Take Action

Get those bank accounts set up.

Make your first allocations following the percentages you calculated using the monthly cash flow spreadsheet.

Chapter Five

Advanced Accounts

Congratulations! You’re now acquainted with the basics of Profit First specifically geared toward ecommerce sellers. You’ve learned how to divvy up your revenue into the basic buckets that will help you pay bills, pay yourself, turn a profit, and manage your all-important inventory. But, as you might guess, we’re not going to just stop with the basics. You still have more to learn about managing your business profitably.

Drip Account

When you complete your profit assessment as described in Chapter Two, you typically review your business financials for a full year. The profit assessment is a great tool for understanding the overall health of your business. However, when your business cycle includes a peak season, you will manage your business differently for three quarters of the year, usually with much less income than during the boom quarter.

In order to take a conservative and functional approach to managing the business, we analyze and develop the allocation percentages based on the slower quarters, so that you can right-size your expenses for all twelve months. Then we develop a strategy for managing the additional funds coming in during the boom quarter. It’s time to bring a special bank account into play, the drip account, which is funded with the proceeds from the boom quarter.

As described in Chapter Four, you will manage operating expenses based on a dollar level instead of a percentage allocation during your busy season. During that boom quarter, a percentage of a much larger amount can cause us to overinflate our operating expenses. You want to understand the monthly operating expenses needed. They don’t typically vary that much month to month and are not significantly affected by seasonal sales.

Most of our ecommerce clients have seasonal fluctuations in their business, whether they have the typical Q4 holiday surge or rake in dollars from summer bikini sales, and the drip account is used to smooth out that seasonality. We often call the drip account our squirrel fund. We all know the squirrel working hard in the sweltering heat all summer long, building a nest and gathering nuts to store for the winter. When the winter weather arrives, the squirrel is warm and well fed. The squirrel was smart and prepared.

We want to be like the squirrel, but Mark explained that’s something you learn the longer you’re in business. “Seasonality is something that requires some maturity, too, because also it takes time to recognize and plan for variations. So now we’re talking about three-year cycles to learn what seasonality means to you and your business.

“Before Profit First, in January, February, March, I would think, ‘Oh my god, I’m rich. I’m rich. I’m just rich.’ And it felt good. I had $100,000 in my bank, not knowing what was coming in June, July, August, the slow months. You better have money saved up for those months. Otherwise, you’re dipping into your line of credit, and you’re not feeling so good about where you’re at.

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