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Ep. 19 - Using Profit First to Manage Cash Flow for eCommerce Businesses with Cyndi Thomason

Cyndi Thomason is a Certified Master Profit First Professional, and the founder and president of bookskeep, a virtual company that provides bookkeeping and Profit First consulting services to ecommerce clients all over the world. Cyndi also just released a new book, Profit First for Ecommerce Sellers: Transform Your Ecommerce Business from a Cash-Eating Monster to a Money-Making Machine.

So far, we’ve talked a lot about the technology behind our stores and how to optimize our store pages on the show. But today, Cyndi is going to teach us how to make our businesses more profitable using Profit First, a cash flow methodology that we also use here at Electric Eye.

We discuss Parkinson's law and Primacy Effect, and how they impact our money habits; the challenge of managing cash flow in a business with inventory, especially when you try to scale; and a quick-start approach you can use to make sense of cash flow.

In This Conversation We Discuss:

  • [2:10] How Cyndi niched down to a Profit First approach to ecommerce businesses
  • [5:20] What is Profit First?
  • [8:10] How much can store owners pay themselves?
  • [10:45] How you can start implementing the Profit First system
  • [15:25] How does debt work into the Profit First methodology?
  • [19:15] Shopify, Amazon, and accounting
  • [21:35] What’s unique to eCommerce businesses, when it comes to accounting and Profit First
  • [23:40] What you can do today to start become more profitable

Resources:

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Cyndi Thomason

Are you able to afford the business life that you're living in? If not, then you need to make some serious adjustments. You need to be more frugal or you need to be more efficient or you need to get more innovative. Those factors really keep your business on the cutting edge.

 

Annette Grant

Welcome to Honest eCommerce where we are dedicated to cutting through the BS and finding actionable advice for online store owners.

 

Chase Clymer

I'm your host, Chase Clymer

 

Annette Grant

And I'm your host, Annette Grant.

 

Chase Clymer

And we believe running an online business does not have to be complicated or a guessing game.

 

Annette Grant

If you're struggling to scale your sales, Electric Eye is here to help. To apply to work with us. visit electriceye.io/connect to learn more.

 

Chase Clymer

And let's get on with the show.

 

Annette Grant

On today's episode of Honest eCommerce, we welcome Cindy Thomason. She's the author of Profit First for eCommerce Sellers and she is also a certified Master Profit First Professional.

 

Chase Clymer

Hey everybody, and welcome back to yet another episode of Honest eCommerce. I am joined by Annette Grant and today we welcome to the show, Cindy Thomason from bookskeep.

 

Cindy is a professional accountant and she's going to introduce to our listeners the Profit First methodology, which we actually use at Electric Eye for our business. Cindy, welcome to the show.

 

Cyndi Thomason

Thanks, Chase. Good to be with you and Annette. I'm excited to share with you all the things I've learned about eCommerce, accounting, and Profit First.

 

Chase Clymer

Oh, I'm super excited. This is going to be one of the more unique shows. I think we have hammered home the point about optimization on your website and making sure that you get second opinions. So this one's gonna be awesome. It's gonna you... This is how you stay profitable as I stay in business.

 

Annette Grant

Yes, we're very excited to have you on the show.

 

Cyndi Thomason

Thank you.

 

Chase Clymer

Cool. So let's just get started with a brief history here. What makes you an expert in this field? Where'd you start at and how'd you niche down into eCommerce and specifically the Profit First approach?

 

Cyndi Thomason

Well, I was a generalist in many aspects of my business. I hadn't even niched down to accounting. I was working with several local folks that needed help in contracting and hiring and accounting before I left the corporate world and I decided to stay at home with my daughter.

 

So as she was getting a little more independent, I was helping out friends and working on different projects and I just realized I love doing the accounting piece in my corporate job. I had installed three different accounting systems in the time I was with the company. And so it was... bookskeep was just starting their online program and my clients were needing that type of service. So I did... My first decision was to just focus on accounting for a small business. And I was rebranding.

 

I had a small client base of all different types of clients and decided to go to the very first QuickBooks Connect show which was in 2014. I was sitting in the most boring presentation ever, I don't even remember what it was about. It was after lunch. And the group next to me was laughing so hard in the other room.

 

And finally I got up and I left where I was sat and went into the other room. It was Mike Michalowicz talking about Profit First. It was when he was first introducing the book. And for the last 15 minutes, I laughed. It was just hilarious. I mean, his style was just a lot of fun. And he gave away a book at the end. I picked it up and I read it on the plane ride home and I immediately knew that all the things I was seeing my clients struggle with, this would help.

 

So, I introduced it to my business. I contacted Mike, they were starting Profit First Professionals at that point in time. I'm one of the first 9 people that ever joined and there's been no looking back from that moment on. I've been on the Mike Michalowicz bandwagon to learn everything I can about small businesses.

 

And that's brought me to the place where I realized I needed to niche down. I really needed to work with a niche to become an expert in a niche. And I had a couple of really good clients --that were eCommerce clients-- that I was working on Profit First with them, and they started referring me out to their Facebook groups. My niche just really picked me because those folks... We're just kind of were in a similar situation. They were looking for like a second career, a lot of them. They wanted the flexibility for whatever reason in their lifestyle and that's where I was.

 

So we just kind of connected and now we focus entirely on eCommerce clients and really have since 2015. And that's given me insights into what they struggle with so that I can help them be profitable.

 

Annette Grant

Cindy, you said you started to use Profit First in your business right away. Is that correct?

 

Cyndi Thomason

Right.

 

Annette Grant

Okay. Can you tell our listeners a little bit --who are not familiar with Profit First-- exactly what profit first, and then we'll transition into how it works in eCommerce a little more.

 

Cyndi Thomason

Okay. Well, Profit First is really a cash flow methodology. And it's very similar to the envelope system. Maybe your grandmother had the envelope system where she would get her money and put some in the envelope for groceries, and some to pay the mortgage, and some for gifts... And it's a very similar thing except we use it with bank accounts now. And we have multiple bank accounts for the specific areas of our business.

 

And the reason we do this is because one bank account for your business, which is typical... Some people probably have this operating bank account and then they have a checking account and then they may have a savings account that gets very little attention. And when you do that, all your money goes into one bucket. And it's really hard to see how that money is pre-programmed that you're going to have to use it to pay rent or to pay your employees or pay your taxes, etc.

 

There's this behavioral aspect of the way we handle money that's working in the background for all of us and it's called Parkinson's Law. And it's this law that says... It's an economic law called the Law of Induced Demand but what's behind it is, "We use what we got." So if we have the resources available, we find a way to spend it. It's so easy to look at that bank account and see it growing and thinking, "Oh, you know, I've got enough money I can launch this new product." or "I've got enough money I can get that new computer.", not realizing that that money really already is pre-programmed out for something else. Parkinson's Law is really a fundamental aspect, the behavioral aspect of the way we work with our money.

 

So understanding that and working with Parkinson's Law really helps people stay on track with where they need to be spending their money in their business.

 

Chase Clymer

Yeah, and then just coming from my end of it, we are at the tail end of implementing this in our business. It has radically shifted our business. Between Profit First and Traction. I don't know how we were a business before those two systems.

 

Cyndi Thomason

Yeah. Traction's a great book, too.

 

Chase Clymer

Yeah. If anyone knows a Traction professional that would love to be on our show, I would love to have that.

 

Cyndi Thomason

I think I do know someone. Yeah, I can talk to you offline.

 

Annette Grant

Ooh!

 

Chase Clymer

Awesome. All right. Well, let's get back into it.

 

Cyndi Thomason

(laughs)

 

Chase Clymer

So I think one of the biggest things that you mentioned is, everyone has had a bank account. Is there money in there? Are we doing good? Those were the conversations me and Shawn are having months ago. We were like, "This looks cool. But are we making money?" (laughs)

 

Annette Grant

But are we making money? Yeah.

 

Chase Clymer

"Are we doing any good?" And we literally couldn't answer that question. We're the owners of the company. We built this company and I think most eCommerce brands built their company. It's a lifestyle business.

 

They want to be their own boss, they want to make some money, they want to get paid to do what they love. Me and Shawn had no idea what we could be paying ourselves because we just didn't understand how it worked. And then Profit First really radically shifted our thinking.

 

Cyndi Thomason

Yeah, and that's an important point. So many people think, "I don't want to pay myself in the beginning because it's a start-up." And there are some myths out there that (says), in the first five years, you're not going to pay yourself.

 

The reality is, if you don't set it up from the beginning where you pay yourself and you take care of taxes and you take care of profit, then you're going to always be in that position. It's a habit. It's not a milestone. It's something you do from the beginning. You engineer it that way. And by engineering your profits, you make better decisions.

 

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Chase Clymer

So everyone has one bank account. Let's break down the ones that you kind of grow to have when you implement this system and how they kind of work for your business.

 

Cyndi Thomason

Well, I know you'd like to give your listeners actionable advice. So here's the action I would take it as an eCommerce business. I would say, you need to move from one bank account to having three.

 

Now, that's not the full-blown, complete Profit First implementation. But this moves you in the right direction and it gets you started with the methodology and the processes of how it works. And those three bank accounts would be the existing one that you already have for operating expenses, another one for inventory, and then a third one for profits. So those three accounts... If you will just start by having those three accounts, you will start to get in the swing of how it all works.

 

Inventory businesses are challenging and inventory has its own cash flow that's really different from operating cash flow. So just separating out inventory... And as you get payouts from your sites like Shopify or Amazon or whatever platform you're selling on, as you get those payouts, you need to look at the money you've got in that payout and think about, "How much of this needs to go back into my inventory account to replenish my stock?" Because that's what people get into trouble.

 

They get all of this money coming in from their sales. Reordering is way in the future so they don't really think about it. And then down the line, they need to place another order. They need to put 30% down or whatever their arrangement is. They need some money to work with but that money's already gone out the door for something else to grow the business.

 

Inventory is just... It's sacred (laughs). It's the lifeblood of your business so when you get that money from being paid out, put it back in a separate bank account because you know you're going to need that to replenish. So that's the biggest thing.

 

The other thing then is after you've done that, take 1% of whatever you've got left and put it in your profits account. And that makes you... At that point, you're profitable. Because every check that comes into your company, you're putting it into a profit account to start growing.

 

And just those 2 actions will do a couple of things. One, it's going to create your operating expenses down at a level that really should govern how you manage your business. Because you've taken out that inventory money that confuses everything, you're left with what money you have to really operate your business.

 

Take a look at that and understand, are you able to afford the business life that you're living? And if not, then you need to make some serious adjustments. You need to be more frugal or you need to be more efficient or you need to get more innovative. Those factors really keep your business on the cutting edge.

 

And if you're living off of borrowed money, whether it's inventory to be paid later or you take out a loan, it really does mask the fact that you're not operating at your optimum level.

 

So that's the place where I suggest people start. It's just with those two additional bank accounts. A checking account for inventory and savings account for profits, in addition to the checking account you've already got.

 

Chase Clymer

Yeah, and just because we just did this, I kind of have a note on getting those bank accounts. If you're with a major bank, they're probably not going to play ball and you're going to need to talk to a smaller either credit union or community bank in your area. If anyone's local to Columbus, Ohio, you can email me and I'll give you where we went. I'm not going to say it here. But yeah.

That's the route you need to go because when we were dealing with a major bank, they wanted to charge us about $10 or $15 a month per account, or have a minimum balance in there which was essentially paying thousands of dollars to not get charged $10 a month, which sucks for them. We moved a lot of business away from that bank.

 

Cyndi Thomason

Yeah. And I've got a list of Profit First friendly banks. If you'd like I can send it to you, Chase. You can include it in the show notes and then people can see what we've found across the country to be Profit First friendly.

 

Chase Clymer

Absolutely.

 

Annette Grant

That would be awesome. And Cindy, how does debt work into the Profit First methodology? When you're taking on a new client and they have debt let's say from purchasing inventor, how do you deal with that? How do you help? Do you help them get out of that? Do you think that is neutral? What's the Profit First take on that.

 

Cyndi Thomason

Profit First, typically, is pretty adversarial towards debt. I think that has a place but only if the business is running at an optimal level. What is see a lot of times is people are using debt when they haven't figured out their gross profit margins. And they don't understand how their business is performing from a profitability standpoint. And so they bring debt in to prop up the business as opposed to having the business working well and then bringing debt into a cheaper source of capital than your own.

 

So, from the Profit First perspective, what we try to do is help people realize that they can self-fund if they are operating at an optimal level. They can use their own funds to self-fund their growth in their business. And I've got a couple of clients that they just refused that perspective and want to use debt. They think using someone else's money is a better approach for them. And I've got clients that are using the Profit First methodology. And I can tell you that whichever methodology you choose, it's going to perpetuate itself.

 

I've never seen anybody that really was able to say, "Okay, I'm going to get out of this debt situation." Now, we work with our clients that are interested in getting out of debt to do that and you can get out of it. But if you’ve bought into that mindset, that's where you're going to stay. That's my point. The way it works in Profit First is you as you fund your accounts, we try to pay down the debt as quickly as possible. And one of the ways we do that is, if there is debt in the business when you take your profit distribution on a quarterly basis, you use those funds to help reduce your debt in a more accelerated way.

 

And you also start relying on your own funds in your business, so you're not continuing to build the debt. And between the two, --getting out of the habit of borrowing and having a payoff plan for the debt that's already in the business-- over time, we can wean people off of having to use borrowed money to operate.

 

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Annette Grant

I have another question specifically about Shopify and Amazon and how... In accounting, how do you deal with those beasts separately? Because I think that they're two different animals. And so what's your approach there?

 

I don't really sell on Amazon. I'm getting ready to get into that world. So what's some advice that you could have for people that are currently already selling on their own sites but are getting ready to expand into Amazon or are already on Amazon? What are some tips that you can give those store owners?

 

Cyndi Thomason

Well, going into Amazon from a platform that pays out on a more frequent basis is a big adjustment because your cash flow is tied up at Amazon for two weeks. Typically the payout time is bi-weekly. So realizing that you're not going to have x is a big adjustment. It's not insurmountable. I mean, most of my clients, that's the way that they're operating currently. But if you're coming into Amazon after being used to a payout system that's more frequent, you have to get used to that.

 

So I would just suggest that if you're using something... If you're selling on Shopify, for example, I would suggest having a separate account for having the income, come into that money and then you transfer it out on the 15th or the 10th and the 25th. Because that gets you operating in a cash flow that's very similar to an Amazon payout, which is you're only going to get your money every couple of weeks.

 

Now Amazon's timing is different than that. But if you get yourself working in a rhythm, --which is one of the tenants of Profit First-- of touching your money, funding cash flow on a routine basis. If you get yourself in that habit first, then having a system like Amazon where you're only getting your money every couple of weeks is easier to adjust to because you're already in the habit of working, paying your bills, receiving that income and paying your bills. --that kind of flow happens on an every two-week basis--

 

Chase Clymer

For an eCommerce business, what are some things that are unique to that industry as opposed to other industries that you've worked with as far as accounting and the Profit First mentality?

 

Cyndi Thomason

You know, one of the interesting and nice things about owning an eCommerce business is that you don't have to have a brick and mortar store and you don't have to have a team to be there to unlock the door for and to scrape the sidewalks when it's snowing. So you don't have your hands around the inventory per se. You can't go and walk in the backroom and know how many of something you've got left.

 

So it's really a data business, and you have to be really good at looking at those reports off of your selling platforms, and understanding what it's telling you. The data analysis piece of an eCommerce business, I think, is critical. Whereas in a... It's important in any brick and mortar store, but you just lose that tangibleness of the products being where you can see them and see them walking out the door. And so I think the data analysis is one of a double-edged sword, it's a benefit but it's also can be a challenge for people.

 

Chase Clymer

Absolutely. Not really pivoting but before we kind of go here, is there anything else that you think that would really help impact our listeners and anything that you'd want to share with them.

 

Cyndi Thomason

I really think getting that inventory bank account set up along with a profit account, that's the biggest thing you can do. Understanding that your inventory cash flow is a different cycle than your operating expense cash flow and getting a handle on those two things. I think the biggest opportunity for eCommerce sellers is to get their hands around what they're spending and the timing of their spending around inventory.

 

Annette Grant

I couldn't agree more with that. I have some inventory issues myself, but we'll talk about those offline, Cindy. The number one thing people can do today is download Cindy's book. I binged on it I'm going to admit, it was a game-changer. So Cindy let's tell everyone where they can find your book and start learning immediately after the podcast.

 

Cyndi Thomason

Well as they say, it's available everywhere books are sold. (laughs)

 

Annette Grant

(laughs)

 

Cyndi Thomason

It is available on Amazon, which is probably the easiest place for a lot of folks. But it's available on all the platforms like Apple, Barnes and Nobles Nook that kind of thing. Available at libraries.

 

So anywhere you would go to buy a book, I hope you can find it there. It is also available on Audiobooks. So if you like listening to your books, it's available for you to get there. And there's a lot of resources in the book and those are all available online at our website. Once you listen to the book, we give out the website where you can go to get all of the tools that we recommend you use.

 

Annette Grant

I did take a peek at all those tools by the way. So for our listeners, Cindy's book is Profit First for eCommerce sellers. And then her website is bookskeep.com Like she said, it has those ancillary items that she speaks about in the book to help walk you through so you can start looking at your profits immediately.

 

Cindy, it's been awesome. I was so excited to have you on the show. I have to admit, Chase knows I've been geeking now. Excited to talk to you, so...

 

Chase Clymer

Yeah. Annette was like, "I want to talk to Cindy." And I was like, "All right, I'll make it happen."

 

Cyndi Thomason

(laughs)

 

Annette Grant

Yeah, it was very exciting. So we are so thankful to have you on the show. And more importantly, we are excited for our listeners. Please read Cindy's book. Read Mike's book. Implement this immediately.

 

It really can, not only change your business, but change your life. I don't say that lightly. I think our listeners should should do this immediately. So thank you for being on the show, Cindy.

 

Cyndi Thomason

Yeah. Well, thank you for having me on today. I have to admit that one of the things I really enjoy most is logging into my email every morning. Because in the book, I asked people to write me and tell me what they're going to do with that first profit check.

 

And it's just really great to hear that people are making a commitment to getting on top of their finances and to be profitable. And reading those stories in their emails is just a highlight every day so I really appreciate you guys are helping me get the word out.

 

Annette Grant

Awesome. Well, thank you so much and have a wonderful day, Cindy.

 

Cyndi Thomason

Okay, thanks. You guys, too.

 

Chase Clymer

We can't thank our guests enough for coming on the show and sharing the truth. links and more will be available in the show notes. If you found any actionable advice in this podcast that you'd like to apply to your business, please reach out at electriceye.io/connect.

 

Annette Grant

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