#631 – Amazon Financial Planning Workshop

What if you could dramatically enhance your e-commerce business’s profitability by making a simple shift in your financial strategy? In this episode of the Serious Sellers Podcast by Helium 10, we sit down with Cyndi Thomason, the mastermind behind “Profit First for E-Commerce Sellers.” Cyndi opens up about the intricacies of cash flow management and the vital principle of paying yourself first, a step often neglected by Amazon sellers. Drawing from her extensive experience at Books Keep, Cyndi provides an in-depth analysis of the current e-commerce landscape, highlighting an intriguing scenario where revenues are climbing, yet gross profits dwindle due to rising costs. 

We unravel the secrets of proactive financial planning, diving into the innovative use of multiple bank accounts to streamline your business finances. By establishing separate accounts for operating expenses, inventory, and profits, you can achieve a crystal-clear view of your cash flow and tackle the unique hurdles of inventory management. Cyndi guides us through the practicalities of this method, emphasizing the importance of setting aside funds for future inventory needs in the ever-changing market conditions.

As we dive deeper, the conversation shifts to the transformative “Profit First” model. Cyndi passionately advocates for entrepreneurs to reward themselves with regular profit distributions, likening this practice to the enjoyment of dividends from stocks. This not only celebrates success but also builds financial discipline. We also explore strategies for funding inventory and product development while keeping operational expenses in check. From understanding the nuances of real revenue to maintaining a healthy balance for taxes and owner pay, Cyndi equips us with essential tools for sustainable business growth and personal financial well-being.

In episode 631 of the Serious Sellers Podcast, Carrie, Kevin, and Cyndi discuss:

• 00:00 – Maximizing E-Commerce Profitability Strategies
• 01:28 – Profit First for E-Commerce With Cyndi Thomason
• 05:36 – Impact of Ad Spend on Profitability
• 08:38 – Understanding Profit First Behavioral Strategy
• 11:55 – Optimizing Profit Through 3 Bank Accounts
• 13:31 – Setting Up Multiple Bank Accounts
• 18:46 – Implementing Profit First Financial Strategy
• 20:00 – Building a Profit Reserve for Business
• 24:52 – Credit Cards in Business
• 29:00 – Financial Strategies for Business Growth
• 30:56 – Mindset Shift for Business Success
• 36:25 – Strategies for Business Financial Growth
• 37:20 – Managing Expenses for Product Development
• 40:45 – Cash Flow Management and Profit Maximization

Carrie Miller:

On this episode of the Serious Sellers podcast, we are talking with Cindy Thomason, who wrote Profits First for e-commerce sellers, and she’s going to be talking all about profitability. At the end of the day, we’ve become e-commerce sellers so that we can make sure to have a profit and fund our lifestyle, so she’s going to be talking about how to make sure to calculate and manage your money to make sure that, at the end of the day, you profit.

Bradley Sutton:

How cool is that? Pretty cool, I think. Are you in Europe? If so, make sure to attend the biggest Amazon seller ever in Europe’s history, AMZ Hacking Live. It’s going to be next week, January 25th, in Berlin, Germany. I’ll be there, Kevin King will be there. Kevin King will be there, and also hundreds of sellers from across the region. Now, a lot of the main presentations are going to be in German, however not mine or Kevin’s, because we don’t sprechen Deutsch, so those will be in English. But regardless if you speak German or English, I’m sure you’d have a great time networking with all of us there. Make sure to get your tickets now. H10.me forward slash Germany. H10.me forward slash Germany. We’ll see you there. Hello everybody, and welcome to another episode of the Serious Sellers Podcast by Helium 10. I’m your host, Bradley Sutton, and this is the show. That’s a completely BS. Free, unscripted and unrehearsed organic conversation about serious strategies for serious sellers of any level in the e-commerce world.

Kevin King:

Today we’ve got someone on that talks about profit first, and some of you may have heard about the book Profit First, which is written I forget when it came out, but it’s basically pay yourself first, because so many of us do not do that. We keep putting money in and it just becomes this vicious cycle where we’re always poor and we’re trying to figure out can I afford the three for a dollar macaroni or not to eat tonight, even though I got a million dollars in sales on Amazon? And so then there’s a version of that that came out. Profit first for e-commerce, where it was. That whole model was designed and adapted to e-commerce and we had our guest today was in the Freedom Ticket a while back, but some things have changed, so she’s going to be talking about that in an updated version. Our guest today if we go ahead and bring her on so she can show you this stuff is Cyndi Thomason, and Cyndi is amazing when it comes. She runs a bookkeeping company, she does a lot of stuff in the space, she knows her numbers and she knows how to get that profit. Squeeze that profit out, depending on your goals every which way you can.

Cyndi Thomason:

I’m excited to talk about cash flow. I’ve been talking about profit first for quite a while, but I really think right now, in the environment we’re in, people are wanting to grow. They’re wanting to grow quickly, and cash flow is the ticket for doing that. So let me just tell you a little bit about my background Again. My name is Cindy Thomason. As Kevin mentioned, I founded a bookkeeping business called Books Keep over 10 years ago About six years ago this month in fact I released the book Profit First for E-Commerce Sellers. I have been a Profit First professional since I opened it up. I’m member number nine. I just knew from the beginning it was something my clients needed and started working with Profit First and, through that relationship, started focusing on e-commerce businesses, and that’s what I focused on for the last 10 years. A couple of years ago, I wrote a book for women called Motherhood, Apple Pie and All that Happy Horses. It’s about women starting a business and the unique challenges we have with juggling families, etc.

Cyndi Thomason:

Okay, so that’s me today’s agenda. I want to start off with a little bit about the state of the e-com industry, because it’s been a rough year and I’ve dove into some of the numbers and I’d like to share with you what I, what I’ve learned. Then we’re going to get into profit. First, the rules of the game and then, uh, some of the next level challenges paying yourself, hiring staff, how to manage inventory and product profitability. So that’s our flow for today. I’m going to do this first part fairly quickly because I want to get to the profit first stuff.

Cyndi Thomason:

But just so you know what you’re looking at, I’ve got over 125 e-commerce clients. What you’re looking at. I’ve got over 125 e-commerce clients. I’ve looked at their data from July of 23,. From January to July of 23, and again from January to July of 24. Now I’ll update this again when all the books are closed for the end of the year, but it’s a six-month period comparing the first half of the year of 23 with the first half of the year 23, with the first half of the year of 24. These are the data is anonymized in its averages. So I’ve got clients doing a lot better than what you’re going to see and I’ve got clients doing worse than what you’re going to see. But I think comparing how things looked in 23 with how things looked in 24 will give you some insights into what you may be experiencing just with your own business.

Cyndi Thomason:

So, first of all, revenue was up. The average revenue for the businesses that are in our world was up about 13%, so that’s a good news story. But gross profit was down about 8%. Again, comparing first half of 23 to the first half of 24, gross profit went down 8%. Now, part of the reason for that is that Amazon’s cost of sales are up 4% and I know that’s not news to any of you. You’ve been feeling those fees go up. But the other portion of it is you’re probably hit with higher cost of goods, the products that you’re buying to sell, and your shipping costs have probably gone up as well, and those things all together impact that gross profit number that has gone down 8%.

Cyndi Thomason:

And some people ask well, that’s because ad spend is up, right, and really no, it’s not. Ad spend as a percentage of revenue was steady between for my group of clients between 23 and 24. And that number was around 14%. People are always wanting me to give them what their ad spend number should be and I don’t want you to look at that 14% and go, oh, that’s a good number. That 14% just happens to be the number for this 125 clients. Your number will vary. I’ve got some clients that don’t spend anything on advertising and then I’ve got some clients that are spending a lot of money 40 to 50% of their revenue on advertising. That’s a really tough place to be and I know that really impacts their bottom line. So I was kind of surprised by this number. That 14% kind of held steady from last year to this year, the first half of the year. Here’s the one that really hurts, though. The net profit that I saw was down 19% over last year and that put, on average, my businesses in a loss. A year ago, in 2023, the net profit number was around 6%. In 2023, the net profit number was around 6%. This year, when the net profit number went down, it went down 19%, putting people at a 13% below profitability. They’re losing that much money and it’s really a tough spot to be.

Cyndi Thomason:

As I’ve presented this over the last few months, I get this reaction of whew. It’s not just me, and I know that everybody feels a little bit of comfort to know that. Okay, I’m not the only one screwing up or having this challenge, but when I talk to folks about it, I want them to realize it’s still not a good place to be. Having other folks with you on the deck of the Titanic didn’t make it a better outcome, right? So what I want to do today is to present to you some life rafts to get off that boat and to start being in a better situation. And I know for a fact, because I’ve been doing it for 10 years the clients that manage their cash flow and that use some version of Profit First. There’s a lot of ways you can implement it. I’m going to share how you can get started today. Those folks have the life rafts that are positioning themselves to be successful over time.

Cyndi Thomason:

So I’ve come across this quote recently from Albert Einstein. It says you have to learn the rules of the game and then you have to play better than anyone else. And I kind of like that, and I think that’s a pretty good description of what happens in business. So what I want to do today is share with you the rules of the game. I’m going to show you how Profit First works and why it’s important and how it depends on your behavior. So that’s the first section of what we were going to cover. Now we’re going to move on to Profit First and the rules of the game. So just a quick introduction about Profit First. It was written by Mike Michalowicz in 2014, I think is when it came out. That’s when I first became aware of it and he has an organization called Profit First Professionals and I joined that back in 2014.

Cyndi Thomason:

What I love about Profit First is that it is behavioral based. We all do things because of our behaviors behaviors and that’s what impacts our money. And so today, what I’m going to cover for you is the why and the how that’s behind our behavior, and I want you to know it’s not logical. We do things based on emotional reactions and patterns in our lives and there’s a specific reason for how we actually manage money and spend money in our businesses, and that’s what I want to teach you today. And then we’re going to apply that why it works, that behavior to how you can use it in your business. So the behavioral law here that’s that’s at work is called Parkinson’s law. It was developed in the 1950s by Cyril Northcote Parkinson. He was an officer in the British Royal Navy and he was an economist, and he studied this situation that was going on that I think we’re probably all familiar with, where more money would be given to the Navy, and they would just seem to use it all up and need more money, and he couldn’t understand well, why is that happening? And so he studied it and he developed this law that’s named after him. Basically, the theory is the demand rises to meet the supply.

Cyndi Thomason:

Of a good Shorthand for me, I just like to say you use what you got. So in this example, I’m showing you a toothbrush with toothpaste on it. When I travel, if I’ve got a big tube of toothpaste I you know I use a lot of toothpaste, but when I have that small little tube of toothpaste and I’m about to run out and I got three more days on the road I use a very tiny little dollop of toothpaste. So I think that toothpaste just is a great example that we can all relate to that if you got a lot of something, you use more of it. If you have a small amount of something, you use less of it, and so we’re going to apply that to our business and to the cash we have in our business.

Cyndi Thomason:

Now, most of you are probably familiar with how a P&L looks and this formula that we all have seen in business, where we start at the top of the funnel with our sales and we take out our expenses and what’s left at the bottom is our profit, and profit may or may not actually appear. Based on what I shared with you a minute ago, you can see that it’s becoming more rare for our e-commerce businesses these days. Well, what profit first does is we flip that equation. We basically say we’re going to take our sales and we’re going to set aside our profit, and then what’s left is what we’re going to use to spend in our business and to run our business. So you know this is basic math. You know you can flip those terms around and get to a balanced equation. That’s all we’re doing here.

Cyndi Thomason:

But it’s an important distinction to plan for profit in your business and not let it be an afterthought, not let it be just the leftovers, if you will. And the way we do that is through using our bank accounts. Bank accounts are so easy to access now on our mobile phones. When I ask folks how often, you know in a live audience how often they’re checking their mobile bank accounts. On average, people are on are checking their bank accounts at least once a day. Many people tell me they get up and they look at their bank account as part of starting their morning. So we’re going to use those bank accounts. It’s an easy way to help us log into that bank account. Use it like a dashboard to let us know how our money is working for us.

Cyndi Thomason:

So what I’m going to introduce you to is a quick start methodology and then I’m going to expand on that into the in the next section where we talk about the next level. But just as a way to get started, I think you need three bank accounts Now. But I I’m always careful when I’m talking to folks about money, because I know that you can go in and move some things around and really upset your whole world. So I want you to be aware that this quick start method is like walking into the water from the beach. We’re going to get used to it. Yes, it’s kind of a quick start, but it’s not diving into the deep end. So it’s a very simplified model and then, after you get your sea legs a little bit, then we’re going to get more sophisticated. So you probably already have some kind of operating business checking account where your Amazon dollars come in and where you pay your bills out of. That operating expense account is going to be your main account. You’ll keep using that.

Cyndi Thomason:

But the thing that I’m going to recommend to you is that you create two more accounts. One of them will be your inventory account I’m going to go into some detail here in a minute why you need an inventory account. And then the other one will be a profit account and basically the flow is the dollars will come in from your Amazon settlement into your operating expense account. You’re going to look and see what products sold and what that replenishment cost is and you’re going to move those dollars into inventory and that separate inventory bank account. And then you’re going to look at what’s left.

Cyndi Thomason:

Let’s say you put 30% over in inventory. You’re going to look at what’s left. You’ve got 70% left. You’re going to take 1% of that value that’s left and put it in your profit. You’re just going to repeat that every time you get a settlement and what that’s going to do is start to set up a cash flow account for inventory. So you can see, am I building up enough dollars in that inventory account to place my next order? Because what happens when you have all of the money in one bucket, all in operating expenses, you lose track of what those dollars are for. So by setting up a separate bank account, we give that money a purpose and we know, okay, if I spend money out of here, I’m not going to have the money to pay for my next load of inventory. So let’s talk about why inventory is special and why we need to monitor it separately.

Cyndi Thomason:

Inventory for the most part, especially like if you’re a private label you’re probably ordering large quantities. Your supplier wants some kind of down payment, then they want the rest of the money before it ships. Then you’ve got, you know, possibly 60 to 90 days of actually the inventories on a boat and then, once you get it in, it takes a little bit to do your inspections and get it into the Amazon warehouses or whatever warehouse you’re going to fulfill from, and then at that point in time you can start to sell and actually generate some money on that, to sell and actually generate some money on that. So what happens is those inventory dollars that you spend, you’re not going to get those dollars back for a long time. That cycle can be almost six months possibly and depending on how quickly your product sells through it, can even stretch out longer than that.

Cyndi Thomason:

So having that kind of noise in your operating checking account. You just can’t understand. Understand, okay, what’s actually flowing through here and and what’s the impact and how much do I need to keep to make that next um inventory order? So just by putting that inventory in a bank account or replenishing dollars in an inventory bank account, it helps. You know that you’re setting yourself up to have the funds to be able to buy the next round of inventory. So that’s the reason I like to separate it, it, it, it um inventory will that account’s going to build up over time and get bigger and then it’s going to drop. And then it’ll build up over time and then it’s going to drop.

Cyndi Thomason:

And that’s very different from the way our operating expenses operate. You know, if you’re paying for a rent on a warehouse or maybe you’ve got a bookkeeping service or maybe you’ve got, maybe you’re paying contractors, those things happen on a regular basis and most of our society now is operating on some type of subscription and every month you’re paying a little bit for those services and the next month you do it all again. So operating costs can have a pretty steady type of cash flow where those dollars are pretty consistent month over month. And so you can see that if all of those operating expenses then has the noise of inventory going on with it. You really you kind of get lost in understanding what’s really happening with my operating expenses. Are they going up? Is it costing me more to do business now than it used to because subscriptions have gone up or fuel has gone up or labor has gone up, or whatever? It’s hard to understand that if you’ve got the noise of inventory in there together. So that’s why I like these two accounts to be separate, so you can start to truly understand the flow and the patterns of flow and the differences and how that works with inventory versus operating expenses.

Cyndi Thomason:

So the next piece of it is really we’re going to get into frequency. What kind of rhythm do you need? Well, amazon, if you’re selling on Amazon, it kind of takes care of that for you, because Amazon is going to pay you out every two weeks generally, and so that’s very consistent with what we recommend with Profit First. About every two weeks you should take the money that you’ve collected and allocate it to these accounts and, like I said, amazon is doing that already. So it’s just you can flow directly into that system. If you’re primarily selling on other channels and you’re getting payouts more frequently, then I would recommend that you pick some days like the 10th and the 25th and those be your days that you actually move the money. So the dollars will come into your operating checking account. On the 10th. You’re going to look at your cost of goods sold, move those dollars into that inventory bucket, take your 1% profit and you’re going to just do that on a regular two-week type cadence.

Cyndi Thomason:

The other rhythm that you’ll get into is the fun part. It’s where every quarter, you get to look at the dollars that have accumulated in your profit account and you get to take some of those dollars out and reward yourself for being the entrepreneur. As so many of us work a lot of hours, our family probably gets frustrated with us because we’re working all the time. This is a way that you can take money out of your business, much like if you were getting a dividend from a stock that you would own. You take some money out of your business and you do something to celebrate, and I’m a real stickler for this. People are always saying I want to invest it back in the business and I’m like, no, you have.

Cyndi Thomason:

Your business needs to be set up from the beginning to make a profit. Take those dollars out, do something with your family for yourself to celebrate the fact that you have operated this way for the last three months. So what I recommend is that you take on your quarterly distribution day, which is the last day of the quarter. You take out half of what has accumulated in your profit account. Now, the reason I say half is because we leave the other half in to start to build up a rainy day fund. I could tell you so many horror stories of inventory that got lost when it was shipped into Amazon or accounts being suspended. You need a rainy day fund to be able to help you get out of trouble from time to time. So, leaving half of those dollars in your profit account, they will just start to build up. So, every three months you’re putting dollars in, they will just start to build up. So, every three months you’re putting dollars in. Half of what you put in that three months you take out. The other half stays in there and it just builds up over time and over time, you will have money in there to help you get through a tough spot, should it happen.

Cyndi Thomason:

And you know, the big tough spot that we all encountered back in 2020 was when Amazon just said well, we’re not taking any more product except essential items. And I will tell you, I got email after email in that next day. The first email was oh thank God for profit first, we’re going to be fine, we’re just going to use our profit account, we’ll be fine. And the other was I think I’m going to need to cancel our service with you because we just aren’t going to have the funds to pay. And you can tell which one I liked getting and it made me even more of an advocate for profit first.

Cyndi Thomason:

So about this point in my talk I usually get some questions around but what about? I’ve got debt in my business? What do I do with that? How do I make this transition? It’s going to be hard. And how do I take profit distributions? So I’ll just this transition. It’s going to be hard. And how do I take profit distribution? So I’ll just touch on those real quick. If you’ve got debt credit cards, sba loans etc you can start to work that debt down and when you take your profit distribution every quarter, you can take a good chunk of it somewhere around 90% of what you’ve taken out, your share of it, and apply it to your debt and that will start to snowball paying down debt.

Cyndi Thomason:

Now, if you’ve got very low interest loans, I’m certainly not going to tell you to do that right now. You don’t want to aggressively pay back low interest loans. But if you’ve got high interest loans, I’m certainly not going to tell you to do that right now. You don’t want to aggressively pay back low interest loans, but if you’ve got high interest loans and it’s really killing your business, then what you need to do is to start working down that debt, and your profit account will allow you to do that. I’ve already talked about this transition.

Cyndi Thomason:

We’re going to take this beach entry and do things slow with those three accounts. That’s what I recommend. I have. I have people who come in and go oh well, we have cash and right now is a good time because you may have cash after Q4. But when people try to do it too aggressively, what happens is they just start moving money back and forth and then they say this really doesn’t work because they’re not changing their behavior around money. They’re just moving money back and forth. So I want you to get yourself in a position where you can fund those accounts and probably are going to have to reduce some expenses in OpEx. As you’re setting aside inventory dollars, you might have to cut back on some expenses and then, as you cut back on those expenses and you can maybe the next quarter, bump your profit percentage up to 2% and just start working yourself up to where you get to a place where your profit percentage is higher in the typically we like to see it somewhere 5 to 15%, and I’ll show you a little bit about that in a second.

Cyndi Thomason:

And then the profit distributions. I’ve already said it. I’m just going to say it again because I know somebody’s thinking it, but I want to invest my profit back in the business so I can grow faster. What happens with that is your business gets dependent on using all of that cash to keep the business going. And if you continually just invest in the business without setting aside money for a rainy day and for profits, what happens is your business starts to operate at that level and that expectation. And in operating that way, that’s just you’re stuck there and you have to do major, major shifts to make a change. Now what’s important about this is that if you take it back to Parkinson’s law and you realize that your OpEx account is now a little skinnier. Take it back to Parkinson’s law and you realize that your OPEX account is now a little skinnier than it used to be. You have to then figure out all right, what am I going to cut or what am I going to reduce? How can I operate more efficiently, how can I be more frugal, how can I be more innovative? And those types of pressure that you can apply to your OpEx makes your business stronger, and so part of the discipline of implementing Profit First is the discipline to keep pressure to keep those OpEx expenses down, and one way you do that is by keeping more money in your pocket. I’ve seen so many businesses get an infusion of cash from a loan and then six months later they’re back in a challenging time because they just Parkinson’s law went to work and what Parkinson’s law did was it allowed them to spend what they’ve got without actually investing and growing the business.

Cyndi Thomason:

Now I also get a lot of questions about credit cards, and if you’ve read Mike Michalowicz’s book, he does not think credit cards are the way to go, and I disagree, and so in my book, what I talk about is how we can use credit cards effectively in our business, because I know we all love our points. Mike recommends debit cards. I think debit cards create a risk for businesses because they don’t always have the same fraud protection that a credit card has. So that’s number one. Number two is they don’t have points, and I know we like that. So what I recommend is you creating purposes for your credit cards the same way as you do your bank accounts.

Cyndi Thomason:

So take one of your credit cards and say this is going to be my inventory card. I’m going to put all my inventory on this credit card and the other one is what I’m going to use for OPEX. You have to do a little switching to get your payments all in one place or whatever, or the charges in one place. But once you do that, what you can do is you can look at your credit card statement and understand okay, I’ve got this much, I’m going to have to pay in 30 days. What is my bank account, my inventory bank account, look like, and you can understand if you’re operating in a way that’s going to be able to support paying for that credit card. So credit cards, I just say separate is better. Give them a purpose. Put your inventory on one, your OpEx on another, and then you can easily start to see how that’s tracking with the bank accounts that you’re using. And just quick recap on these bank accounts. The three that you would start with is your OpEx. That’s where all the dollars collect and then where you’re going to allocate them out. Every two weeks or every Amazon settlement date.

Cyndi Thomason:

You’re going to take the replenishment cost and move those dollars over into your new inventory bank account. I recommend you have that be a checking account and then have a savings account for your profits and what’s left after you’ve moved the replenishment cost of inventory. Take 1% of that and put it in profit. Operate like that for three months, get your legs under you, then try to bump that profit percentage up. That’s what you’re going to do on a quarterly basis. You’re going to take some profit dollars out to celebrate or pay down debt and you’re going to say, okay, I’m going to ratchet this up one more percent. What can I cut out to take one more percent of profit? And that’s going to be your cycle every three months, every 90 days. So this is outlined in a quick start guide that we have. You can go there and just all the steps of what I just talked about are outlined for you. Okay, so just a quick recap If you don’t have a system, parkinson’s law is going to take over and you’re gonna spend your money. The easiest way to manage your cash flow is using your bank accounts, because the bank actually does the work and that inventory and OpEx cash flow operate differently, and by having them in separate accounts, you can have a better understanding of how that’s going to work. Okay, so I covered a lot there and we’ve still got some more good stuff to go.

Cyndi Thomason:

So what I want to talk to you about next is how to do, like the next level of implementation the full-blown Profit First, implementation and then some of the challenges that you’re likely going to experience along the way, like how much to pay yourself, when can you hire staff, that kind of thing. So a full-blown implementation of profit first would have, first of all, an income account. That income account is where all the dollars collect. Now, if you’re primarily selling on Amazon, I don’t think you need this because Amazon’s holding all that money. But if you’re selling on Shopify or Etsy and you’re getting payouts on a every couple of days and that money is coming in daily or pretty close to daily, collect all that money in one account, that income account and that’s going to be your serving tray, if you will. That’s where all the money comes in and lands in your income account and the sole purpose of that account is just to collect it and then in. We’ll use that same rhythm of every couple of weeks. Then you’re going to do your allocations.

Cyndi Thomason:

Again, we’ve talked about inventory. So the first thing you’re going to do is put money in inventory. Now, in the profit first world, there’s a distinction between top line revenue that goes into your income and real revenue. And it’s really kind of the genius of what Mike discovered and outlines in his book. It allowed him, by looking at real revenue, it allowed him to kind of level the playing field for all businesses. So what he’s saying is if you’re a doctor, then you’re going to have dollars come in and then you’re going to have to pay for you know your, your staff or that supports your team. You probably have some kind of medicines that you have to pay for. If you’re a builder, you have materials and subs that you’re going to use. In our world, it’s our products, any kind of retail type business, it’s our inventory. So once we take our inventory out, what’s left is our real revenue and that’s the dollars we have to pay for our profit, for our owner pay, our taxes and our OpEx.

Cyndi Thomason:

Okay, so the two new accounts that I would suggest you create after you’ve got your feet under you are the owner pay and the tax account. So we’ve talked about profit. You understand how that works. You understand that your goal is to keep making that bank account percentage, that allocation percentage, higher, so the bank account gets bigger. The owner pay is the next one that I would recommend you consider, along with taxes. If you consider those two things at the same time, then, when you are more profitable, you start to take more money out for yourself and you start to set aside dollars to be able to pay for your taxes when they come due in April.

Cyndi Thomason:

And then the OPEX is what’s left. It’s at the bottom for a reason. Nobody goes in business, so they can have a lot of OPEX. Right, we want to go in business so that we can have profit and we can pay ourselves well, and a byproduct of that is that we pay for taxes. I never mind paying for taxes. It means I’ve had a good year. So that’s a mindset switch. I know a lot of people hate paying taxes. I mean, it’s not my favorite thing either, but I also know that the fact that I’m paying taxes means that I’m having a good year. So this is kind of the next level structure.

Cyndi Thomason:

If you’re just starting out, I wouldn’t start here, but know that after you’ve done profit, first using that quick start method for maybe three to six months, depending on how cash is flowing then your next, your next way of moving forward would be with the owner pay account and the taxes account. And how do you know what percentage to use? This is in Mike’s book. It’s also in my book. I know it’s too small for you to read, but you can go to my resources on my website and find this. Basically, it says dependent on how much money you are taking in in real revenue say it’s zero to two hundred and fifty thousand. That’s what’s column A there. Then that dictates how much money you’re going to put into profit owner pay, taxes and OpEx.

Cyndi Thomason:

Now, these numbers are based on a business that’s operating successfully and that’s healthy. So they may not be your numbers, but they should be aspirational for you. You should be trying to get to these numbers because as you get to these numbers, as you increase what you can pay yourself what your profit is. It means that your business is operating in a more healthy way. So, depending on your real revenue, you pick out what column you’re in zero to 250. You know a lot of big Amazon businesses. After they pay their inventory, they’re in a smaller category. That’s kind of the way it works. So don’t worry about that. If your real revenue number is less than the number you’ve kind of had in your head for a while, that’s the number that you need to work from and use that to as kind of your benchmarks for how you want to get to be operating as a healthy business. So this is the flow.

Cyndi Thomason:

I’ve kind of described it already. The dollars will come into this revenue account, like like we’ve talked about before. They collect in one place and then you move. In. This example, say, 30 percent is going out to inventory. In this example, say 30% is going out to inventory, then you have 70% left that’s your of your top line revenue. That actually is a hundred percent of your real revenue, and so then these percentages are applied to the dollars that you have in real revenue. So it’s a little bit of a numbers change there. But just think about what you’re doing. First thing you’re doing is getting all the dollars and you’re setting it aside to but just think about what you’re doing. First thing you’re doing is getting all the dollars and you’re setting it aside to the inventory piece and then you’re resetting your number to a real revenue number and then that’s how you apply your percentages. That table that I just showed you is based on that real revenue number.

Cyndi Thomason:

Okay, so let’s talk about some challenges. The first challenge that I hear a lot is how do I know when I can take a paycheck? And as Kevin was introducing me, he talked about our owner pay calculator. The owner pay calculator is based on that table that I just shared with you, that Mike created, and it says depending on how much you’re able to sell and how much your gross margin is, you know, on those sales, that will tell you how much you can then take out and pay yourself. So it’s a. There are only three inputs to this and it uses the logic of a healthy business, those categories that we just talked about in that table. It uses the logic of that to say, okay, if I improve my margin, how does that affect it? Or if I improve my sales, how does that affect it. So you can do some what if? Games and play with those inputs to understand how you can, how, as your business changes or grows, what that’s going to do to your ability to pay yourself.

Cyndi Thomason:

The next question that I get a lot is how will I know that I can afford to hire my next team member or my first team member? And it’s a pretty simple strategy that I like to use. I like to figure out OK, how much do I think I’m going to have to pay this person? Maybe it’s $20,000. And that $20,000 over a year? Let’s just say it’s $1,500 a month. I like to start just setting those dollars aside. I create an account the bank accounts that I use. They allow me to set up extra accounts for free. I create an account for my team and I’m just like, okay, I think it’s about time to hire. I’m going to start putting those dollars in that account and if I can afford them for three months, those dollars are going to build up and then when I hire them, I’ve got a little bit of buffer there. I know that. You know they’re not going to be productive right away, but I’ve set aside three months of payroll to help me offset the fact that I’m going to be training and they’re not going to be productive right away and it. Should I have a slowdown that I’m not expecting then I can. You know I’ve got that cushion there, so that’s how I like to do hiring. It’s it’s a real low-tech way, but if if you can set aside three months worth of worth of their pay, then you’re probably in good shape to make that higher.

Cyndi Thomason:

The next kind of question I get a lot is about funding inventory. How do I fund new product development or launching a new product or my sales growing over time? We’ve talked a lot today about replenishment cost and if you’re growing, replenishment cost is going to leave you short for your next order. So I just recommend considering okay, if I think I’m growing at 5% or 10% a year, I’m going to look at that replenishment cost that I’ve calculated and I’m going to bump it up 10% and that’s the money I’m going to put in my inventory account. Yes, it means you’re going to be skinny in your OpEx and you’re going to have to be innovative and frugal and really efficient. So just understand that making that commitment to growth is a cost that you’re going to incur in the future when you buy that inventory and so you need to be operating in a way that you can support that.

Cyndi Thomason:

If you are involved in product development, wanting to launch a new product and I know today my clients are developing new products at a much faster pace and more frequently than they have in years past Sometimes it’s helpful just to say I’m committing 15 percent of every dollar I get to product development. Or, you know, know your situation. Maybe it’s 5% or maybe it’s 20. I don’t know that number, but if you know how much product development you’re wanting to do in the year, you can start to set aside dollars for that purpose. And this is where I see the biggest challenge. Opex is just out of control. People do not pay close enough attention to what’s going on with OpEx.

Cyndi Thomason:

So I recommend, every quarter you just sit down with your bank statements or pull it out of your QuickBooks or Xero and you look at what transactions are hitting your accounts and you say do I really need this? You make it justify being on that ledger. If you can cut it, cut it. If you can reduce it to a lower tier plan, reduce it. If you have to keep it because it really is an investment in your business growth, then you keep it, but you consider that Too often what I see is people will trial something and then they never go back and cancel the thing.

Cyndi Thomason:

And if you spend just a couple hours every quarter going through those transactions, I guarantee you can find things to cut. Typically, when we do this with our clients, eighteen hundred dollars. We can cut out eighteen hundred a month. So it’s real money and it’s something that you can spend just a few, a few hours on and make a big difference. Ok then the last challenge that I want to talk about is just product profitability. When you’re developing products, be sure that you build in profits, because it’s just too easy to expect that the profits will just be there and you have to plan for profits. So if you go to my website, you’ll see that there are product profitability spreadsheets that you can use to be sure you think of everything and you put in from the beginning how much profit you’re going to make, because if you’re not making profit, you know this isn’t a hobby, you know I mean, if it is for you, then fine, but if you’re here to make money, then you need to put profits in there and build a business that way.

Cyndi Thomason:

The other piece of it is products. Their pricing changes over time, their costs change over time and it’s not a set it and forget it type of situation. You need to look quarterly and evaluate your profitability for your products. Now, if you’ve got thousands of SKUs, I get you can’t do that on a regular basis, but you can say I’m going to look at the top 10% of revenue or I’m going to look at the bottom 10% of revenue or something and have some kind of systematic way to evaluate is this product generating profits for my business or is it taking cash out of my business and sitting on the shelf and I could be using that money in a much better way? So make some time every quarter to just go through and look at product profitability. And if you haven’t done it ever and you’ve got a lot of SKUs, then just set a task and every month pick out top 10%, bottom 10% and just get into a system of evaluating it so that you can, over time, call out those things that are not adding to your bottom line. Okay, we’re about done. Um, just a quick recap what I hope you’ve gotten to me.

Cyndi Thomason:

These are the rules of the game. If you don’t have a system, parkinson’s law is going to take over. The easiest way to manage your cash flow is using your bank account, because the bank does the work for you, gives you the report and the dashboard. Inventory and OpEx operate totally differently, and so having separate accounts give you that visibility. Pay yourself this business is not a hobby, and I can tell you may be saying, well, that’ll come later. If you don’t plan to pay yourself and something happens and you get sick, who are you? What happens to your business? So, by paying yourself, if something were to happen and you not able to work in your business, then you can turn around and put those dollars to work by hiring a, an assistant, to actually run the business for you. So paying yourself is not a luxury, it’s a requirement and then build in and maintain your profits at the product level.

Cyndi Thomason:

Okay, so back to thinking about Einstein here. I hope by now you understand what the rules of the cash flow game are. What I’d like for you to do is to watch the other webinar that I have that will teach you step by step how to play the game and give you that tool so that in Excel you can start to look at your cash flow week by week. All of that’s free to you. There’s the web address there. It’s part of the new business that we launched your profit team and I would love to hear from you with any questions that you have. If you go and work with the tools and have any challenges, you can email me, [email protected], and I promise I’ll read your email and get back to you.

Enjoy this episode? Be sure to check out our previous episodes for even more content to propel you to Amazon FBA Seller success! And don’t forget to “Like” our Facebook page and subscribe to the podcast on iTunes, Spotify, or wherever you listen to our podcast.

Get snippets from all episodes by following us on Instagram at @SeriousSellersPodcast

Want to absolutely start crushing it on Amazon? Here are few carefully curated resources to get you started:

• Freedom Ticket: Taught by Amazon thought leader Kevin King, get A-Z Amazon strategies and techniques for establishing and solidifying your business.
• Helium 10: 30+ software tools to boost your entire sales pipeline from product research to customer communication and Amazon refund automation. Make running a successful Amazon or Walmart business easier with better data and insights. See what our customers have to say.
• Helium 10 Chrome Extension: Verify your Amazon product idea and validate how lucrative it can be with over a dozen data metrics and profitability estimation.
• SellerTrademarks.com: Trademarks are vital for protecting your Amazon brand from hijackers, and sellertrademarks.com provides a streamlined process for helping you get one.