Inglewood Business Magazine June 2018

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Inglewood Business Magazine | Finance 24 Inglewood Business Magazine June - July 2018
Finance | Inglewood Business Magazine In the last issue, I shared with you that your profits are the most important financial metric of your business. Implementing a different mindset to prioritize the critical decisions of your business by realizing that Sales – Profits = Expenses will definitively drive the growth your Profits. Today, I want to show you an easy manner in which to immediately initiate this methodology within your business. When I was a little kid, the local life insurance rep would make a monthly visit to my Great-Grandma’s house. He would come in and make small talk with the family while my Grandma would tiptoe off to her bedroom and reach under her mattress to grab a small envelope. She would return with the monthly payment. Without fail, she would have the right amount of cash for the life insurance payment and for each of the recurring monthly expenses. I later realized that my Great-Grandma was implementing the mentality of the MLBs (Major League of Business, for those who missed last month’s article). Out of every check Grandpa earned, grandma would allocate a specific amount towards an envelope. This would enable her to sit aside enough money to make the monthly payments. The MLBs have advanced this mentality and here is how you can leverage their cash flow management techniques to the advantage of your business. Create 5 separate bank accounts for your business and title each of them as follows: 1. Gross Income (GI) 2. Profit (P) 3. Owner’s Pay (OP) 4. Taxes (T) 5. Operating Expenses (OE) As your business makes money, all of it should be distributed into the GI account. On the 10th and 25th of each month, money should be moved out of the GI acct into the other accounts based on the Profit prioritized budget discussed in the previous article. The other accounts should then be utilized to cover the cash needs associated with their titles. The money should always flow with the deductions from the GI account going in the above listed order of the accounts. This ensures that your Profits are not taking a back seat to other expenses. Implementation of this method will force you to eliminate the waste in your operating costs first. The balance in the Profit account 5 Bank Accounts Your Business Needs should be allowed to build up untouched for at least 1 quarter. This will drive increased morale and happiness as a business owner as you will see the benefits accumulated in the form of actual profits that you can apply to your dreams and goals without sacrificing the growth of your business. - ZT About Zig Zig Tekeste advises small business owners in growing their profitability while establishing the peace of mind and freedom they seek as entrepreneurs. Zig holds a BS in Mechanical Engineering from the University of Michigan and a MBA from the UCLA Anderson School of Management. Zig can be reached at zig@gsvllc.com. www.inglewoodbusinessmag.com Inglewood Business Magazine June - July 2018 25
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Inglewood Business Magazine June 2018

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