The butcher, the baker, the candlestick maker and you. I have to laugh because that is a pretty good starting list for who doesn’t get paid what they are worth. People go into business and put a ton on the line. They create a business plan and think, “This is the best idea of my life!” Then, a year down the road, they’re asking, “where in the heck is the money?”
Now, I’m not talking about getting paid from your customers. Most of us are past those days, considering that IOUs and checks are close to obsolete. When you implement processes that require upfront pricing, it takes away the risk of customers stiffing you, which is one of the best upgrades the industry has ever made.
My point is, the business gets paid, your employees get paid, the manufacturers get paid, but boatloads of business owners are not … they’re legitimately getting zero dollars, or it’s at the cost of an overdrawn bank account.
The list
It appears there’s a list out there of positions not getting paid when money is tight. You, the owner, the one with the dream and the investment that got the company off the ground, wind up on it time after time. How does this happen? How can we turn it around? How can you change your methods to get you off the list of non-payables, to the list of consistent income? What if your accounts payable looked like the following?
Process for writing checks:
1. First check goes to the company profit account.
2. Second check to the owner for his/her salary.
3. Third check goes to the tax account so taxes can be paid on time.
4. Fourth check goes to payroll account so employees all get paid.
5. Fifth check goes to suppliers for materials and such.
6. Sixth check is for other overhead and expense items.
Your first big job
As an owner, how do you like that idea? Would your life be different now if you had started that process from the first job you ever did? Do you remember your first job? The one where you thought, “Wow, being in business isn’t so bad! I just made more money on one job than I did working for my old boss in a whole week!”
How about your first big job? My first job was a $135 service call that I was thrilled about. But, my first big job came a couple of months later when a glue factory wanted me to wire up some machinery. The job paid $37,500 and when it was all said and done I had $10,000 in the bank. Those were the days.
Time for some honesty
The reason I, and possibly you, went through some tough times in business is that we were not honest with ourselves. We all said we were in business to make a profit, right? But, because we neglected to pay ourselves first, that money seemed to always disappear. If I had taken the profit out of every job first and then paid all other expenses out of what was left, two things would’ve happened.
1) I wouldn’t have wasted money buying things that I could not afford and raising my overhead before I needed to raise it.
2) I would have discovered almost immediately whether I was pricing my jobs correctly. This means including the profit in my cost.
I can either be tired or I can be poor, but I don’t have to be both. What leads to being both? Working too cheap. Is it better to not take a job than to take a job with no profit? Not in every case. But, sometimes you have to do just that because overhead is calling and you have to pay the rent, utilities, truck payments, etc. Those expenses are not paid out of profit; they are paid out of the overhead dollars you add to your prices. Again, not pricing correctly forces you to use the company profit dollars to pay overhead expenses. There is a right and a wrong way to use your profit.
The three-week challenge
1. Write down your profit percentage number on a piece of paper — you know, the one you tell people you build into your prices? (10 percent, 15 percent, 20 percent).
2. Monday morning open your online banking and add up the deposits that went into your account from last week’s activity.
3. Multiply your bank deposit number by the profit percentage on your paper and write a check to your company profit savings account. (For example: $14,700 deposit multiplied by 10 percent (or your personal profit percentage) equals $1,470. Write a $1,470 check.)
4. Deposit that $1,470 check in a separate bank account.
5. Repeat the process for three weeks.
Profit or charity?
With the results from the challenge, decide if you are actually in a profitable business or just running a charity show, and change if you need to change. Many of you may be thinking, “I can’t do that because I won’t be able to pay my employees and my bills!” If that’s the case, it’s time to be honest about what’s happening not only to your business, but also to your life. Stop going in this destructive direction.
So, as we say in Georgia, “If you want something to happen, then get crackin’!”
Rodney Koop is the founder and CEO of The New Flat Rate, www.thenewflatrate.com in Dalton, Georgia.