Don't Sabotage Your Own Cash Management System
Ryan Vaughn, a gym owner, explains why raiding your Profit First buckets when operating expenses run short sabotages your system. Instead, use a nine-question expense analysis to cut costs, negotiate payment delays with vendors, and prioritize essential bills. Only true emergencies like forced closure justify touching profit or tax accounts.
Chapters
Hey everyone. A little bit about me today that I was going to get into this cash flow thing I've been thinking about. So I'm about 230 pounds. I have been in my head thinking I should be 200 pounds. And so I live with this guilt that for the longest time I have not been able to get down to that weight. There was a point the last time I was at 200 pounds was I put in a ton of work. Meaning exercise, eating like a bodybuilder. I got really sick of chicken and broccoli and brown rice. And then my youngest daughter was born, and then that kind of threw me for a loop with scheduling, and I've yet to be able to get back down to that amount. I don't even know if that amount's healthy. That's irrelevant to what I want to talk about here though. So starting in January, me and a friend, We said, you know what, we want to set the goal that we want to see our abs by the end of the year. And so we both took our own different plans. I met with the nutritionist at our gym and I worked really hard for about 8 months tracking things, calories, tracking calories, eating healthy, staying away from sugar. That is my Achilles heel. And then we as a family went on, it seemed like over a month, a 4-week period, a bunch of trips, like 3 trips in a 4-week period. And, and then it just all went to crap after that. And so that— It's not like I'm purposely going out of my way to eat super unhealthy, but I hate tracking calories. Therefore, That's the first behavior to go. And then I just, you know, try to make good decisions, but the decisions I make without a plan, I've negated the entire 8 months of hard work. And so it's frustrating. And I was thinking about that because diet and financial fitness are very similar for us. What decisions are we making as gym owners that could be negating all the gain we get from the good cash flow things that we're doing? Now, luckily, uh, with the Profit First system that we talk about all the time, you don't have to track calories per se. In my mind, uh, it's more of It's not tracking calories. I don't know how to explain it. I don't have a great analogy yet for that, but the equivalent of tracking calories would be you're getting in your books every single day and you're doing your accounting every day. That's not needed in the Profit First system. You can get in your books and look at your cash flow once a week or twice a month, and either one of those schedules is sufficient. So you're not stuck with this daily behavior that you need to adapt in order to have a financially fit cash flow. But some questions that I get from readers and Facebook group people here, I want to talk about those because that's what led me to wanting to pick this topic today. What do you do when your operating expense account doesn't have enough money in it to cover the bills? You've set up this system like I just did. You put in 8 months of good work, right? It's the equivalent because it feels— it can feel hard in the beginning. And then you get to that bill or bills. And you see that the ones that are due, you don't have enough cash in the operating expense account to cover it. So human nature and the typical first decision people make is that they go out, they take money from one of the other accounts, and then they pay that bill. That is the equivalent of what I just did last month, or, you know, a month and a half ago with my diet. I stopped tracking. I stopped the behaviors that was giving me progress. And, you know, in a 4-week period, it negated this entire time period of good work. And guess what? I also now feel worse than I did before because I'm not eating as clean. And my body feels that after a 8 months. So anyways, side note, I'm hoping that I will get back to that point, but man, it's a struggle for me. I don't— not like all you guys who are super disciplined. Um, gosh, give me a fast break Reese's Peanut Butter Cup bar thing. If you've never had one of those, they're the best things ever. Oh, it's hard to say no. Okay, so back to cash flow. What do you do then? I don't want you to make that mistake. And I know it seems logical. I have a bill to pay. There's no money in this account. There's money in these accounts. I'll just take the money from those accounts. Boom, bill paid, problem solved. Not problem solved. When you can't cover the bill that— for the operating expenses out of the operating expense account, your business is trying to communicate to you that you can't afford all your expenses. Now, I'm not saying that if you get into that situation, I'm saying that that current bill that needs to be paid, that you can't— that you shouldn't pay that bill, or that that bill is the one that's causing the problem. I'm saying collectively, all of your expenses are too much. Your business can't sustain the cash burn that you have on it. So what do you do in those cases? Well, first, before we get to how you actually solve the bill problem, you want to go back and analyze your expenses. We have the chapter in our Profit First for Microgyms book. You can all— you can put a message here and one of our team members will get you our handout. I've condensed it, we've condensed it, my team has condensed it. I shouldn't take total credit. I don't want to take total credit. We've condensed the content of that chapter into a simple handout so that you can see the questions you should be asking about each expense. And if you do the work, which I know sounds painstaking— like yesterday at the gym, the workout was a 7-minute AMRAP of burpees, just burpees. It's painstaking. I get it. But the work, you'll get the benefit. It'll pay off. Ask the 9 questions about every expense, and you're going to start seeing— sometimes you're going to see through the BS that you've convinced yourself of as to why that expense is necessary. And you may realize they're not all necessary. They're not all leading to increased revenue or increased retention. So if they're not doing some of those things, we ought to cut them because we're not in a scenario— if you're You've— if your operating expense can't cover all your bills, you're not in a scenario where you can afford to have the nice wants. You need to make the decisions to just have the needs. And there will come a time when you can add back in, these are nice wants and they're kind of fun, they add a little bit of flair. But until you're to that point, you can only accept expenses that are absolute needs for your business. So that's the first thing you want to do anytime you have bills to pay and there's not enough money in your operating expense account. That should trigger the behavior of an in-depth expense analysis. Okay, so now let's go to the practical side. What do you actually do? Because you've committed to paying this expense, you need to pay it because you're an honest person. That doesn't necessarily mean that you need to pay it right now. I recommend calling that person you owe money to and say, hey, here's the deal. I'm going to be a little bit late. Tell them when you think you're going to be able to pay it. And usually that's fine. Maybe they'll still charge you a late fee, but at least you are taking the first steps of saying, I can't pay this right now and I'm not going to take money out of one of the other accounts to do it. Um, okay, so there's that. The other process that you can use with the Profit First system, as you're sitting down and allocating money either once a week or twice a month, and then you're paying your bills on those same days, you're going to prioritize the bills that need to be paid, the bills that'll keep the lights on, the doors open, the bills that'll keep serving your members. you pay those first. And sometimes that means there are certain bills that you have that keep getting pushed back because they end up not being the top priority. You'll notice those. Those are the bills that you want to cut because you're already saying, based on the cash flow, we can't afford all of our needs or wants. Therefore, what are our most needs? And by prioritizing your bills every time you sit down to allocate cash, You are now identifying on a regular basis what your top priority bills are. Those are the ones you want to keep. The ones that keep getting pushed off, you should cancel those bills, and then of course pay what you owe when you can afford it, communicating in a proper way to your vendors. Okay, so now the last thing I want to say about this is it is slightly different. What I'm talking about is slightly different than a scenario When, say, the government forces you to close your doors and doesn't allow you to even make money. Those are the times when you dip into the amount that's been sitting in your profit account, that half, right? We only distribute half of the balance as a profit distribution. The other half sits in the profit account. In the times of crisis and emergency, that is when you would dip into the profit account. That is when you'd go and say, well, I'm going to have less taxable income this year. So you dip into your tax bucket, right? Profit account, tax account. Those would be the first places I go to in an emergency. Emergency. It is not as big of an emergency as you think just because you don't have enough money in your operating expense account and you have a couple of bills that need to be paid. That is not an emergency. I want you to do the hard work and work through the system in those scenarios. Um, and again, thinking about times of crisis, that's a little bit different. So I hope I've clarified that with you. I hope that through this you have been able to see maybe some ways that you're unintentionally sabotaging the financial health of your gym. And, um, yeah, that's all I got for you guys today. Remember, profit is a choice. Have the courage and wisdom to choose it.
