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Every Dollar Has a Job!
Rocky Lalvani is a Profit First Professional and the Fractional Chief Probability Officer at Profit Comes First, where he helps entrepreneurs and small business owners grow their companies profitably. Certified in the Profit First method, Rocky develops the strategies and models his clients need to maximize their profit potential.
Rocky is also the host of the Richer Soul podcast and the Profit Answer Man podcast. He graduated from Rutgers University with a bachelor’s degree in economics and earned his MBA from Penn State University.
Here’s a glimpse of what you’ll learn:
- [02:43] Rocky Lalvani discusses the Profit First model
- [06:10] Why you should have discipline with your cash flow
- [08:26] The importance of allocating funds to separate accounts based on their purposes
- [17:52] Rocky talks about making profit a habit in your business
- [20:10] How to define a profitable margin for your e-commerce company
- [25:17] Why every business owner should hire an e-commerce bookkeeper
- [31:13] Rocky explains how to build a business model that boosts your revenue and puts profit first
In this episode…
Are you wondering how to take control of your profits? Do you want a method that helps you boost your revenue and have cash left over at the end of the month?
As an e-commerce business owner, the math of turning a profit may seem cumbersome and overwhelming. But to run a successful business, you must take the time to examine and optimize your financial situation. That’s why Rocky Lalvani believes that every dollar has a job. Rocky’s Profit First model helps entrepreneurs allocate those funds to earn a profit — and achieve greater financial freedom.
In this episode of the Quiet Light Podcast, Joe Valley and Paul Andersen sit down with Rocky Lalvani, the Fractional CPO at Profit Comes First, to discuss how to reinvest in your company for the best return. Rocky details the importance of creating separate bank accounts for your business, how to do the math of a sale to produce profits, and why you should hire an e-commerce bookkeeper. Stay tuned.
Resources Mentioned in this episode
- Rocky Lalvani on LinkedIn
- Profit Comes First
- Quiet Light
- Quiet Light on YouTube
- Joe Valley
- Paul Andersen
- Mark Daoust
- Quiet Light Podcast email: [email protected]
- The EXITpreneur’s Playbook: How to Sell Your Online Business for Top Dollar by Reverse Engineering Your Pathway to Success by Joe Valley
- Profit First: Transform Your Business from a Cash-Eating Monster to a Money-Making Machine by Mike Michalowicz
- Profit First for Ecommerce Sellers: Transform Your Ecommerce Business from a Cash-Eating Monster to a Money-Making Machine by Cyndi Thomason
- Tyler Jefcoat on LinkedIn
- Seller Accountant
Sponsor for this episode…
This episode is brought to you by Quiet Light, a brokerage firm that wants to help you successfully sell your online business.
There is no wrong reason for selling your business. However, there is a right time and a right way. The team of leading entrepreneurs at Quiet Light wants to help you discover the right time and strategy for selling your business. By providing trustworthy advice, effective strategies, and honest valuations, your Quiet Light advisor isn’t your every-day broker—they’re your partner and friend through every phase of the exit planning process.
If you’re new to the prospect of buying and selling, Quiet Light is here to support you. Their plethora of top-notch resources will provide everything you need to know about when and how to buy or sell an online business. Quiet Light offers high-quality videos, articles, podcasts, and guides to help you make the best decision for your online business.
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What are you waiting for? Quiet Light is offering the best experience, strategies, and advice to make your exit successful. To learn more, go to quietlight.com, email [email protected], or call 800.746.5034 today.
Hi, folks, it’s the Quiet Light Podcast where we share relentlessly honest insights, actionable tips, and entrepreneurial stories that will help founders identify and reach their goals.
Joe Valley 0:29
Hey folks, Joe Valley here for the Quiet Light Podcast. Thanks for joining us. Once again. I have a co host today Paul Andersen. Paul, welcome to co hosting the Quiet Light Podcast.
Paul Andersen 0:39
Thanks. So I’m honored to be in the co chair with you. So appreciate the invite.
Joe Valley 0:44
Paul’s no longer rookie here at Quiet Light folks, he was a CPA by training and as I said, when I’m talking with our guests today, he’s an entrepreneur, printer by passion. I sold his business three and a half years or so ago. And he’s got multiple ecommerce businesses under his belt and now he’s an advisor here on the team as well. He’s joining me for a very specific reason. And it’s because our host today is in the e commerce, bookkeeping space. And it’s all about profits and how you keep cash for you at the end of each month. I was uh, he was kind enough to put me on his podcast talking about the EXITpreneur’s Playbook. And by the way, if you haven’t picked that up yet, please do. If you’re not convinced you need the book, just go to exitpreuner.io and download the free chapter chapter 11. I just had lunch with somebody here in Davidson, North Carolina came up from Charlotte. He’s a friend of Bill della Sandro’s part of ECF y’all know ecommerce fuel. He’s been running his business for about 17 years and thought he had a business that was not very sellable. Until he read chapter 11 of the book. So pick it up. It’s free on exitpreneur.io. And then if you’d like to book get it, but that chapter alone will help you tremendously. Our guest today is Rocky Lalvani. Rocky is from profitcomesfirst.com. He’s a commerce bookkeeper focused on the Profit First Model Rocky, welcome to the Quiet Light Podcast
Rocky Lalvani 2:10
Thank you so much for having me, Joe. Excited to be here. I just want to clarify one thing. I don’t do bookkeeping. I hate bookkeeping.
Joe Valley 2:18
Thank you. Yes.
Rocky Lalvani 2:20
So you go to your bookkeeper and send me the results. And I’ll tell you what they did.
Joe Valley 2:25
I told these two folks, I was gonna screw up the intro just because it’s the first time we’ve had a co host on and here I go doing it in the first 35 seconds. Thanks for that clarification. Why don’t you tell Paul and I what the profit first model is and what you focus on.
Rocky Lalvani 2:42
So profit first is a cash flow model. And it’s designed to work the way entrepreneurs work. And let’s face it, and Paul probably knows this quite well is a former CPA. Business owners don’t want to look at their financials in the sense that it’s not what drives them. They all have the parts of their business they love they love the metrics of selling. But by the time your bookkeeper brings you your results, it’s old news. And you can’t make business decisions on old news. Everyone wants to know, what do I need to do tomorrow? What do I need to do today to increase my sales and make sure that I’ve got enough cash going forward? And that’s essentially what the profit first system did it solve the problem of the way entrepreneurs do their financials versus the way their bookkeeper and their accountants do it is profit for something you created Rocky or something
Joe Valley 3:42
that is out there based upon a very successful book. Let’s just clarify that if you
Rocky Lalvani 3:46
will, yeah. So profit first is based on a book it is by Mike Michalowicz. And Mike was a serial entrepreneur. And he actually had a big seven figure exit back, I would guess probably around early 2000s. Maybe I don’t even remember the exact year I thought he was the smartest businessman in the world. And over the next two years, that seven figures in profit that he walked away with disappeared to the point that they were coming for the keys to the house in the car. And so Mike said, How did I get this so wrong? How did I screw this up? How do we fix this? And how do I help other entrepreneurs not make this mistake again. And one of his first hires is that the accountants gave you the wrong information where the equation for profit. So most people are told sales minus expenses equals profit. Okay. But where is profit in that equation? It’s a leftover. It’s an afterthought. Mike said, No, why don’t we do sales minus profit equals expenses. And so now you’re taking your profit first, and you’re constraining your Spence’s that doesn’t mean you shouldn’t spend. But you really have to be thoughtful of how you spend,
Joe Valley 5:06
is that gonna limit the growth of the business? You know, in terms of capital expenditures for inventory and things of that nature?
Rocky Lalvani 5:15
It’s not, it’s not at all. As a matter of fact, what it’s going to make you do is to be a little bit more thoughtful. So what most business owners, especially in the beginning, right, they see money, they go, let’s buy inventory, let’s do this, let’s do that. They’re doing it reactively. in in in the moment, what probably first says is you should remove profit from the company. But if you’re a growing business, and you want to reinvest your profit, at the end of the quarter, you sit down and say, hey, I’ve got $50,000 in my profit account, how do I want to best reinvest this in the company? What are the things that I can invest in are going to give me the best return on putting this 50,000 back in the company, so we’re actually putting in tension and thought into our spending, instead of just doing it without thought, because we’re all running around with our hair on fire?
Paul Andersen 6:10
So I want to ask you Rocky. So in my business, kind of building off what Joe said, the inventory and cash flow is the hardest part. So if you’re bootstrapping an e commerce business, and you’re growing, you’re constantly like, you know, I just bought $50,000 of inventory. Wow, look at us growing now I gotta buy $100,000 in inventory now 200,000, I never had that luxury of, you know, let me put 50k over in the piggy bank, and kind of reassess, you know, the highest and best use of these funds. I totally understand where you’re coming from that makes a lot of sense. But the messy reality doesn’t always work out that way. What do you how do you coach, folks in that position? And what does it What does it look like?
Rocky Lalvani 6:51
So what I do for those folks, is what we talk about is to create a cost of goods sold account. And every time you start selling, you immediately take your original cost of goods, and you immediately segregate it and put it in your cost of goods account. And maybe you take a little bit more, so let’s just make this simple, right, I’ve got something that I sell for $100, I figure my landed cost to me is maybe 1875. Okay, every time I sell one of these for $100, I’m gonna put $22 into my cost of goods account. So a little bit more than what I actually paid. Well, a month from now, I need to place another order, well, I can go to my cost of goods account, and I can see how much money I have. And I know that I can now pay for my order, maybe I only can pay, you know, if you’re if you’re placing the order, maybe you do 50% down. So I know, okay, I’ve got enough money to cover my 50% down, there’s still money leftover. And my sales for the next month will also go there. So that when it’s time to pay for the shipment, the money is already there, we’ve segregated it, we haven’t spent it on something else. Because I think that’s the biggest problem. You see a big pile of money. You spend it? Yeah, when we start giving every dollar a job, and we put it in a separate place with that job. We tend to be more disciplined, automatic.
Joe Valley 8:18
I just absolutely love give every dollar a job. I’m gonna write that down. Paul, we need to remember that that’s brilliant, Rocky, for for clarification purposes, on this cost of goods sold account? Are we talking about inside of QuickBooks or Xero? Or are we talking about a separate bank account?
Rocky Lalvani 8:37
So we talked about a separate bank account? Because let’s face it, if you’re the business owner, and you want to know what’s going on right now, in the moment, are you going to go into QuickBooks and try and figure this out? And how quickly was that updated? Whereas if I go to my bank account, and it’s labeled Cost of Goods account, I can look at my bank account and go, there’s $20,000. I know I have $20,000. And we’re good to go. So it is a separate bank account. It’s very important that you create separate bank accounts with a purpose. So a couple other accounts you want with purpose tax, because that money is not yours, right? Yeah,
Joe Valley 9:15
you learn the hard way, don’t
Rocky Lalvani 9:16
you? I’ve got I’ve got one of those. It took me a good 20 years of self employment folks to figure out a separate tax account, I do every single take a distribution, a certain percent goes into the tax account. So we take a certain percentage right off the top, and we put it in the tax account, because it’s not your money. It wasn’t yours. And we segregate that when tax time comes there’s no longer this oh my god, how am I gonna pay taxes or I gotta sell something. It’s, there’s the money. It was set aside and I can handle it. We also put money aside for owners pay, because I know in the beginning a lot of you don’t pay yourselves properly. So let’s pay yourself. We do set money aside for profit and ensure The nice reason that we like to set money aside for profit, and then if you choose to and reinvest it do so is if you’re going to sell your company, and somebody comes in looks at it, they go, Well, here’s owner’s pay, well, I’m not going to run this company, I’m going to put somebody in so I can use that money to pay them. But here’s my profit account this month, this company is actually throwing off a profit. And it’s a return to me for investing in buying this company. So it really helps to have clarity, that I’m actually going to be able to take money out of this company in the future that I buy,
Joe Valley 10:33
just for clarification purposes. Paul, would you agree that if, if it’s an owner operated business, and someone comes in and says, Well, look, I’m gonna I’m gonna, I’m gonna buy this business binary, put somebody else in place, that they have to do their own adjustment? Because if it’s an owner operated business, Rocky, like most of these are, Paul, wouldn’t you say? That’s absolutely an add back. And if somebody if that if that 2% of people that want to buy the business at want to put a CEO in place, choose to do that if they if there are no other offers? Paul, then you get something that negotiated with that. Usually, there’s multiple offers, we do an ad for that, on payroll and everything right?
Paul Andersen 11:12
I totally agree. Get the benefits of VR, I agree. Can I jump in and ask a question here. So, you know, I’m thinking about myself, Rocky, when I was in the trenches, trying to bootstrap build from zero, I think your typical entrepreneur, you know, you start with, you don’t really necessarily realize what you have. And I achieved another level of growth, another level of growth, and you’re kind of flying by the seat of your pants how, how cumbersome? Is it to implement this? And how would you do a lot of folks you work with, you know, you have to twist their arm a little bit and really kind of show them the benefit? Or is this something that’s, you know, not too cumbersome and is easy to easy to implement?
Rocky Lalvani 11:52
It’s actually very easy to implement. Everyone thinks it’s cumbersome, but it’s not. So basically what happens is we create a rhythm. And every business is different. So we generally have three kinds of rhythms. Either we do this once a month. We do this twice a month. And if we do it twice a month, Mike recommends the 10th and the 25th. We do it once a week. Alright, so once a week, we sit down, we look at our income account, and our income account is the only thing that happens in the income account, his money comes in. So when I look at my income account, I see how much money came in. Since the last time I did my rhythm. Right? So if we’re doing it twice a month, I sit down, I look at my income account, there’s $50,000 that means I know that in that two week period, two and a half week period, I have 50,000 coming in. And when you do this enough, you start to realize, okay, 50,000 40,000 60,000 80,000 Oh, that was a good month. 20,000 Oh, something just went wrong. I have instantaneous feedback that in the last few weeks, my sales dropped precipitously. Now, you take your your allocation, and then you separate it, you put it to the appropriate place where you want it. So we’re going to put money aside for taxes, we’re going to put money aside for profit, we’re going to put money into that cost of goods account so that we can fund our next buy. We’re going to put money in for our pay. And then whatever is less goes into op x and E op x account covers all your general operating expenses of the business. Each of these accounts is going to give you visceral feedback of how you’re doing and how you performed in that two week period. And then you appropriately pay out those bills from those separate accounts. I just counted six accounts. You have one more because of cost of goods? Yes.
Joe Valley 13:54
Well, yeah, I put one in there. I mean, if you got to pay yourself, you don’t need an account for that you’re just going to pay yourself through payroll or to your own bank account as a distribution right?
Rocky Lalvani 14:02
You are but we want to set money aside for owners pay as a percentage of sales. Cuz when you start to explode, you automatically get pay raises.
Joe Valley 14:15
Okay? Okay, so all of these accounts like I bank with a questa here, it’s a local bank here in North Carolina. I’m using the same een my same entity for each of these accounts. So it’s all being brought right up to QuickBooks or zero. And so you’re working with e commerce bookkeepers, so that they get this like our buddy that we talked about Tyler Jefcoat over Seller Accounting folks, if you don’t have an e commerce bookkeeper, Tyler is one of the best selleraccounting.com. So you’re pulling all that money up there. It sounds very much like an anti stress pill in the form of once you get this all set up. But I’m still kind of in Paul’s camp. If I’m growing at 100%. year over year, my business, many of the businesses that we work with Paul’s included when he sold three and a half years ago. And many of the people that we’re working with now, they might only be 24 to 30 months old, and they’re growing like crazy, to the point where the profit really can’t keep up with the inventory needs, because they’re growing that much, and you got to go, you know, 812, some say, you know, it’s even longer now lead times for ordering inventory. What do you do in that situation? When you’ve got clients, you’ve got all these accounts. But do you just have to accept at some point that the profit is very minimal? What do you do? Well,
Rocky Lalvani 15:41
so if you’re a growing company, your profit percentage might only be 1%. So it might be $1, out of 100, which, let’s face it, can you all deal with $1 out of 100, but that dollar out of 100, when you start becoming a million dollar company, start becoming real money. Okay, if you think about it, so your percentages are where you’re at currently. And over time, you really start to tweak them. So we take baby steps. In the beginning, you might have a 1% profit margin, maybe at year two and a half or three, maybe we’re at a 10%, that goes into the profit account. Maybe your pay is only 2%, or 3%. But think about it. You know, if you started with 3% at 100,000, and now you have 3% of a million, you’ve automatically seen your income go up 10x as your sales have gone up. 10x? Yeah.
Joe Valley 16:41
Did you do? Did you just take money out? Whenever you felt like you needed you look and see how much how much can I pull out? Because that’s what most people do Rocky, right? I did it, you did that same thing call?
Paul Andersen 16:50
That’s exactly what I did. Yeah, I didn’t really have I guess the luxury or at least I didn’t feel like I had the luxury to pull out a set amount instead of another account, because I was just reinvesting it as fast as I can get it in
Joe Valley 17:02
your business was how old when it was sold.
Paul Andersen 17:06
Three and a half years?
Joe Valley 17:08
Yeah, I could see Rocky doing that that small percentage. I like that it’s at least you’re establishing a system where you’re, you’re you’re setting up the accounts, and you’re putting that small percentage in each place, specially for the cost of goods sold account? Because so many people that I mean, Paul, how many clients do you work with that can run a cash flow report know how much money they’ve got, you know, available for inventory? Because that’s this is, this is what this is about Rocky, having the money set aside for expenses that are forthcoming?
Rocky Lalvani 17:38
It is. And the other thing is, and this is probably because I read your book, I loved it. That’s right. It’s right, right there on the shelf, right between two greats who know how and profit first, thank you very much. So if you think about it, in your book, you say, for most businesses, right? Your profit or your payout is an event. Right? When you sell your business, right, what we talk about is profit is a habit, not an event. And so we start building this profit habit, so that we’re constantly in that thought pattern of, Hey, I am supposed to be profitable even at day one. Because if I’m not profitable at day one, I guarantee you at year one, you’re going to be owing a lot of people money, and you’re going to be in trouble. And you’re going to be negative. And, and that is a major, major struggle. And a lot of new e commerce people don’t figure out all the calculations of all the people who are taking a cut before they actually make a profit. So this is giving you that visceral feedback up front. And it’s showing you Hey, your business model may not be what you thought it was.
Paul Andersen 18:57
I totally agree with you Rocky. I think there’s so many entrepreneurs, myself included, are literally flying by the seat of their pants, to have some sort of system or some sort of way to reflect and make sure the economics of my business actually make any sense here is super valuable. I totally get that. Let me pose Oh, sorry,
Rocky Lalvani 19:17
- I just want to make one point because I don’t think I fully explained this before, because your bookkeeper might yell at you how many extra transactions you’re going to have. This is too complicated. The reality is, every time you do an allocation, you essentially make five transactions. So you have five extra transactions per allocation. So even if you’re doing this once a week, that’s an extra 20 transactions that are going through and they’re so simple to see that your bookkeeper will be like, Oh, I see what he did. Click Click, click, click click and be done. It should not take either of you more than five minutes. A month to deal with this.
Joe Valley 20:01
If your bookkeepers complaining about that, folks, just fire your bookkeeper hire Tyler. Go ahead, Paul, you’re gonna ask question,
Paul Andersen 20:09
you know, so Rocky, there’s, you know, profits kind of a loaded word in a way. So there’s, there’s profit, what I would call, like Penny profit or dollar profit. And then there’s profit margin, right. So like in e commerce is a very classic scenario, like, okay to acquire a customer on Amazon or my Shopify store, I can kind of put more dollars in the top of this funnel ad spend, and I can profitably acquire customers and grow my total profit, but I’m going to be shrinking, you know, maybe as I put more dollars in the top of the funnel, my my profit margin is going to shrink. Is there any? How do you approach that? Or as a, you know, ecommerce company? Or how would, how would I think through that kind of using the profit first, mindset or model?
Rocky Lalvani 20:53
So we actually tell people to reverse engineer this, because too often what I see this with the marketing folks all the time they talk about that ATM, hey, if you put $1 in this machine, and it gave you $2? Well, you’d keep putting $1 in there, what do you and everyone’s like, yeah, yeah, I’ll keep throwing $1 at you to make $2. I’m like, excuse me, the cost of goods is $1.20. Every time you put $1 in that machine, right, it’s $1.20 in costs, you’re at 220, you just lost 80 cents. I mean, excuse me, you just lost 20 cents on every sale, because you can’t cover your costs. So I think people really need to get clarity on what profit margin is, and in which way they do markup, you really need to do the math, and just, I’m gonna make this simple, right? If I buy something for $1, and I sell it on Amazon for $2, well, I have 100% margin, that’s great. But if I sell something on Amazon for $2, they’re probably going to take 60 cents. So really, all I’ve got left is 40 cents. And and that’s where people get confused, and they don’t understand and and you still have to pay for shipping, and you still have to pay for this, you have to pay for that. So I think taking the time, whether it’s with your bookkeeper or your accountant, or somebody and doing the actual math of the entire sale, like how much does it cost of goods? How much am I selling it for? What are all the fees? How much is shipping? How much do I have left for my overhead. And doing that gives you clarity on whether or not you have a product that’s profitable to
Joe Valley 22:42
sell. And that’s not mean, that’s not something that you help with is breaking that down for the client,
Rocky Lalvani 22:48
I will help them do that. Yes, we do that, because here’s why we do it. And I see this with Amazon sellers all the time, I’ll have them fill in their Amazon account. Because Amazon’s really good the software, I’ll show you what your most profitable products are, and where you’re getting the best margin. And then I tell them to do it the other way. Go show me where you’re losing money. And it’s amazing how many Amazon sellers have products in their their, their bins that are losing money, meaning every time you sell this money going out of your pocket, what we do and what we understand is that when you look at a product portfolio, there is a good chance that a handful of what you do is super profitable. handful of what you do is barely breakeven, and a handful of what you do is negative what I tried to do is dig in and help them find the most profitable products and and the ones that are money losers so they can stop going after money losers and start going after profitable products. What is
Joe Valley 23:52
the typical size ecommerce business that you work with Rocky?
Rocky Lalvani 23:57
I tend to work with seven figure business owners so most of mine just because it’s the it’s the it’s a reality of can they afford to pay? And do they have enough margin to be able to pay for that extra and so that is what I have found. For the guy just starting out. There’s actually a profit first book just for e commerce. I am not the author. I have nothing to do with the author. I think it’s about 20 bucks. It will be the best $20 you spend because it will show you how to do this for yourself.
Joe Valley 24:31
Yeah, the challenge with that I’ll tell you right now as an author who believes that the best 20 bucks they could spend also is the EXITpreneur’s Playbook is they don’t want to do the work. And sorry people that are listening. If you don’t want to you don’t want to do the work. You want to read a book, you want a video you want quick answers. And it’s life isn’t that way, Paul right. And then he got to put in the time and the work. Paul fortunately, had a background as a CPA. So I think Paul When you came to me, oh, so many years ago, your accounts were already set up on a curl your books were perfect. There was nothing like that. But you’re not experiencing that now with most of the people you work with, right? How many how many are on cash versus accrual that you work with?
Paul Andersen 25:16
I Joe bass, I actually hired a ecommerce bookkeeper, even though I’m a CPA, and you know, probably could do it. I, when you’re running the business here, job number one is to you know, sell the products versus product work with the customers. So I left it up to do another expert versus myself.
Joe Valley 25:34
Right. I remember that. That was one of the greatest things talking about Paul’s business. Rocky was that, you know, we’ve got somebody that’s trained as a CPA. He’s passionate about being an entrepreneur, but he outsource that he can’t he outsource the bookkeeping to an e commerce bookkeeper. That’s right. Everybody should be doing that. But my opinion, go ahead, Rocky,
Rocky Lalvani 25:54
can we I think people get really confused. And they look at a financial person like a bookkeeper or CPA as a everything person.
Joe Valley 26:03
No, and they’re not. They’re not, I’m going to Hell yeah, you’re I talk my language.
Rocky Lalvani 26:10
Each one of them has a specific function. And they have specific motivations. And so the bookkeeper is really good about putting the transactions where they belong. The problem is, there’s no standard and bookkeeping. So you need to make sure you have a good bookkeeper who knows how to set up your chart of accounts, who knows how to do your accrual accounting? Who knows how to keep track of your inventory? Who knows all of that your CPA, more than likely is focused on your tax return. And their goal is to make you pay the least amount of taxes. Well, the easiest way to piece the least amount of taxes is for them to convince you to spend money. Not money you need to necessarily spend. Yeah, but money to spend because then they say to you look, I saved you on taxes. Yeah, but you just spent $1 to save 30 cents, which is absurd. So understand their purpose.
Joe Valley 27:07
Yeah, the deficit again, tax mitigation. That’s the CPA, preparing monthly financial statements, that’s your, your your bookkeeper. And there is a distinct line between the two. And anytime that I have a client coming to me to sell their business, and I asked who their bookkeeper is, and they say my CPA does my books. I know the books are going to be wrong. It’s probably going to be done on a cash basis or for tax purposes. And it’s n. And Paul, how often how often does a CPA update books?
Paul Andersen 27:43
Not often orderly rarely, yeah. You do not want to trust your tax accountants or your ecommerce DNO that is a recipe for disaster. Yeah,
Rocky Lalvani 27:53
they do journal entries, it drives me up the wall, the journal entry, and they’re like, wait a minute, where did this $250,000 go? Yeah, I thought you had it. No, it was a journal entry. Right? Please help me.
Joe Valley 28:07
So, folks, we’ve mentioned Tyler Jefcoat you can email myself or Paul [email protected] [email protected] and we can send you a document with five or six ecommerce bookkeepers that are rock solid that Rocky probably already works with. You can also go to exitpreneur.io. And there’s a partner list there and the same ecommerce bookkeepers are right there. We just haven’t managed to do that on the client lytx site, we make it more difficult for some reason. Rocky, how long does it take? Because let’s talk about the fact that this is what everybody should be doing. In my opinion. Paul, would you agree that every ecommerce bookkeeper should be paying close attention to the numbers like this? Right? Yeah, absolutely.
Paul Andersen 28:47
That would be very nice. But they don’t do it.
Joe Valley 28:49
Because it’s a pain. It takes time and effort. So if somebody is going to come to you Rocky, and they’re doing half a million, you know, and growing rapidly, okay, you’re gonna be there soon. How much work do they have to do? Power wise, time wise, in order to set everything up with you and work with you on disseminating accounts and getting on your profit first, you know, system.
Rocky Lalvani 29:13
You know, the funny thing is, the hardest part of this whole thing, for some reason is for these business owners to go to the bank and just open up the five accounts. They already have one, you still open the other five accounts. The second thing that gets a little difficult is because all the money is usually coming in electronically, is to separate the money coming in from the money going out into those two accounts, so that it’s appropriately done. So the money is going into the right account, and your spending is coming out of the right account.
Joe Valley 29:47
So it’s just moving that stuff around that takes a little bit of time and getting it set up takes a little bit of time. They don’t know when you’re paying us I’ll do it. When you’re paying a bill you actually depending upon the All you got to choose which bank account the money is coming out of. Correct? Fascinating. I mean it, it’s the hardest thing is getting this go to the bank. Okay, so I could I could go to the bank and and set up five additional accounts in the next, let’s say two hours because there might be a line or something like that right? take that long, but then I’ve got to get it set up in QuickBooks or 02. So my my bookkeepers got to handle that part of it for me, right? Just tell your bookkeeper, hey, I
Rocky Lalvani 30:27
open these five accounts I’m in and what we tell people to do is we actually have them labeled them at the bank. So if you go into the electronic, when you sign into your bank, we actually have you label each account in the bank, and we put your percentages in the labeling. So that every time you look in there you go, Oh, that’s my profit, it’s 1%. This is my cost of goods. It’s whatever, 22% Okay, this is my My Tax Account, it’s 10%. Okay, I actually will build them a custom excel sheet. So all they have to do is say, there’s $28,000, in my income account, they put the $28,000 it shows them exactly how much move each to each of the accounts, they get on their phone, they move the money they’re done. And then the bookkeeper takes over. Alright, I’m
Joe Valley 31:13
gonna just be that shadow of a doubt, you know, guy here, you know, I sold a business the couple years ago, right? Or actually, it was it was it was it closed the day that the market crashed because of the pandemic. So it was March of 2020. And I know that because I just got I just got a text from Brian, the guy that sold the business units. They’re not technically married, but Brian and Jeanine and they sent me a picture, Paul, you’re gonna love this, they sent me a picture of their new swimming pool that they finally had put in, because, you know, from the sale of the business, so they paid themselves well, the Rocky, they went from zero to 5 million in revenue inside of 30 months. And, you know, I had them on the podcast, they bootstrap, this really, they they got about $100,000 worth a credit card, cash advances to buy inventory, they tested it, they saw the potential of the business, and they sat down and Brian and Jeanine went through the numbers, and she was gonna order a small amount, he’s like, nope, you don’t want to run out of inventory by Christmas, you really want to do this, you need $100,000 of inventory, she signed up for a whole bunch of credit cards with cash advances all on the same day, so that they wouldn’t catch up with each other. They got the money bought the inventory grew to 5 million in revenue in a very short period of time. But all their money was sent overseas because they had to keep up with inventory. So I wrote down here line of credit on my notes, and I circled it. I don’t think that they’re going to be able to their profit percentage, you know, be very small all along the way for them. Do you recommend that people set up lines of credits, or he logs or anything, they’re not gonna get a line of credit on a business? It’s 30 months old, but but, uh, any way that they could pull money in for, you know, capital expenditures expenditures elsewhere. But they just pull it from the business? for inventory? Oh, I’m,
Rocky Lalvani 33:17
I’m assuming they knew what they were doing going into that business, didn’t they? They had experienced before was this their first time at the rodeo?
Joe Valley 33:24
No, it was definitely not their first time at the rodeo.
Rocky Lalvani 33:27
So they, they already knew how this worked. Right? They knew they could take $100,000 gamble. And it would work. When you do something like that the biggest thing is to segregate the money. So if in that case, let’s say we’re starting out more fresh, we’re gonna take that $100,000. And where am I going to put it immediately into the cost of goods account? Right, because then I know this is my money for cost of goods, I can send it to China. And as soon as I sell that stuff, I’m immediately replenishing my cost of goods account. And if you’re going to grow fast, and you’ve got a product that’s highly profitable, you can even put doubling your cost of goods account, right? So this way, your cost of goods account is always building quickly. And it’s it’s building for growth, because every time you sell something, you have the money to buy two units. Well, now I bought two units, and I sold those. Now I have the money to buy four units. And now I sell those now I have the money to buy eight units. And now I sell those now I have the money to buy 16 units. Compounding is powerful. So if that’s the way you want to build your business model, and you know it, then do that, but what’s going to happen is if you aren’t really at those margins, all of your other accounts are going to start going negative, right? You’re going to start bouncing checks. me like well, wait a minute, why am I bouncing checks over here? It’s because your assumptions were wrong. You weren’t correct in how you did your original forecast. That’s a big part. Know what profit first does is it tests all your assumptions, because every dollar has a job and it’s in that place. And when that when that jar runs out of money, you know, something went wrong in QuickBooks, you might not find out for three months in your bank account, you’ll know in two to four weeks.
Paul Andersen 35:21
Hey, Rocky, I got one more question. I’m curious just to hear you have any real life stories that are good representations of Hey, I came to you, I was potentially kind of drowning here in the deep end of the pool, trying to know up from down. And then I implemented profit. First, what what are some success stories that you’ve seen?
Rocky Lalvani 35:40
So I have a few people who have been in business for a long, long time. So these are longtime business people. And they’ve always struggled. They’re like, I don’t understand this. I’ve been in business forever. And yet, I have nothing to show for it. And we have implemented profit first. And for a lot of these guys, we implement the profit first in the middle of COVID. Right? So part of implementing profit first was helping them think through, how am I going to pivot during COVID. Because if you weren’t pivoting, unless you were lucky, and in the right space, you had issues. And here we are a year later, and I’m you know, I have one client, I’m like, you’ve got so much money in your bank accounts, we’re now going to start pulling money out of your business. Do you want to do real estate? Do you want to do stocks and bonds? Do you want to buy another? Like? How are we going to reinvest this business? I’ve got another gentleman same thing. Like it created discipline for him, because what he would do in the past is he’d look at his bank account and go, Oh, there’s plenty of money in there, I’m gonna go buy this program, I’m going to implement that in what profit first is done is in working with monthly as created discipline. The other thing is, they start to understand that their margins are too tight. And so they pivot to products with bigger margins, and they start to change the way that they look at their business and go, I’m not going to sell that anymore. Whenever I sit down with an Amazon ecommerce person, I just have them open up their dashboard, I go show me your least profitable products. What’s common here? Why don’t we stop doing this? And they’re like, yes, let’s stop doing that. What’s profitable,
Joe Valley 37:25
these are profitable, can we do more of that? It’s just an awareness, and just helping them to see the truth of what they’re thinking and what their gut says to what the numbers truly are. It’s not emotional anymore, we’re looking at reality. I love the fact that it’s not emotional anymore. So many things, I’m going to use so many good lines, the one that I want everybody to remember most is that every dollar has a job. And Rocky’s profit first process is to allocate the job to each dollar. And that allows you to, I cannot imagine, as you’re talking Rocky, I’m thinking about this. And I’m thinking, if everybody went with this mentality, I don’t think there’s a single person that would not have a more valuable business at the end of the day, because there’s going to be an extra percent or two, or three or four or five in there. At the very least, Paul, they’re gonna have great peace of mind, because they know, you know what to do with each dollar that comes in, instead of spending a whole bunch on things that they don’t necessarily need. And the analysis slowing down and taking the time to look at, you know, the 17 skews that you have and that, you know, 11 of them, or breakeven or not profitable is a real dose of reality. And
Rocky Lalvani 38:42
I forced him to do that. I’m like, open up your account. Let’s go in there. Show me the screen. Hit these buttons. Do this now. Yeah, it’s like it’s creating the time and space because they’re too busy. They’re running around they’re not thinking and so it’s literally having that accountability of somebody going you know, you got to do this.
Joe Valley 39:03
That’s excellent. Excellent. How do people reach you Rocky How do they find you and how they work with you?
Rocky Lalvani 39:10
The best place is the website which is profitcomesfirst.com And from there, you can find two free chapters of Mike’s book. You can find the podcast which is profit Answer Man where we dig into this in a lot more detail. I if you listen to the first 13 chapters, or episodes, I teach you everything I’m doing. So you know if you’re a bootstrap guy, go learn I’m perfectly I don’t, there’s no secret sauce. I will teach you everything on the podcast, then you get a specific question, email me.
Joe Valley 39:45
Get off an answer, man and profit comes for us. I love it. Rocky, brilliant. Thanks so much for your time. Appreciate you coming on the Quiet Light Podcast.
Rocky Lalvani 39:51
Thank you, Joe and Paul for having me. It was a blast to be here.
Today’s podcast was produced by rise25 and the Quiet Light content team if you have a suggestion for a future podcast subject or guest, email us at podcast at quietlightbrokerage.com. Be sure to follow us on YouTube, Facebook, LinkedIn, Twitter and Instagram and subscribe to the show wherever you get your podcasts. Thanks for listening. We’ll see you next week.