“This Is Gonna Bite You in the Butt”

[Music] brought to you by the every dooll app start budgeting for free today my question is in regards to funding inventory for my small business um So currently this is going to be my third year in business um we're expecting to hit $2 million this year great um yeah so I don't have any employees just me and my wife helping me on the side um so my invent my my my most about 70% of all my business expenses is just in cost of goods MH um so my you netted to million or you grossed two million that was my that no that was my that was my Revenue so we should be netting about 400 your gross profit on that would be about 600 yeah 400 and then you'd have some other miscellaneous expenses what other expenses do you have other than cost of goods um it's just basically uh rent among some other things that we do it's consumer electronics so each of them have to be inspected and tested um yeah and cleaned all that what does it what does it cost you um what what are your expenses run you said you had you said you 70 or 30% gross margin right it's about it's about 25% okay so 25% gross margin so on 2 million that'd be5 million gross profit after cost of goods sold before operating expenses what would your operating expenses be it would be about $50,000 okay so you netted taxable income about $450,000 correct that's what we're expecting this year phenomenal cool good for you well done how can I help so my question is till now I've been funding my purchase orders um you're not going to like this but uh with a credit card um I've been paying them off within a 30-day Mark the card I use doesn't actually allow me to carry a balance but um I've basically I've basically been spending about $80,000 on the card on um every month on average um I make sure not to spend above uh why are you doing that you have the cash so I don't I don't have the cash because every single dollar is reinvested back into new skew um I'm trying to since we just started a couple years ago I'm trying to expand my skew every single month I'm trying to get new lines you you spent $450,000 on personal living expenses this year all that profit was put back I don't pay myself a dime all that profit was put back into the business and it was all on why why would you need to use a credit card because you have put $450,000 back into inventory because well that was that's that's the numbers we're expecting this year last year the number we made in profit was about 300,000 okay so you put 300,000 back in why would you need to use a credit card you should make make that cash machine run off of 300K organically correct correct currently right now at the moment I have over $400,000 in inventory that's paid for however if I want to expand into new skew do so it's not actually to cash flow the operation of the business it's to expand the growth correct or to fund the growth is with a credit card correct okay if you want to stay open you're going to quit doing that why do you say that because most people that do that crap go broke I coach over 10,000 businesses in entree leadership people that run small businesses off of credit card inventory control system go broke they don't make it instead of actually running your business on cash which you have the ability to do you're smart enough to do it you just didn't have the appetite to slow down enough to do it you're going to slow your growth rate temporarily until you get weaned off this credit card and get 100% cash on your inventory reinvestment business but it's going to cause you to buy different inventory too what are you spending uh what are you currently spending on the credit card to fund your new in your new your new inventory your new SK so I I it's not exactly just on new skew it's just it's just I just spend as soon as I I make an order every week um and that range is like currently for example on my cart I have 15,000 but I just got another order today which was 55,000 so but but but I I but I have about 40,000 coming in a week so that's easily going to get paid off if it's easily paid off it's easily fundable with cash so I the same thing dude one of these is not true okay either it's not easily paid off or it is easily paid off and if it is easily paid off it is easily run with cash you just got to have a one or two week hiccup here and get weaned off these credit cards you could do what you want to do you call me and ask me what I think you ought to do yeah cuz ultimately it won't take him much time to adapt that cash system he's just going to have to get basically get ahead a couple of months so that he can have that yeah Reserve to do it what what I would tell you to do um I is to Sammy to sit down with one of our CPAs or our tax people go to Ramsey Solutions click ELP and have one of them help you set up a bookeeping system you need to learn acrel accounting acrel accounting is when you buy an item you book it as sold okay instead of right now you're booking it as cash and every time you sell an item you set aside a percentage of that item like 70% or 75% to buy the next one that's a cruel accounting with cash you're just throwing cash up in the air and hope it all lands and you're not managing cash well you're selling the crap out of stuff and you've grown a good strong business in terms of Revenue growth but you're not managing it well you're not managing the accounting and the numbers well and it's going to bite you in the butt so what you should what a proper business function would be with a cruel accounting is every time you sell an item set aside 75% for a replacement item if you want to grow you set aside 85% 10% for new skews and 75% for replacing the old skew and then you can you you can stay ahead of the cash you'll always have the cash if you set that back set that back for the next purchase and then you don't purchase or make sales beyond your cash position and you you know you can run this business Forever This Way the way it is right now if the Music Stops and you don't have a chair you're screwed cuz you're playing musical chairs that's what you're doing you're playing hide the pee under the shell create your free every dooll budget today the simplest way to budget for your life