Hey there, entrepreneurs!
If you’ve been paying attention to the headlines this week, you probably heard about the dockworkers’ strike that nearly brought our supply chain to its knees. While it was resolved fairly quickly, the scare is enough to keep many business owners up at night. I personally had several conversations with my wife about what we would do if all the prices went up, how our budget would be impacted, etc. It doesn’t take much—a single disruption like this—and suddenly you’re facing price increases that ripple across your entire operation and potentially put your personal finances in jeopardy also. It’s more important than ever to put your business in the most healthy position possible so you can weather any unexpected storms.
Before we dive in, here’s what you can expect from this article:
- How Profit First creates a financial cushion to absorb unexpected price hikes.
- Why sudden price increases or supply shortages don’t have to derail your business or personal life.
- Strategies for handling rising costs without immediately passing them on to your customers.
- A real-world example of how a business owner successfully navigated rising costs using Profit First.
- Actionable steps to ensure your business is ready for the next disruption.
Now let’s dig into how you can stay profitable, even when the world around you seems unpredictable.
Profit First: Building a Buffer for Your Business
If you’re already using Profit First, you know that this system is about prioritizing profitability from day one. It’s not just a tool to track your money—it’s a strategic approach and mindset that allows you to prepare for the unexpected and build a buffer against rising costs, like the ones we’ve seen threatened by this week’s strike.
Instead of reacting to price increases after they’ve hit, you’re already ahead of the game. You’ve allocated a percentage of every dollar earned to profit, so when supply chain costs rise or inflation sneaks in, you’re not scrambling to cover your margins. You’ve built in a cushion—peace of mind that lets you focus on growth, not survival.
Handling Price Increases with Confidence
We know that, in the economic environment we live in, price increases are inevitable. Even disregarding the recent increases in strikes and natural disasters, we are facing increased regulations, political turmoil, and military conflicts around the world. But with Profit First, you’re not caught off guard. You’re not forced to pass on the costs to your customers right away or slash your own income just to keep things running.
With a well-thought-out Profit First strategy in place, you can evaluate the situation calmly. Can you absorb the extra costs? Can you tweak your allocations slightly for a month or two without putting your business in jeopardy? Maybe you can negotiate better terms with your suppliers because you’ve built a stronger financial foundation. These are all questions that are only possible because you’ve made profitability a priority. Further, because you are prioritizing profitability, your business is providing you with the compensation you need to provide for yourself and your family AND still have some left over for profit/emergencies! You are in a position where you have the ability to act rather than react to outside stimuli or pressure, without worrying that you will have to sacrifice your own personal income to keep your business afloat.
Profit First in Action
Take the real world example of a pizza restaurant which successfully weathered the COVID-19 pandemic because they used Profit First. I read about this business in an article, which explained that despite the pandemic causing numerous challenges for the restaurant industry, the Profit First methodology allowed the owner to continue to make allocations and pay his bills throughout the pandemic, despite the fact that his doors were closed for months. By maintaining financial discipline, he could keep the restaurant operating while others around him were closing. This method gave him the ability to weather the financial storm by focusing on profitability from the start rather than waiting until year-end to assess his financial health.
This is the kind of financial flexibility Profit First gives you. It’s not just about profitability; it’s about control and confidence in the health of your business. And as we’ve seen with this week’s strike, having that control is priceless.
What You Can Do Right Now
If you haven’t read and implemented Profit First yet, now is the time. Here’s a link to get it on Amazon (I believe there is going to be a promotion on Amazon later this month!). The dockworkers’ strike is just a reminder that there will always be external factors beyond your control. But we can control how we manage our money. Profit First gives you the tools to handle the unpredictable with confidence.
And if you’re already using Profit First, take a moment to revisit your allocations. Are they set up to help you weather the next supply chain disruption or cost increase? If not, it might be time to adjust.
Bill Litster and I are experts in cash flow management. In 2022, our firm was recognized as the Profit First Professional Firm of the Year. All this is to say that if you need help or would like someone to guide you through improving your business health, we’ve got your back. Click here to schedule a call with us!
We would like to provide as much value as possible through these weekly posts. If you have any feedback or recommendations on how we can do better, or are struggling with something in your business that is keeping you up at night, let us know!
Thanks for reading and have a great weekend!
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Adam Litster
Certified Profit First Professional and Pumpkin Plan Strategist
(816) 500-5779
