From Surviving on Rice & Beans to Financial Stability

We were surviving on rice and beans, struggling to pay the bills and hoping that it wouldn’t all crumble beneath us. This wasn’t what I signed up for when we decided to go into business together.

Before Rooted Insight, Matthew and I each had our own businesses. In those times, my finances were simple. I paid off the business expenses and took out a dividend from the business whenever I felt like it, consequences be damned.

It worked because the cash flow was straightforward, and I was a scrappy college student who didn’t need a lot to survive.

After Matthew and I combined businesses, it became A LOT more complex. There were now two mouths to feed, I graduated college and was facing the responsibility (and growing costs) of life, we were both living in expensive cities, and the business was taking on recurring expenses that required stable cash flows.

During those early days working together, I often found myself looking through job listings wondering if entrepreneurship was really for me. I was in survival mode, every dollar mattered, and I craved the financial certainty our business wasn’t offering.

Something needed to change.

What happened after we adopted profit-first

We weren’t content subsisting off of rice and beans and devoured every resource we could to improve the business. One book in particular dramatically changed how we think about business, “Profit First” by Mike Michalowicz.

Without rehashing the whole book, we took away two profoundly important principles:

• Create allocation buckets for profit, expenses, taxes, and owners salary and automatically distribute revenue between these buckets.
• Expenses are what’s left over after you pay yourself.

After reading it, we set up bank accounts with Relay and Mercury and got to work implementing our allocation buckets.

Nothing immediately changed (other than our bookkeeping fee for extra accounts) but looking back at that, it was perhaps the best financial decision we’ve ever made.

Within the first few months it became clear that our business wasn’t generating enough revenue to cover expenses. We began radically downgrading and unsubscribing from everything that wasn’t absolutely necessary. It was also clear how much we could realistically pay ourselves without harming the business. It was a lot less than we wanted and had been.

Facing the truth of our business was really difficult. We weren’t doing as well as we thought we were. It was exactly the kick-in-the-ass we needed to find better footing.

The aftermath of Profit-first

Accountants have told us it’s a basic accounting trick and not necessary, and that’s true, but it also works.

Candidly, we don’t pay ourselves that much more than we used to. The big change is that we now have a system in place to ensure the business stays afloat. There’s money set aside for taxes, we have reserves in our vault for emergencies, and an always-growing cash investment account that pleasantly surprises us each time we check the balance.

What has become increasingly clear to me these past few years is that my mindset is the most important tool I have. The way that I think about and solve problems makes all the difference in how I feel about my work.

The Profit First model didn’t inherently change anything about the cash flow of the business. For all intents and purposes, you can think of it as a simple information layer for business cash flow. That being said, it did change how I think about what the numbers mean and how healthy our business actually is.

Looking back at where we were, I sometimes chuckle. We were struggling. The survival mindset had kicked in, and It was preventing us from showing up authentically and creatively. Now, we both travel the world, invest in ourselves, brainstorm and build fun projects, and meet awesome entrepreneurs working on the same kinds of challenges we once faced.

It’s not all rainbows and sunshine, we still struggle often. Our finances aren’t exactly where we want them to be, not all of our projects are as exciting as we intend them to be, but we’re okay with that. Knowing that we’ll be okay has made all of the difference.