April 30, 2025 • 30 mins
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What do you do when your business grows, but your pay doesn’t? It’s a common issue for product business owners. Today, we’re talking about how to pay yourself sustainably.
Paying yourself from your product business isn’t always straightforward. In this episode, I’ll explain why it’s more complicated than it seems and walk you through some common mistakes and how to avoid them.
We’ll also address myths, like the idea that reaching six figures means you can automatically pay yourself more. It’s not always that simple. You might see your sales grow but still struggle with cash flow.
By the end of this episode, you’ll understand why cash flow can feel chaotic and what you can do to get it back on track. If you’re ready to start paying yourself properly, this episode is for you!
What's Inside?
[02:32] Why product businesses need different strategies
[06:10] Money myths and the metrics that matter
[08:02] The importance of cash flow forecasting
[15:02] What business owners need to pay themselves
[18:46] How to start letting go of your financial fears
[22:56] Get 1:1 support to sort out your retail finances
Resources Mentioned in This Episode:
Profit First by Mike Michalowicz
Mentioned in this episode:
Freebie download
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:03):
Welcome to the ResilientRetail Game Plan Podcast.
Hi, it is episode number 248.
Hi, I'm Catherine Erdly.
I'm your host today, as well as thefounder of the Resilient Retail Club.
The Resilient Retail Club ismy membership group, also my
one-to-one offer and my done-for-youservices for product businesses.
Whether you are an independentretailer or an e-commerce business,
(00:26):
you can find out all about whatI offer@resilientretailclub.com.
But today I want to talk to you abouta very important subject that many
people find it awkward or difficultto talk about, or maybe just don't
hear that much about it beingshared by other business owners.
And that is all about payingyourself from your product business.
(00:47):
What I want to do is walk throughwhy it is perhaps not as easy as it
might sound, what some of the commonpitfalls are when it comes to paying
yourself from your product business,and how you can overcome those.
And I want to use this opportunity tobust through some myths, as it were.
So to really have a think about some ofthe things that we expect, the first off
(01:11):
being that as we grow, we're going to beimmediately able to pay ourselves more.
And why that just isn't the case.
So you may have hit six figures inyour business, and you may still
be in a situation where you're notalways paying yourself properly
while your cash flow feels chaotic.
And we're gonna have a think aboutsome of the reasons behind that and the
(01:31):
things that you can do to change it.
Welcome to the Resilient RetailGame Plan, a podcast for anyone
wanting to start, grow or scalea profitable creative product
business with me, Catherine Eardley.
The Resilient Retail Game Plan isa podcast dedicated to one thing,
(01:52):
breaking down the concepts and toolsthat I've gathered from 20 years in
the retail industry and showing youhow you can use them in your business.
This is the real nuts and bolts ofrunning a successful product business,
broken down in an easy, accessible way.
This is not a podcast about learninghow to make your business look good.
It's the tools and techniques that willmake you and your business feel good.
(02:16):
Confidently plan, launch, and manageyour products, and feel in control of
your sales numbers and cash flow to helpyou build a resilient retail business.
The first thing I'd like to say is that100% one of the most difficult things
(02:37):
about running a product business isthat the majority of the information
that's out there is really aimedtowards service business owners.
And as part of why I do what Ido, the reason that I talk so much
about your profit margins, thecosts in your business, and how
to basically generate more profit.
It's 'cause I'm really, reallypassionate about people being
(02:58):
able to support themselvesfinancially from their businesses.
But chances are, if you're inInstagram, or you are in other general
business groups or organizations,that cater towards small business
owners and you hear people who aretalking about paying themselves.
The chances are they're notgoing to be product businesses.
(03:19):
They tend to be service businesses.
So the majority of the people whowill talk about my five figure month
or my six figure business and thelifestyle that it gives them, usually,
and please do point out if I'm, ifyou find people who contradict this.
But I'm willing to bet that most ofthe people that you hear talking about
how much they make in their businessare not product business owners.
(03:41):
And fundamentally, the costs involvedin running a product business compared
to those running involved in running aservice business are completely different.
Now, you could argue thatproduct businesses are more
scalable than service businesses.
It's easier to increase the volumeand to grow your top line revenue as
you go along for a product businessowner, because you're selling more
(04:04):
of the same thing or to more people.
But the costs piece of it isreally tricky and really difficult.
So for example, if you're a servicebusiness owner, you may have costs
around people that you employin your business to help you.
But the chances are, fundamentally,it costs you a lot less to deliver a
(04:24):
service than it costs you as a productbusiness owner to sell a product.
And even if you're somebody who hasgot really phenomenal product margins,
still 25 to 30% of your revenuehas to go on those product costs.
And probably, for most people,around 50% of their revenue is
going on their product costs.
(04:45):
So you can imagine that when itcomes to what's left over for the
founder, it tends to be a lot moresqueezed for product business owners.
In fact, if I had to give a veryrough estimate, I would say that
if you're taking home around 20%of your overall turnover, then you
(05:05):
are probably doing really well.
I know people who are takinghome a lot less than that.
So if you are at that 20%, that'sprobably pretty good going.
Which, if you think about it, if50% of your turnover is going on the
cost of goods, it's no surprise thatit would be difficult for you to be
taking home much more than 20-25% ofyour turnover as your take home pay.
(05:30):
So you can see that that's already verydifferent from someone who's a service
business who just doesn't have thatcost of goods sold in the same way.
So first off, it's just to reallysay that if you hear people talking
about paying themselves from theirbusiness compared to their turnover
and talking about the lifestyle thatit affords them, the chances are
it's a very different kettle of fish.
(05:51):
For you as a business owner.
That said, I don't wanna makeit all sound doom and gloom.
There is more opportunity, I believe,for product business owners to scale.
It's just that you have to really keepan eye on those costs as you grow to
avoid you just being the same situationin terms of being able to pay yourself.
So that's one of the kind ofkey money myths that I'd like to
(06:14):
address in today's episode is thatsales is not the same as profit.
I think hopefully we're all gettingmuch clearer on that, much more savvy
that when people talk about their sixfigure business, that's their turnover.
It's not necessarily their profit.
And for most business owners there'squite a big gap between the two.
It can feel though, especiallyif you're at this point where
(06:34):
you've grown your business.
Maybe you've hit that mythical six figurenumber and you're thinking, "right, surely
now I'll feel secure," but you actuallystill feel like you are winging it.
And the reason this happens isbecause you're probably still
focusing on your top line sales.
You may not be as focused on your margins,and you certainly may not necessarily
(06:54):
have a full cash flow mapped out.
Now, some people do.
A lot of people I talk to don't, whichmeans that you get into this situation
where you're trying to base your decisionsabout purchasing off your bank account.
Saying, "okay, well I think I've gotmoney in the bank so I think I can
spend it." But not really having thatfuture visibility that, you know, some
of that money was actually for my taxes.
Some of that was for invoices I havealready placed all those other reasons.
(07:19):
And stock is a huge part of that.
Even if you're somebody who makes toorder, then just the cost of the stock
itself is going to be seriously having animpact on your profit, your bottom line.
And I often talk about there beingtwo things that really determine
how successful a product businessis or how profitable it is.
(07:41):
The first one is, are you making enoughmoney every time you make a sale?
So are your profit margins decent?
And the second one is howquickly you get your money back
compared to when you spend it.
So in other words, if you are payingyour suppliers six months before you
get that money back from a customeractually buying the stock, then it makes
your cash flow much harder to manage.
(08:02):
And often people have a lot of money tiedup in stock, which means that it's much,
much harder for them to really managetheir overall cashflow, their expenses.
And to be able to take thatmoney out for themselves.
So you know, if the suppliers aregetting paid before you do, it can
be really tricky to then put yourfoot down and say, "Right, I really
wanna pay myself from the business."
(08:25):
So what actually helps with this?
Again, I'm always keen to give you theinformation for action as opposed to
just telling you why it's so difficult.
And what I really want to stress hereis not that, oh, it's so difficult.
But if you have been finding itdifficult, then you are not alone.
And there are really goodreasons why you find it tricky.
(08:45):
But there are lots and lotsof things that can help.
And in my program, Retail By Design, whereI work with business owners one-to-one,
cashflow is something that comes up a lot.
I would say probably half to two thirdsof the businesses that I work with,
we actually put together a cashflowforecast and they go through it.
And they learn to forecast out theirsales, really forecast out their expenses,
(09:08):
forecast out their stock expenses aswell based on their sales and stock plan,
and it just gives them this visibility,which makes such a big difference.
I'd say the number one thing thatpeople say to me after they've done
their cash flow, and there's definitelycan take some time to get used to it.
But we are able to work back andforth until they're in a position
where they really understandit, they can work with it.
(09:30):
Usually the first thing they say to meis that, "I wish I had this earlier."
and I think that a lot of people feelthat they would've made very different
decisions in their business if they'dhad this visibility with their tax, with
their cash flow at a much earlier point.
So here are some things that canreally help with this situation.
(09:50):
The first one is knowing your margins.
As I touched on earlier, there's thisidea that the two main indicators for
success or for profitability in a productbusiness is number one, are you making
enough money every time you make a sale?
And that's because when you thinkabout your margins, I. The only
place that you're making money inyour business is the difference
(10:13):
between what you're buying somethingfor and what you're selling it for.
That's the only place that you get income.
Now, of course, you may haveother elements to your business.
Maybe you run workshops or offer servicesas well as selling your products.
But if we're talking about a productbusiness, so we're talking about
a retailer, an e-commerce brand.
The only place that you are makingmoney in your business is the
(10:33):
difference between what you've boughtsomething for and what you sell it for.
So that is effectively theengine for the entire business.
Everything you do in your business (10:42):
every expense that you have, every person that
you employ, every packaging order that youplace, every stock order that you place.
That is all coming out of the profitbeing generated by the difference
between what you've bought somethingfor and what you've sold it for.
And as a result, you need to be really,really clear on what that difference is.
And you need to watch it like ahawk and just be really aware of it.
(11:04):
When people come to me and they haveissues with their cash flow, their
overall profitability, then there arevarious different areas that we look at.
One of them is things liketheir fixed overheads.
One of them is how muchstock that they have.
But then one of them is how much profitare you making every time you make a sale?
Are your best sellers high profit items?
Are there adjustments that we can maketo improve your overall profitability?
(11:28):
These are all things that arereally, really crucial because
the more that you have a profit,that's what I call your out margin.
So the difference your actualsales margin, the amount of
profit or percentage profit thatyou're making on your sales.
The higher that is, then theeasier everything else becomes,
the more money there is left over.
And many, many years ago, I think probablyin about 2019, possibly even 2018.
(11:53):
When I first started out onInstagram, I had a reel that
went, I'd say viral for me.
At the time, it probably got about60,000 views and it was a cake.
And basically the idea was thatwhen you sell something, that
selling price, say it's 10 pounds.
You know, there's a portion ofthat that then goes to taxes.
There's a portion of that that then goesto cover your costs, your fixed costs.
(12:15):
There's a portion of that thatgoes to covering your salaries.
And then there's what's left.
And is it gonna be crumbs or is itgonna be a decent slice of cake.
And I think people liked it becauseit was a visual representation of
how much the impact of your profitmargins, on your overall business.
So it's very, very hard for you to builda successful business, a profitable
(12:37):
business, if your margins aren't right.
So if you are sitting herethinking, yeah, do you know what?
I don't pay myself enough.
I really would love to pay myself more,then one of the things that you need
to do is double check your margins.
And the second thing that can really helpis planning out your sales and stock.
And that is having a sales plan.
(12:57):
So number one, you know howmuch you're actually expecting
to get in through the business.
Which is very, very important and reallyhard to do yourself a proper cash flow
forecast, if you don't actually knowwhat you're expecting to bring in.
And then also helping youidentify how much stock you should
have based on that sales plan.
So one of the questions I get asked alot is, "How much stock should I have
(13:19):
in the business?" And the answer isalways, "Well, what are your sales?
What are you intending ondoing with your sales?"
And that's really, really importantbecause you can easily get yourself
in a situation where you've gottoo much stock because you haven't
linked those two things together.
You haven't linked your stock plan to yoursales plan, so you're just ordering stock.
(13:43):
But you don't know whether you areactually expecting to sell it all,
if you're gonna be stockpiling.
And sometimes you can endup in a situation where you
don't have enough stock.
And this is something that, again,several years ago I worked with Lucy and
Yak, the Dunga rebrand, on a situationthat they were having at the time,
which was that some of their key bestsellers, they were kept going outta
(14:04):
stock because they were finding itdifficult to really forecast that demand.
So we did some demand forecasting work tomake sure that they had enough stock to
hit their sales and that they weren't ina situation where they kept running out.
Because running out of stock consistentlyis leaving money on the table.
Too much stock is chokingup your cash flow.
So neither of those are great.
(14:26):
And one of the things thatreally helps you overall with
the visibility of your business.
The ability to make decisions likepaying yourself and the ability
to really understand what's goingon under the hood of the business.
That all comes from havingthat sales and stock plan.
It can stop you panic buying.
(14:48):
It can stop you having feast andfamine cycles where you've got
stock coming in and then you'reout before your next launch.
But equally so it can stop youstockpiling, which will have
a really, really big impacton your overall cash flow.
And then the third thing that I wouldreally stress, the third habit that
really helps with this situationof really managing the way that
(15:09):
you pay yourself from your businessis to prioritize paying yourself.
So you need to have a plan.
You need to know how much is coming in.
You need to know how muchis going to be going out.
You need to make sure that youare not spending too much on
stock, because that can reallyjust eat up all of your cash flow.
And you need to make sure that thestock that you're selling is a decent
(15:30):
enough profit margin that you'veactually got some money to play
with once the sales have been made.
So all of those things arereally key and really important.
But if you don't prioritize payingyourself from your business, then you'll
also be in a situation where you're justgonna keep plowing that money back in.
So part of paying yourself more from yourbusiness is putting your foot down and
(15:53):
saying, I need to be rewarded financiallyfrom this business in a way that is
level with the effort that I put in.
And a lot of people, I don't really knowwhere this belief has come from, but a
lot of people feel like the best thingthat they can do for their business is
to reinvest money in as much as possible.
And I believe that'sactually counterproductive.
(16:17):
And for two main reasons, number one.
It doesn't encourage you to be superdisciplined about the stock that
you're buying, or it means that youare maybe slightly less disciplined
than you might otherwise be becausethere's a bit more wiggle room.
You can say, oh, well I'll take that moneyI was gonna pay myself and I'll buy stock.
Instead of saying, do I need this stock?
Is there another way for me to raisethe money to get this new stock?
(16:40):
Have I got some old stock I could sell?
So, number one, it doesn'tencourage you to really have
that discipline in your business.
And number two is really, really hardto run a business and put the amount
of work and effort in that is requiredfor running a product business.
It's really hard to do that ifyou're not paying yourself enough.
And I've seen it maybe three yearsin, maybe the first three years,
(17:04):
you're kind of going on adrenaline.
But then you know, some pointsooner or later there will come up
a day where you just think, right.
Well actually, am Ibetter off getting a job?
And based on my hourly rate,this is not a great situation.
So I'm a huge believer that we should beable to support ourselves from our product
(17:26):
businesses, from creative businesses.
And part of that is insisting that we payourselves and taking that money out as
a non-negotiable and trying to work out,make things work basically effectively.
So, your salary isn't what's left over.
It's a very important cost and oftenwhen I'm working with people inside
(17:48):
my one-to-one program, Retail ByDesign, one of the things that we
look at is a breakeven analysis.
Which is all about understanding thecosts in the business versus the sales.
And one of the things that I insist peopleput in is the cost of their salary or how
much they would like to pay themselves.
Not even how much they currentlypay themselves, but what would
you like to pay yourselves?
(18:08):
Okay therefore, what do weneed to do in terms of sales?
Profit margin?
Because I think it'sreally, really important to.
It's not selfish, it's not greedy.
Certainly not greedy.
I think most people runningproduct businesses don't pay
themselves nearly enough forthe amount of work that they do.
So it's essential for thesustainability of your business.
(18:30):
And we talk a lot aboutsustainable businesses.
Many people say that they want tohave a business that's sustainable.
But sustainable also meansthat you can keep doing it.
You can keep doing it, you can keepgoing, and it's very hard to keep going
if you're not paying yourself enough.
So those would be my top three suggestionsfor changing your relationship with
(18:51):
paying yourself from your business.
And number one, knowing your margins.
Number two, having a reallygood plan for your sales and
stock as well as your cash flow.
And number three,prioritizing paying yourself.
Why is this difficult for people?
I think again, I would just want toreally stress if you're listening
to this thinking, "Oh, I shouldhave got this figured out by now.
I really should know better."
(19:11):
Do not feel like that 'cause it isan extremely delicate balance and
something that we have to learn.
And probably a skillset that mostof us would never have learned or
never been even had to grapple withif we didn't have our own businesses.
And yes, of course everyone has torun their own personal finances.
(19:33):
But for most people, there isn't thatextra level in their personal finances
that you have in your business whenyou might have to pay a big invoice to
a supplier or work out the best timeto bring in a certain product or all
of these other things all together.
So some of the fears or thingsthat happen that come up when I
talk to people about this is peoplesay, "I'm not a numbers person."
(19:55):
That's something that comes up a lot.
Or they feel like they just don'thave the ability to really wrap their
head around their business numbers.
And what I'd always say to thatis, none of it is complicated.
When you really boil it down to thestep by step of creating an effective
cash flow, an effective plan,effective strategy for your business.
(20:19):
None of it is complex maths.
It's not like we have to do algebraor anything like that or anything.
To be honest, it's like mychildren's GCSE or A-level maths.
A lot of it is about, okay, what?
What have I got coming in?
What have I got coming out?
What my incomings and outgoings,effectively all your cash flow is.
(20:41):
So it may be that you have to reallyfocus on doing the numbers, and a lot of
people find that is part of the issue,is that the effort it takes to sit down
and really engage their brain with thesenumbers, it almost feels insurmountable.
And I think that's again, whythe one-to-one work really is
helpful because we have time in oursessions to sit and do it together.
(21:06):
And also a lot of people find externalaccountability really helpful.
So if they know that I'm going tobe asking them if they've put all of
their bills into the cash flow forecastin two weeks time, that's a clear
deadline that they can work towards.
So for most people, I don'treally believe in the concept
of not being a numbers person.
(21:27):
I know obviously some people have.
There are people who reallydo struggle with numbers.
But I think for the vast majorityof people, it's just simply
not really their comfort zone.
So they'd much ratherdo almost anything else.
And as a result, it kind of getspushed to the bottom of the list.
And yet it's the thing thatprobably would bring them the
most freedom and peace of mind.
(21:49):
Some of the other thingsthat I've touched on already.
Fears about, you know, I shouldjust reinvest everything.
I'm really going to be damaging mybusiness if I take money out for myself.
But you know, ultimately, and totally Isubscribe to the same philosophy as Mike
Michalowicz, who wrote Profit First.
Which instantly, if you've neverread Profit First for Your Business,
I really highly recommend it.
(22:10):
It's slightly trickier to implement,I think, for product businesses,
but I think overall as a philosophythen go check out Profit First.
Mike Michalowicz.
I'll put a link to it in the show notes.
But one of the things that he talks aboutis effectively, your business should
work for you and not the other way round.
So if your business isn't giving youmoney effectively, then what's it for?
(22:35):
It's really just there.
That's what it's there for is to pay you.
So you are not gonna be damaging yourbusiness if you are asking it to do
the function that it's designed for.
And then one of the other thingsthat people really struggle with is
just, again, finding the time totake the time to put that plan in.
And also because it's just gonnatake that much longer if it's not
something that you're comfortable with.
(22:56):
And a lot of people find it verystressful trying to put together
something like this by themselves,and they just need that extra support.
So you don't need to be aCFO to manage all of this.
I've worked with lots of people whodidn't have a cashflow plan or have even
been running their business for yearsand years without a cashflow plan, and
(23:18):
we've been able to put in a structure,a sales plan, a stock plan, a cashflow
forecast, and it's made a huge amountof difference to the clarity, the
support having a system that you cantrust and you can make decisions about.
And you can see, "Oh yes, I cantake some money out for myself.
I can take more money out than I have beendoing." Because I've equally, as equally
(23:41):
worked with people who actually have gota fair amount of money in the business,
but they're too nervous to take it outfor themselves because they're worried
they're going to need, it was almostwhen you can demonstrate that actually
look, this is what we're gonna need.
This is what you.
You may need this or you may not needthis, but we can demonstrate what we
think you're gonna need in terms ofyour product purchasing, and that
(24:03):
can mean actually, yes, I feel morecomfortable taking money out for myself.
So when I work with founders insideRetail by Design, which is my new name
for my mastermind program, I renamedit incidentally because one of the
(24:24):
things that happened with it beingcalled a mastermind was that a lot of
people thought it was a group programas opposed to a one-to-one program.
That is a group element to it.
We have a weekly group call.
But the really at heart, it's a reallyfantastic one-to-one program and a way
to work with me on an ongoing basis.
So when I work with people insideRetail By Design, one of the first
(24:46):
things we do is a full financial review.
So we look at your margins, we look atyour pricing, we look at your stock, we
look at your reporting for your business.
We look at what you've got in termsof a sales plan, a stock plan.
We put together a cashflowforecast, if that's something
that you want to focus on.
(25:07):
Or something that you don't already have.
And we also look at other elementstoo, things like your support
structure you've got in your team.
We look at your overall strategy,we look and identify if there's
anything missing in terms of yourmarketing, your product offer.
We look at planning it all out.
So basically it starts though,generally speaking, with that
(25:28):
financial understanding of what'sgoing on and the beauty of working
with me is that I've worked with over200 businesses, product businesses,
one-to-one over the last seven years.
And so as a result, it's somethingthat I'm able to very quickly see the
things that are working really well andthe things that need more support, so
(25:49):
it's never about making you feel bad.
Sometimes people say, oh, I'm worriedI'm gonna get like my school reports.
It's not about that.
It's about giving you a fullpicture so you can really grow with
confidence and because, ultimately,I don't want you to be sitting there
feeling lost and feeling stuck.
I don't want you sitting there notknowing if you can pay yourself.
I don't want you to be not ableto pay yourself what you deserve
(26:12):
for the amount of effort and workthat you put into your business.
And so if you're listening to this andthinking, "I want that clarity too, I
want that support," then I do encourageyou to sign up for a discovery call.
It's very relaxed.
It's just an opportunity for you totell me more about your business.
Retail By Design is a especiallywell suited for people who
(26:35):
are at the VAT limit or above.
There's loads more details on my website.
You can head over toresilientretailclub.com and find
out more about Retail by Design.
And there's a link therealso to book a call.
And you can also have alook in the show notes.
There'll be a link to book a call there.
So if it's something that you wouldlike to get more support in terms
of paying yourself, in terms oflooking at your business in a more
(26:58):
strategic mapped out way, I wouldabsolutely love to help you with that.
And yeah, let's have a chat.
So just to kind of recap then, what Iwant you to know is that running a product
business, paying yourself sufficientlyfrom it, it's not as easy as it may sound.
Or probably seemed at the beginning.
(27:18):
There are a lot ofdifferent bills that go out.
There are a lot of different demandson your cash flow, especially
when it comes to your stock.
And it's really something that youneed to have the right balance.
You need to really understand yoursales plan and your stock plan
in order for you to have a reallygood handle on your cash flow.
Once you have a handle on yourcash flow and your profitability,
(27:39):
you are able to make much betterdecisions about paying yourself.
You're able to really identify how muchmoney you can take out for the business.
Also, get really clear onwhat your sales need to be.
If the amount you're taking out of yourbusiness isn't as much as you feel it
should be, or also to understand is itthat, is that happening because you're
spending too much money on stock?
There's lots of different elements thatcan play into the, to you not paying
(28:03):
yourself enough from your business.
So it makes such a huge difference topeople when they're able to look forward
and say, in six months time, this is whatmy bank balance will look like as long as
all of these things happen as I expect.
And then to be able to adjust iton a weekly basis, adjust what
sales actually came in, adjust whatbills actually went out, adjust
what you actually spent on stock.
(28:24):
And so that you've always got anupdated living picture of your cash
flow, and you're able to really makethose decisions about the business.
Personally, the way I makedecisions about my business is
I always run the numbers first.
But because I've got that cash flow,because I've got that set up and the
forward plan, it's something thatI'm able to do and really play around
(28:44):
with before I make big decisions.
And I'm able to work myway around tight spots.
I'm able to just anticipate whenthere might be pinch points,
and it just is so super helpful.
I personally couldn't runmy business without that.
And I know from the people that I'vehelped that it's really helped them
feel much more calm and confidentin their business when they're able
(29:06):
to see those numbers mapped out.
So if you wanna know more about RetailBy Design, then let's have a chat.
Otherwise, if you have a momentto like and review the podcast, it
makes a huge difference in gettingout there in front of other people.
You can rate it and review it insideApple Podcasts, which is super helpful.
You can also rate itinside the Spotify app.
And of course, if you like or youfollow or subscribe to the podcast,
(29:28):
you'll be the first to know about eachnew episode on a Thursday morning.
See you next week.
Welcome to the ResilientRetail Game Plan Podcast.
Hi, it is episode number 248.
Hi, I'm Catherine Erdly.
I'm your host today, as well as thefounder of the Resilient Retail Club.
The Resilient Retail Club ismy membership group, also my
one-to-one offer and my done-for-youservices for product businesses.
Whether you are an independentretailer or an e-commerce business,
(00:26):
you can find out all about whatI offer@resilientretailclub.com.
But today I want to talk to you abouta very important subject that many
people find it awkward or difficultto talk about, or maybe just don't
hear that much about it beingshared by other business owners.
And that is all about payingyourself from your product business.
(00:47):
What I want to do is walk throughwhy it is perhaps not as easy as it
might sound, what some of the commonpitfalls are when it comes to paying
yourself from your product business,and how you can overcome those.
And I want to use this opportunity tobust through some myths, as it were.
So to really have a think about some ofthe things that we expect, the first off
(01:11):
being that as we grow, we're going to beimmediately able to pay ourselves more.
And why that just isn't the case.
So you may have hit six figures inyour business, and you may still
be in a situation where you're notalways paying yourself properly
while your cash flow feels chaotic.
And we're gonna have a think aboutsome of the reasons behind that and the
(01:31):
things that you can do to change it.
Welcome to the Resilient RetailGame Plan, a podcast for anyone
wanting to start, grow or scalea profitable creative product
business with me, Catherine Eardley.
The Resilient Retail Game Plan isa podcast dedicated to one thing,
(01:52):
breaking down the concepts and toolsthat I've gathered from 20 years in
the retail industry and showing youhow you can use them in your business.
This is the real nuts and bolts ofrunning a successful product business,
broken down in an easy, accessible way.
This is not a podcast about learninghow to make your business look good.
It's the tools and techniques that willmake you and your business feel good.
(02:16):
Confidently plan, launch, and manageyour products, and feel in control of
your sales numbers and cash flow to helpyou build a resilient retail business.
The first thing I'd like to say is that100% one of the most difficult things
(02:37):
about running a product business isthat the majority of the information
that's out there is really aimedtowards service business owners.
And as part of why I do what Ido, the reason that I talk so much
about your profit margins, thecosts in your business, and how
to basically generate more profit.
It's 'cause I'm really, reallypassionate about people being
(02:58):
able to support themselvesfinancially from their businesses.
But chances are, if you're inInstagram, or you are in other general
business groups or organizations,that cater towards small business
owners and you hear people who aretalking about paying themselves.
The chances are they're notgoing to be product businesses.
(03:19):
They tend to be service businesses.
So the majority of the people whowill talk about my five figure month
or my six figure business and thelifestyle that it gives them, usually,
and please do point out if I'm, ifyou find people who contradict this.
But I'm willing to bet that most ofthe people that you hear talking about
how much they make in their businessare not product business owners.
(03:41):
And fundamentally, the costs involvedin running a product business compared
to those running involved in running aservice business are completely different.
Now, you could argue thatproduct businesses are more
scalable than service businesses.
It's easier to increase the volumeand to grow your top line revenue as
you go along for a product businessowner, because you're selling more
(04:04):
of the same thing or to more people.
But the costs piece of it isreally tricky and really difficult.
So for example, if you're a servicebusiness owner, you may have costs
around people that you employin your business to help you.
But the chances are, fundamentally,it costs you a lot less to deliver a
(04:24):
service than it costs you as a productbusiness owner to sell a product.
And even if you're somebody who hasgot really phenomenal product margins,
still 25 to 30% of your revenuehas to go on those product costs.
And probably, for most people,around 50% of their revenue is
going on their product costs.
(04:45):
So you can imagine that when itcomes to what's left over for the
founder, it tends to be a lot moresqueezed for product business owners.
In fact, if I had to give a veryrough estimate, I would say that
if you're taking home around 20%of your overall turnover, then you
(05:05):
are probably doing really well.
I know people who are takinghome a lot less than that.
So if you are at that 20%, that'sprobably pretty good going.
Which, if you think about it, if50% of your turnover is going on the
cost of goods, it's no surprise thatit would be difficult for you to be
taking home much more than 20-25% ofyour turnover as your take home pay.
(05:30):
So you can see that that's already verydifferent from someone who's a service
business who just doesn't have thatcost of goods sold in the same way.
So first off, it's just to reallysay that if you hear people talking
about paying themselves from theirbusiness compared to their turnover
and talking about the lifestyle thatit affords them, the chances are
it's a very different kettle of fish.
(05:51):
For you as a business owner.
That said, I don't wanna makeit all sound doom and gloom.
There is more opportunity, I believe,for product business owners to scale.
It's just that you have to really keepan eye on those costs as you grow to
avoid you just being the same situationin terms of being able to pay yourself.
So that's one of the kind ofkey money myths that I'd like to
(06:14):
address in today's episode is thatsales is not the same as profit.
I think hopefully we're all gettingmuch clearer on that, much more savvy
that when people talk about their sixfigure business, that's their turnover.
It's not necessarily their profit.
And for most business owners there'squite a big gap between the two.
It can feel though, especiallyif you're at this point where
(06:34):
you've grown your business.
Maybe you've hit that mythical six figurenumber and you're thinking, "right, surely
now I'll feel secure," but you actuallystill feel like you are winging it.
And the reason this happens isbecause you're probably still
focusing on your top line sales.
You may not be as focused on your margins,and you certainly may not necessarily
(06:54):
have a full cash flow mapped out.
Now, some people do.
A lot of people I talk to don't, whichmeans that you get into this situation
where you're trying to base your decisionsabout purchasing off your bank account.
Saying, "okay, well I think I've gotmoney in the bank so I think I can
spend it." But not really having thatfuture visibility that, you know, some
of that money was actually for my taxes.
Some of that was for invoices I havealready placed all those other reasons.
(07:19):
And stock is a huge part of that.
Even if you're somebody who makes toorder, then just the cost of the stock
itself is going to be seriously having animpact on your profit, your bottom line.
And I often talk about there beingtwo things that really determine
how successful a product businessis or how profitable it is.
(07:41):
The first one is, are you making enoughmoney every time you make a sale?
So are your profit margins decent?
And the second one is howquickly you get your money back
compared to when you spend it.
So in other words, if you are payingyour suppliers six months before you
get that money back from a customeractually buying the stock, then it makes
your cash flow much harder to manage.
(08:02):
And often people have a lot of money tiedup in stock, which means that it's much,
much harder for them to really managetheir overall cashflow, their expenses.
And to be able to take thatmoney out for themselves.
So you know, if the suppliers aregetting paid before you do, it can
be really tricky to then put yourfoot down and say, "Right, I really
wanna pay myself from the business."
(08:25):
So what actually helps with this?
Again, I'm always keen to give you theinformation for action as opposed to
just telling you why it's so difficult.
And what I really want to stress hereis not that, oh, it's so difficult.
But if you have been finding itdifficult, then you are not alone.
And there are really goodreasons why you find it tricky.
(08:45):
But there are lots and lotsof things that can help.
And in my program, Retail By Design, whereI work with business owners one-to-one,
cashflow is something that comes up a lot.
I would say probably half to two thirdsof the businesses that I work with,
we actually put together a cashflowforecast and they go through it.
And they learn to forecast out theirsales, really forecast out their expenses,
(09:08):
forecast out their stock expenses aswell based on their sales and stock plan,
and it just gives them this visibility,which makes such a big difference.
I'd say the number one thing thatpeople say to me after they've done
their cash flow, and there's definitelycan take some time to get used to it.
But we are able to work back andforth until they're in a position
where they really understandit, they can work with it.
(09:30):
Usually the first thing they say to meis that, "I wish I had this earlier."
and I think that a lot of people feelthat they would've made very different
decisions in their business if they'dhad this visibility with their tax, with
their cash flow at a much earlier point.
So here are some things that canreally help with this situation.
(09:50):
The first one is knowing your margins.
As I touched on earlier, there's thisidea that the two main indicators for
success or for profitability in a productbusiness is number one, are you making
enough money every time you make a sale?
And that's because when you thinkabout your margins, I. The only
place that you're making money inyour business is the difference
(10:13):
between what you're buying somethingfor and what you're selling it for.
That's the only place that you get income.
Now, of course, you may haveother elements to your business.
Maybe you run workshops or offer servicesas well as selling your products.
But if we're talking about a productbusiness, so we're talking about
a retailer, an e-commerce brand.
The only place that you are makingmoney in your business is the
(10:33):
difference between what you've boughtsomething for and what you sell it for.
So that is effectively theengine for the entire business.
Everything you do in your business (10:42):
every expense that you have, every person that
you employ, every packaging order that youplace, every stock order that you place.
That is all coming out of the profitbeing generated by the difference
between what you've bought somethingfor and what you've sold it for.
And as a result, you need to be really,really clear on what that difference is.
And you need to watch it like ahawk and just be really aware of it.
(11:04):
When people come to me and they haveissues with their cash flow, their
overall profitability, then there arevarious different areas that we look at.
One of them is things liketheir fixed overheads.
One of them is how muchstock that they have.
But then one of them is how much profitare you making every time you make a sale?
Are your best sellers high profit items?
Are there adjustments that we can maketo improve your overall profitability?
(11:28):
These are all things that arereally, really crucial because
the more that you have a profit,that's what I call your out margin.
So the difference your actualsales margin, the amount of
profit or percentage profit thatyou're making on your sales.
The higher that is, then theeasier everything else becomes,
the more money there is left over.
And many, many years ago, I think probablyin about 2019, possibly even 2018.
(11:53):
When I first started out onInstagram, I had a reel that
went, I'd say viral for me.
At the time, it probably got about60,000 views and it was a cake.
And basically the idea was thatwhen you sell something, that
selling price, say it's 10 pounds.
You know, there's a portion ofthat that then goes to taxes.
There's a portion of that that then goesto cover your costs, your fixed costs.
(12:15):
There's a portion of that thatgoes to covering your salaries.
And then there's what's left.
And is it gonna be crumbs or is itgonna be a decent slice of cake.
And I think people liked it becauseit was a visual representation of
how much the impact of your profitmargins, on your overall business.
So it's very, very hard for you to builda successful business, a profitable
(12:37):
business, if your margins aren't right.
So if you are sitting herethinking, yeah, do you know what?
I don't pay myself enough.
I really would love to pay myself more,then one of the things that you need
to do is double check your margins.
And the second thing that can really helpis planning out your sales and stock.
And that is having a sales plan.
(12:57):
So number one, you know howmuch you're actually expecting
to get in through the business.
Which is very, very important and reallyhard to do yourself a proper cash flow
forecast, if you don't actually knowwhat you're expecting to bring in.
And then also helping youidentify how much stock you should
have based on that sales plan.
So one of the questions I get asked alot is, "How much stock should I have
(13:19):
in the business?" And the answer isalways, "Well, what are your sales?
What are you intending ondoing with your sales?"
And that's really, really importantbecause you can easily get yourself
in a situation where you've gottoo much stock because you haven't
linked those two things together.
You haven't linked your stock plan to yoursales plan, so you're just ordering stock.
(13:43):
But you don't know whether you areactually expecting to sell it all,
if you're gonna be stockpiling.
And sometimes you can endup in a situation where you
don't have enough stock.
And this is something that, again,several years ago I worked with Lucy and
Yak, the Dunga rebrand, on a situationthat they were having at the time,
which was that some of their key bestsellers, they were kept going outta
(14:04):
stock because they were finding itdifficult to really forecast that demand.
So we did some demand forecasting work tomake sure that they had enough stock to
hit their sales and that they weren't ina situation where they kept running out.
Because running out of stock consistentlyis leaving money on the table.
Too much stock is chokingup your cash flow.
So neither of those are great.
(14:26):
And one of the things thatreally helps you overall with
the visibility of your business.
The ability to make decisions likepaying yourself and the ability
to really understand what's goingon under the hood of the business.
That all comes from havingthat sales and stock plan.
It can stop you panic buying.
(14:48):
It can stop you having feast andfamine cycles where you've got
stock coming in and then you'reout before your next launch.
But equally so it can stop youstockpiling, which will have
a really, really big impacton your overall cash flow.
And then the third thing that I wouldreally stress, the third habit that
really helps with this situationof really managing the way that
(15:09):
you pay yourself from your businessis to prioritize paying yourself.
So you need to have a plan.
You need to know how much is coming in.
You need to know how muchis going to be going out.
You need to make sure that youare not spending too much on
stock, because that can reallyjust eat up all of your cash flow.
And you need to make sure that thestock that you're selling is a decent
(15:30):
enough profit margin that you'veactually got some money to play
with once the sales have been made.
So all of those things arereally key and really important.
But if you don't prioritize payingyourself from your business, then you'll
also be in a situation where you're justgonna keep plowing that money back in.
So part of paying yourself more from yourbusiness is putting your foot down and
(15:53):
saying, I need to be rewarded financiallyfrom this business in a way that is
level with the effort that I put in.
And a lot of people, I don't really knowwhere this belief has come from, but a
lot of people feel like the best thingthat they can do for their business is
to reinvest money in as much as possible.
And I believe that'sactually counterproductive.
(16:17):
And for two main reasons, number one.
It doesn't encourage you to be superdisciplined about the stock that
you're buying, or it means that youare maybe slightly less disciplined
than you might otherwise be becausethere's a bit more wiggle room.
You can say, oh, well I'll take that moneyI was gonna pay myself and I'll buy stock.
Instead of saying, do I need this stock?
Is there another way for me to raisethe money to get this new stock?
(16:40):
Have I got some old stock I could sell?
So, number one, it doesn'tencourage you to really have
that discipline in your business.
And number two is really, really hardto run a business and put the amount
of work and effort in that is requiredfor running a product business.
It's really hard to do that ifyou're not paying yourself enough.
And I've seen it maybe three yearsin, maybe the first three years,
(17:04):
you're kind of going on adrenaline.
But then you know, some pointsooner or later there will come up
a day where you just think, right.
Well actually, am Ibetter off getting a job?
And based on my hourly rate,this is not a great situation.
So I'm a huge believer that we should beable to support ourselves from our product
(17:26):
businesses, from creative businesses.
And part of that is insisting that we payourselves and taking that money out as
a non-negotiable and trying to work out,make things work basically effectively.
So, your salary isn't what's left over.
It's a very important cost and oftenwhen I'm working with people inside
(17:48):
my one-to-one program, Retail ByDesign, one of the things that we
look at is a breakeven analysis.
Which is all about understanding thecosts in the business versus the sales.
And one of the things that I insist peopleput in is the cost of their salary or how
much they would like to pay themselves.
Not even how much they currentlypay themselves, but what would
you like to pay yourselves?
(18:08):
Okay therefore, what do weneed to do in terms of sales?
Profit margin?
Because I think it'sreally, really important to.
It's not selfish, it's not greedy.
Certainly not greedy.
I think most people runningproduct businesses don't pay
themselves nearly enough forthe amount of work that they do.
So it's essential for thesustainability of your business.
(18:30):
And we talk a lot aboutsustainable businesses.
Many people say that they want tohave a business that's sustainable.
But sustainable also meansthat you can keep doing it.
You can keep doing it, you can keepgoing, and it's very hard to keep going
if you're not paying yourself enough.
So those would be my top three suggestionsfor changing your relationship with
(18:51):
paying yourself from your business.
And number one, knowing your margins.
Number two, having a reallygood plan for your sales and
stock as well as your cash flow.
And number three,prioritizing paying yourself.
Why is this difficult for people?
I think again, I would just want toreally stress if you're listening
to this thinking, "Oh, I shouldhave got this figured out by now.
I really should know better."
(19:11):
Do not feel like that 'cause it isan extremely delicate balance and
something that we have to learn.
And probably a skillset that mostof us would never have learned or
never been even had to grapple withif we didn't have our own businesses.
And yes, of course everyone has torun their own personal finances.
(19:33):
But for most people, there isn't thatextra level in their personal finances
that you have in your business whenyou might have to pay a big invoice to
a supplier or work out the best timeto bring in a certain product or all
of these other things all together.
So some of the fears or thingsthat happen that come up when I
talk to people about this is peoplesay, "I'm not a numbers person."
(19:55):
That's something that comes up a lot.
Or they feel like they just don'thave the ability to really wrap their
head around their business numbers.
And what I'd always say to thatis, none of it is complicated.
When you really boil it down to thestep by step of creating an effective
cash flow, an effective plan,effective strategy for your business.
(20:19):
None of it is complex maths.
It's not like we have to do algebraor anything like that or anything.
To be honest, it's like mychildren's GCSE or A-level maths.
A lot of it is about, okay, what?
What have I got coming in?
What have I got coming out?
What my incomings and outgoings,effectively all your cash flow is.
(20:41):
So it may be that you have to reallyfocus on doing the numbers, and a lot of
people find that is part of the issue,is that the effort it takes to sit down
and really engage their brain with thesenumbers, it almost feels insurmountable.
And I think that's again, whythe one-to-one work really is
helpful because we have time in oursessions to sit and do it together.
(21:06):
And also a lot of people find externalaccountability really helpful.
So if they know that I'm going tobe asking them if they've put all of
their bills into the cash flow forecastin two weeks time, that's a clear
deadline that they can work towards.
So for most people, I don'treally believe in the concept
of not being a numbers person.
(21:27):
I know obviously some people have.
There are people who reallydo struggle with numbers.
But I think for the vast majorityof people, it's just simply
not really their comfort zone.
So they'd much ratherdo almost anything else.
And as a result, it kind of getspushed to the bottom of the list.
And yet it's the thing thatprobably would bring them the
most freedom and peace of mind.
(21:49):
Some of the other thingsthat I've touched on already.
Fears about, you know, I shouldjust reinvest everything.
I'm really going to be damaging mybusiness if I take money out for myself.
But you know, ultimately, and totally Isubscribe to the same philosophy as Mike
Michalowicz, who wrote Profit First.
Which instantly, if you've neverread Profit First for Your Business,
I really highly recommend it.
(22:10):
It's slightly trickier to implement,I think, for product businesses,
but I think overall as a philosophythen go check out Profit First.
Mike Michalowicz.
I'll put a link to it in the show notes.
But one of the things that he talks aboutis effectively, your business should
work for you and not the other way round.
So if your business isn't giving youmoney effectively, then what's it for?
(22:35):
It's really just there.
That's what it's there for is to pay you.
So you are not gonna be damaging yourbusiness if you are asking it to do
the function that it's designed for.
And then one of the other thingsthat people really struggle with is
just, again, finding the time totake the time to put that plan in.
And also because it's just gonnatake that much longer if it's not
something that you're comfortable with.
(22:56):
And a lot of people find it verystressful trying to put together
something like this by themselves,and they just need that extra support.
So you don't need to be aCFO to manage all of this.
I've worked with lots of people whodidn't have a cashflow plan or have even
been running their business for yearsand years without a cashflow plan, and
(23:18):
we've been able to put in a structure,a sales plan, a stock plan, a cashflow
forecast, and it's made a huge amountof difference to the clarity, the
support having a system that you cantrust and you can make decisions about.
And you can see, "Oh yes, I cantake some money out for myself.
I can take more money out than I have beendoing." Because I've equally, as equally
(23:41):
worked with people who actually have gota fair amount of money in the business,
but they're too nervous to take it outfor themselves because they're worried
they're going to need, it was almostwhen you can demonstrate that actually
look, this is what we're gonna need.
This is what you.
You may need this or you may not needthis, but we can demonstrate what we
think you're gonna need in terms ofyour product purchasing, and that
(24:03):
can mean actually, yes, I feel morecomfortable taking money out for myself.
So when I work with founders insideRetail by Design, which is my new name
for my mastermind program, I renamedit incidentally because one of the
(24:24):
things that happened with it beingcalled a mastermind was that a lot of
people thought it was a group programas opposed to a one-to-one program.
That is a group element to it.
We have a weekly group call.
But the really at heart, it's a reallyfantastic one-to-one program and a way
to work with me on an ongoing basis.
So when I work with people insideRetail By Design, one of the first
(24:46):
things we do is a full financial review.
So we look at your margins, we look atyour pricing, we look at your stock, we
look at your reporting for your business.
We look at what you've got in termsof a sales plan, a stock plan.
We put together a cashflowforecast, if that's something
that you want to focus on.
(25:07):
Or something that you don't already have.
And we also look at other elementstoo, things like your support
structure you've got in your team.
We look at your overall strategy,we look and identify if there's
anything missing in terms of yourmarketing, your product offer.
We look at planning it all out.
So basically it starts though,generally speaking, with that
(25:28):
financial understanding of what'sgoing on and the beauty of working
with me is that I've worked with over200 businesses, product businesses,
one-to-one over the last seven years.
And so as a result, it's somethingthat I'm able to very quickly see the
things that are working really well andthe things that need more support, so
(25:49):
it's never about making you feel bad.
Sometimes people say, oh, I'm worriedI'm gonna get like my school reports.
It's not about that.
It's about giving you a fullpicture so you can really grow with
confidence and because, ultimately,I don't want you to be sitting there
feeling lost and feeling stuck.
I don't want you sitting there notknowing if you can pay yourself.
I don't want you to be not ableto pay yourself what you deserve
(26:12):
for the amount of effort and workthat you put into your business.
And so if you're listening to this andthinking, "I want that clarity too, I
want that support," then I do encourageyou to sign up for a discovery call.
It's very relaxed.
It's just an opportunity for you totell me more about your business.
Retail By Design is a especiallywell suited for people who
(26:35):
are at the VAT limit or above.
There's loads more details on my website.
You can head over toresilientretailclub.com and find
out more about Retail by Design.
And there's a link therealso to book a call.
And you can also have alook in the show notes.
There'll be a link to book a call there.
So if it's something that you wouldlike to get more support in terms
of paying yourself, in terms oflooking at your business in a more
(26:58):
strategic mapped out way, I wouldabsolutely love to help you with that.
And yeah, let's have a chat.
So just to kind of recap then, what Iwant you to know is that running a product
business, paying yourself sufficientlyfrom it, it's not as easy as it may sound.
Or probably seemed at the beginning.
(27:18):
There are a lot ofdifferent bills that go out.
There are a lot of different demandson your cash flow, especially
when it comes to your stock.
And it's really something that youneed to have the right balance.
You need to really understand yoursales plan and your stock plan
in order for you to have a reallygood handle on your cash flow.
Once you have a handle on yourcash flow and your profitability,
(27:39):
you are able to make much betterdecisions about paying yourself.
You're able to really identify how muchmoney you can take out for the business.
Also, get really clear onwhat your sales need to be.
If the amount you're taking out of yourbusiness isn't as much as you feel it
should be, or also to understand is itthat, is that happening because you're
spending too much money on stock?
There's lots of different elements thatcan play into the, to you not paying
(28:03):
yourself enough from your business.
So it makes such a huge difference topeople when they're able to look forward
and say, in six months time, this is whatmy bank balance will look like as long as
all of these things happen as I expect.
And then to be able to adjust iton a weekly basis, adjust what
sales actually came in, adjust whatbills actually went out, adjust
what you actually spent on stock.
(28:24):
And so that you've always got anupdated living picture of your cash
flow, and you're able to really makethose decisions about the business.
Personally, the way I makedecisions about my business is
I always run the numbers first.
But because I've got that cash flow,because I've got that set up and the
forward plan, it's something thatI'm able to do and really play around
(28:44):
with before I make big decisions.
And I'm able to work myway around tight spots.
I'm able to just anticipate whenthere might be pinch points,
and it just is so super helpful.
I personally couldn't runmy business without that.
And I know from the people that I'vehelped that it's really helped them
feel much more calm and confidentin their business when they're able
(29:06):
to see those numbers mapped out.
So if you wanna know more about RetailBy Design, then let's have a chat.
Otherwise, if you have a momentto like and review the podcast, it
makes a huge difference in gettingout there in front of other people.
You can rate it and review it insideApple Podcasts, which is super helpful.
You can also rate itinside the Spotify app.
And of course, if you like or youfollow or subscribe to the podcast,
(29:28):
you'll be the first to know about eachnew episode on a Thursday morning.
See you next week.
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