This is dialog from a Peer Talk episode between Dan Crowley, President of Peer Executive Groups and Anthony Petersen, Owner of Weaver’s Rent All in Bloomington, IL.

Dan Crowley: Welcome to Peer Talk. Today’s guest on Peer Talk is Tony Petersen, the sole proprietor of Weaver’s Rent-All located in Bloomington, Illinois. Weaver’s Rent-All has been around since 1952 and has been handed down through the family generations. And at this point, Tony has implemented a number of systems and participated in Peer Executive Group for a number of years now, and today he’ll be talking about Profit First.

Tony Petersen: Thanks Dan. Happy to be here.

Dan Crowley: Today, we’re going to be speaking about the book, Profit First as well as how to put it in place in your business. Tony has been a long time Peer Group member and is currently the owner of Weaver’s Rent-All. Tony, tell us first about how you came to the rental business and started your family business.

Tony Petersen: So, as you mentioned it’s a family business. I’m a third-generation rental equipment owner. My grandparents started the business back in the fifties. My parents ran it together pretty much my whole life. I started working in the business. So late in high school, I was very reluctant. But I started working in the business at a young age, went to college and ended up coming back to the company and doing outside sales. That moved into a store manager role of one of our satellite stores. And then from there that turned into running the partying event division for about 10 years after that. My brother and I purchased the company from our parents in early 2012. Then as a big part of this story, you’ll find out I bought out my brother last year in the middle of COVID and that’s when Profit First really took a front seat to how I manage the business.

Dan Crowley: Excellent, this will be exciting. I read the book and there’s a number of rental operations operators who’ve read the book as well. Just to set this up, the first chapter in the book is “your business isn’t out of control – a cash eating monster…” 

Tony Petersen: I’m a small business myself, so I totally know what that means. As an owner, you have a tendency to pay yourself last and you could literally grow your business for a number of years and make less money, take less money out of your business. Michael Witz is the author of the book. The man has obviously created phenomenal business development programs that have really done well by creating certified consultants out there and all that kind of good stuff. But the principle of it is that we have a tendency to have the money come into the business as revenue and it’s sitting in the bank accounts. We see that bank, we use it for expenses, and we do consider paying ourselves and we certainly, but we really don’t think about making profit first.  

Tony Petersen: I’m sure like many of you listening, we were in a business where it seemed like no matter what we did, we could never get ahead. We would have growth; we would have losses, and nothing ever seemed to change. Couldn’t give ourselves a raise, couldn’t hire more people. It just seemed like we were financially kind of spinning our wheels. We couldn’t make that break and get ahead. When I was introduced to the Profit First book and I started reading it, that first chapter just hit me right between the eyes. I mean, it’s the idea of a “cash hungry monster” that hit me very close to home. The possibility that, “hey, there’s a potential way to get out of this situation” was very attractive. So, for me, it was like tell me what I do, and I’ll do it.  

Dan Crowley: It is interesting. Even now, inside of peer groups, we have a tendency to talk about performance of the company, growth of sales. We don’t necessarily align that cost growth with the sales and expenses growth with the sales. We don’t talk about that much. We talk about the health of your balance sheet, but really, it’s the meeting of those two pieces of your business. It’s the cash flow management that’s happening in your company that really puts a company ahead in terms of being able to take advantage of your growth because it creates. They use the word discipline in the book, they use the word discipline in the podcast, they use it like a constant. So, tell us about how you became your first step towards discipline, because it’s not something you can do at one big jump, right? It’s like almost taking baby steps. Talk us through what that looked like. 

Tony Petersen: Well, I’m a very systems-oriented person. I like to look at how I can make this repeatable and consistent with pretty much anything I do. When I started digging into this system and reading about it and seeing the simplicity of it, they say, “think about grandma’s envelopes”. Grandma would get the paycheck and she would put $10 in the envelope for electricity and $10 for gas and $10 for rent. So, she would take out her expenses from her paycheck each month, so that when the bill was due, she had the cash ready to pay for it. Basically, Profit First is the same kind of thinking. You just do it with a little more technological goal and using bank accounts as opposed to envelopes. It’s really around the idea of percentages. When you first read the book, there’s an instant assessment that lets you know kind of where you stand currently. It’s a real quick thing. I think you probably get it online. It just shows you,” okay, where do I stand today”? Then that gives you a chart of, “okay, you’re a business this size with this number of employees and you’re doing this much revenue”. What and how much should you be paying percentage wise for operating expenses, owner compensation, taxes, and profit. 

Tony Petersen: When I looked at that, we were nowhere near close to where we needed to be. So, in the book, it kind of talks about starting small. Even if it’s a hundred dollars, open a couple different bank accounts, one for income, one for operating expenses. Then just put a little bit of money in each of those. Then start every two weeks. You take a percentage of your income and you put it in those accounts but then the come to Jesus moment is, well now you have to spend what you have in your operating expenses to run your business. That’s really where the rubber meets the road and you have to make hard choices such as, what expenses am I going to reduce? What way am I going to find for me to operate my business differently and creatively so that I’m still bringing in the revenue with less expenses? That’s where the work really starts. 

Dan Crowley: We’ve gone through this process. Let’s say I choose a 2%. I’m going to start with profit first. My revenue is $600,000. That basically means I am looking to put $12,000 into a bank account or envelope. I say to myself, “oh my gosh, this is ridiculous. This is so easy”. It is also stupid because as an owner, I want to do more than 2%, but let’s see how this goes. Of course, you don’t stop with that first envelope. So why don’t you walk us through what you ended up when you did your assessment, what your allocation of percentages looked like? How did you go from there?

Tony Petersen: Well, when we first started, it was about a year before COVID and we were just looking at just putting 1% towards profit. If we couldn’t do a dollar out of every hundred towards being profitable, then something’s really wrong. That’s kind of what we did. We started there and things were bumpy. We got to a point where we had to rob our profit account to make our operating expenses because we weren’t taking the hard steps of dealing with spending too much to make the system work. The thing that I found when I bought my brother out, and it was really my responsibility solely to manage the finances of the business, I decided, “okay, I’m really going to commit to this”.

Tony Petersen: We have an opportunity where the world is changing. We have to be more efficient. We have to be more streamlined. We have to make it work with less. I mean, I really dove into eliminating expenses that we didn’t need, reducing what we were spending on utilities that we did just all across the board. It was, “we’re tightening the bell until this thing makes sense”. The first two thirds of 2020, we really did that. Then towards September and October, was when we were really able to say, “okay, this is working now, let’s put some money aside to pay our taxes and let’s make that profit a little bit bigger percentage. What else can we put this towards”? Then as things started moving along, you see those accounts grow and you see that this isn’t affecting me being able to run my business. I’m still able to run my business and do everything that I need to do. I’m still putting this money aside. So, it was at that point where it was like, “holy cow, this can really work”. Let’s keep going. What else can we do? Can we up the percentages some more?

Dan Crowley: So, at this point, not to jump ahead, but out of revenue, how much do you have targeted to get pulled cashflow wise? So, if you’re doing a million in revenue, how much of that ends up going into some bucket?

Tony Petersen: Let me kind of give you our breakdown of what buckets we have allocated now. Right now, we have an operating expense account. I put 65% of income into that account. On a million dollars, that’s $650,000 for a year. So, I set my budget. This year I said, “what’s my revenue goal? How does that affect my allocations”? So now my operating budget for the year is $650,000. We’ll just say it’s a million. So, we’re going to spend $650,000 this year to operate our business and then make choices based on that. We also now have an owner comp account. I have an equipment account, which is money for purchasing new equipment. I have a tax account; I have a profit account. Now I also have a vault account, which is my, “if the world ever stops again” and I don’t have income for six weeks (like we did last year), I am going to have some money saved up to be able to pay my bills without rely on a PPP loan or some other form of bailout.

Dan Crowley: It’s interesting because obviously the assumption is that it sounds really easy. But what happens when revenue does fluctuate and how do you treat those accounts? I love in the book and also there’s a number of YouTube video where they have some really cool visual explanations about like, okay, well you’re feeding these accounts and sometimes you can’t make it, but if you’re actually protecting that money in those accounts, and you’re moving it to a place where you’re saving it up, you’re putting it into a deeper count which is a little bit harder to get to, it keeps your hands out of it first off, but secondly, you now have the ability to make up because you’re building this delayed gratification, having the ability to kind of pull from it when necessary.

Dan Crowley: So, if your revenue is a hundred thousand a month, and all of a sudden you have a month because of rainfall, which happened to all the rental operations in the south-central part of the US in the second quarter. They had a really bad period of time. So, if they had implemented this, they would not necessarily be leaning on creating more debt. They would actually be pulling from their resources through profit first. It’s an amazing thing. So, my question is this. The first thing that they show you is the profit. Then they talk about owner compensation, which I thought was interesting because I always get confused. I think profit and owner compensation are the same thing and they’re actually not. Because if they’re saying, “hey, as an owner running the business, you are entitled to a fair wage”. 

Dan Crowley: I love the idea of man, if I could work up from 1% profit to 5% profit and then also cover my owner’s comp, those are the first two buckets. Then the third bucket is taxes. We all know what we pay in taxes year and year out. We might as well budget for it so that we’re not leaning out of forward future cash to cover that cost when it’s necessary. Those first three things, when you add those up, it’s amazing. It ends up being like 40 cents of every dollar that is immediately getting pulled from the revenue coming through. And you’re like, “holy cow, what a different way to now plan to run the company”.

Tony Petersen: Then I can take that 8% and I could put it into profit, I could put it into owner comp, and I could put some of it back into equipment. So that’s really the beauty of the system is that once you get in the flow and the rhythm of using it, it really puts you in control of how you manage your cash. Until I was really deep into this process, I didn’t understand it. It’s really given me a great understanding of the rhythm of my business. I have a very good idea of where I stand deposit from deposit. If we’re 10 days past an allocation and I don’t have X number of dollars in the bank account, something’s off. Like what are we doing? Let’s correct it. It’s really helped me as a new single owner understand that this is the lifeblood of my business. How can I make sure that what we’re doing is working?

Dan Crowley: So, you mentioned the word allocation. Did you set a rule in terms of timing dates? Do you have certain dates? Is it the 10 and 25th?

Tony Petersen: In the book they talk about how basically everything goes into your income account and then twice a month on the 10th and the 25th, you take what’s in that income account and then you allocate it to your other accounts based on your percentage. Then you also pay bills on those dates. The other beautiful thing about it is, on the 10th, do I have enough money to cover myself until the 25th? It really helps with that rhythm of understanding your business and adjusting your mindset around expenses. For us on the 10th and the 25th, I get all the invoices that are due. I take the account balances and I spread it out. So basically, I do account transfers. Four of those accounts are at a separate bank. Like you talked about, you want to make it out of sight, out of mind and you want to make it a little difficult to get money from them so that you don’t give into temptation and spend more than you should and rob from those accounts. I have those at a separate bank account that I don’t have a checkbook for. I don’t have a debit card. I have to physically go into a branch and ask for my money to get it out.

Dan Crowley: Gotcha. 

Tony Petersen: Then, outside of the 10th and the 25th at the end of the quarter, that’s when you do your profit allocation. So, you look at what’s in your profit account and you can take 50% of that and do whatever you want. So, if you want to pay great, if you want to pay down some debt, you can do that too. I’ve been using mine to seed my vault account quicker. So, um, the last two quarters I’ve taken 50% of what’s in the profit account. And I’ve put that in my vault account just so that I can grow that faster and reach my goal with that cash sooner.

Dan Crowley: Obviously, this is going to sound very foreign to anybody who hasn’t read the book, but I even found after I read the book that I had to go back and kind of use some tools. I noticed that Michael Michalowicz has a ton of tools available. Were you able to use any of his free tools that he makes available on his website?

Tony Petersen: I took advantage of a lot of the FAQs, charts and some of the systems that he had out there and then I kind of used those as a starting block. Then from there as I was really getting into the rhythm of it. About November of last year, I created my own spreadsheet which covers my two-week period, my 10th and my 25th period. So that helps me see what bills I am paying, what recurring expenses I have and where my income is for this period. I kept it to one sheet. If I print it off, it’s one page. It’s a very easy way for me to track where I am and what’s happening. Then it also gives me historical data because each two weeks I start a new one. It’s blank and fill in the numbers and go from there.

Tony Petersen: So, after doing it for a little over nine months, it really gives me a wealth of information to look back on and say, “okay, this is where we were”. This is how the off-season months hit us. And what can we do to plan ahead for that this next year? The number of tools out there are very helpful, as they have CPAs that are certified in profit first, bookkeepers that are certified in profit first, you can get coaches and there are all kinds of resources out there to help you start this process.

Dan Crowley: I think people might be hesitant because they might be facing a ton of debt right now. They’re like, “oh man, can’t even imagine what this would be like because I’m living hand to mouth with the debt that’s in front of me”. In the book, he addresses that. He has a chapter or two that focuses on tackling the debt mountain.

Tony Petersen: When I took this business over, I was in the same boat. So, I took over in June and by the end of the year I had cut our corporate debt in half.

Dan Crowley: Wow.

Tony Petersen: Much of that was just understanding this system and knowing that I can put this much towards this debt and I can put this much towards that one. I can refinance and consolidate these two into another one. My bookkeeper and I would talk about it here and it’s like, can you even believe that we did this? We eliminated 50% of the debt in less than six months.

Dan Crowley: Wow.

Tony Petersen: In a year, where we were doing 40% less in revenue. It really can be done. It does take some guts and some tough decisions because most of us when we start, are spending more than we should be. It can be hard to rail that in.

Dan Crowley: Your cash flow has been increasing, comparatively speaking, looking backwards the last couple years. So, you said something like 300% or something like that? 

Tony Petersen: Yes, I looked at the end of July when the quarter closed. So, cash on hand at the end of July versus cash on hand. The end of July this year was 300% up in cash versus that same period last year. 

Dan Crowley: Wow. That’s great.

Tony Petersen: Granted our revenues up, but it’s not that much. We’ve been buying new equipment and it’s the way that we manage the money and it’s almost a mindset against expenses. When my staff come to me and they want to spend more money, it’s like okay well justify it. Everybody received a raise this year. We’ve been getting bonuses. Do you want to give that up for this new expense that you think we should take on? So, it definitely kind of switches the way people look at how they spend the money. 

Dan Crowley: Oh, that’s great. Part of how I learned about this was your peer group. You have idea contests, and everybody has to identify a problem you were facing and then how you chose to resolve it. I can’t remember, did you win your group or was it just well received and got some good votes or whatnot? I can’t remember. 

Tony Petersen: I think it was a win technically, but it was our first meeting.  

Dan Crowley: For anybody listening here, if you’re not in a peer group, get in one. If you’re in a peer group, please do the idea contest. I know a couple of you are, as groups have said, “oh, we don’t want to do the idea contest”, but it is how some of these things that are not part of your daily routine get implemented and have a huge impact on your business. Tony, thanks for joining us today. 

Tony Petersen: Thanks for having me, Dan. I appreciate it. 

Dan Crowley: Everybody. Tony Petersen from Weaver’s Rent-All!