Welcome to the Inventory Genius Podcast. I'm your host, Sierra Stockland. I've spent more than 20 years now in product-based businesses. I've owned retail and wholesale companies. I've even had a subscription box. I started my first profitable business at 13 and I went on to build a seven-figure retail company, which I then franchised. I'm the founder of Inventory Genius, co-founder of your C-suite, author of the book Inventory Genius, and because I truly believe we excel when we push ourselves to do hard things, I'm also a four-time Iron Man finisher. Now I get to help product-based business owners understand how their inventory and cash work together so they can stop chasing the next sale and start keeping more of what they've already earned. I've had the privilege of working with thousands of business owners, and together we've cleared over $3 million in debt. On this show, we talk about the decisions behind building a profitable business. We talk about inventory, cash flow, profit, and what it truly takes to lead a company on strategy instead of gut. If you're new here, can I invite you to hit subscribe so that you never miss an episode? And if you'd be so kind, would you also drop a rating at the end just to let me know your thoughts? It really helps me build more content that you want to hear and learn from. Now let's jump in. The credit cards were full, completely maxed out. Line of credit? Same. Maxed out. Not a penny left to spend. I was behind on rent. I couldn't pay my vendors, and I knew something had to change. I'd been fighting it for months. Always trying something new, hustling. I was not afraid of hard work, but everything I did was crumbling around me. Nothing was working anymore. My product-based business empire was falling down. I went on a walk with my husband, who'd been very supportive through the entire journey. And he looked at me and said, Sierra, I really think you need to close. And I knew he was right. That last flagship store, it was the last one standing. And I knew it was done. September 29th, 2017 was the last day that I operated my retail business. And just a few short months later, we filed for bankruptcy and I lost everything, including our home. Now, this is not a story about failure, but it's about a business that had been talking to me the entire time. The problem is, I just didn't understand the language. I had been a third-generation entrepreneur, born and raised inside a small business family. My grandpa owned a business, my dad owned a business, and I was not shy to the small business world. In fact, every birthday lunch, every Christmas dinner, we were always talking about small business. So when it came time for me to launch my first business at the age of 13, I was ready for it. 13 years old, I launched, scaled, and grew a theater company. Over the next 10 years, I was able to offer theater services and classes and put on full-length productions for high school, uh, middle school, elementary school kids, private, public homeschool. I worked with the college university in town. It was doing really quite well. Ended up getting married. And when I was pregnant with my second child, I decided, you know, I think I'm done with this nonprofit work. It's a lot of after school hours, a lot of evenings. Let me try something easier. Or so I thought. Retail, where I can work nights, weekends, and every holiday. So in 2006, I launched my first retail store. I had never worked a day of retail in my life, but I figured I could figure out how to sell things. I could buy beautiful things and I could sell them. I could work with people. And so in 2006, I launched a high-end maternity baby boutique in downtown Fargo. About six months later, I opened a second retail concept. My husband at the time was working for a trucking company and they hauled for Nordstrom, Saks, big um high-end department stores. And often when the freight would become damaged or it would have a claim, the department store wouldn't take it, the vendor wouldn't take it back. And so the trucking company had to pay the claim on the freight, and then it belonged to them. So he had been accumulating this beautiful high-end product for years in his warehouse. And he came to me and said, Sierra, you just opened a retail store. Would you be interested in selling this inventory for me? And never saying no to an opportunity, I said, Absolutely. I'm not going to sell it in my maternity store, but I will open another store right next door to mine. And let's do a pop-up. Let's sell the inventory. So, with a handshake deal, I opened a second concept six months after the first. He agreed to pay the rent and supply the product, and I agreed to run the business and staff it. And so we did this, and it was wildly successful, selling things that you would understand, like Kate Spade and Nike and wonderful brands, beautiful products at phenomenal deals for the consumer. I soon realized that I had two concepts: my high-end maternity store, which appealed to a very specific demographic, and my outlet store, which appealed to the masses. And so I decided to merge the two concepts and create a designer outlet boutique. I did this and then I franchised. Someone came to me in 2009 and said, I love your concept. Would you be interested in franchising? Again, never saying no to an opportunity. I said, I don't know how to do that, but sure. And so I figured out how to franchise, hired an attorney, wrote up a franchise agreement, and in 2010, we franchised our brand. Fast forward five years, I was very involved with the International Franchise Association. In fact, I was a rising star. I was a young female entrepreneur who had bootstrapped her way to the top, seven-figure business, corner office, massive warehouse, multiple locations. From the outside looking in, I looked wildly successful. So successful, in fact, that I was invited twice to the White House on behalf of small business. I testified in front of the Senate on behalf of small business. I was involved in the U.S. Chamber of Commerce Commission. Things looked phenomenal, but I didn't feel right. I remember in 2015 saying to my husband and separately to my team, something feels off. I feel unstable. I feel like there's a storm brewing. And all of them looked at me and laughed. Sierra, you're a multi-seven-finger business owner. You are what everyone dreams of. And you've done it so quickly and easily, or so they thought. I don't know what you're talking about. It's probably just growing pains. You're fine. I was indeed not fine. In the fall of 2016, I was sitting on my chair in my living room on a weekend, and I was scrolling through the social media feeds of all my franchisees, and I saw that one of them over the weekend had changed the colors of her store and had renamed the brand. So when you're in a franchise, you in fact cannot do that. A franchise agreement is a legal binding agreement, and you have to follow the rules of that agreement. And so she was in breach of contract. We filed a lawsuit for trademark infringement. And through that, I started to discover that there were multiple franchisees in my system that were operating outside of their agreements, running multiple point of sale systems so they didn't have to report royalties, buying product outside of the system, it was pretty bad. We won every single lawsuit, but we lost everything. It all came crumbling down. And in that day, on that day that I mentioned, September 29th, we closed our last flagship store and filed for bankruptcy. I had a choice. When everything came crumbling down, when I lost it all, when I was sitting on my couch crying, wondering how on earth this had happened, when I had worked so hard and I had such good intentions, how had it all come to a screeching halt? I had a choice. I could either sit back, I could complain, I could have grievance against all the things that were done to me, and I could go to work for Starbucks for the rest of my life, or I could say, yes, there were things that were done to me that were not right. There were circumstances beyond my control. However, I played a part in that. And what part did I play? What choices had I made along the way that had gotten me to that point? Thankfully, I chose the latter and I decided to launch a new business. I decided to launch a subscription box, so another inventory-based business, only this time I swore I was gonna figure it out and I was going to do it differently. What had all those 24-7 being available, hustling, grinding, hamster will moments, what had they cost me and what were they for? Because here I was sitting on the couch, no team, no income, and no home to go to. And so I said, okay, if I could do this differently, if I could lean in and figure out what part of this puzzle had I missed, how would I build a business different the second time around? And so I made two rules for myself. Number one, it was going to be profitable from the start. And number two, I was gonna take a paycheck from day one. And so I launched that subscription box with a completely different philosophy of business than I had used with my retail store brand. And I built that subscription box and sold it within 18 months. Through the building of that business, I started meeting entrepreneurs all over the country who also sold inventory: brick and mortar stores, wholesalers, subscription box, Etsy stores, and they all followed the same pattern that I had followed in my retail brand. They were stressed out, they were out of cash, and they were in debt. They weren't paying themselves. From the outside looking in, they had wildly successful companies, but behind the scenes they felt like frauds. They were stressed out and they felt trapped. Well, I knew after building that second business profitably that I had the answer. The inventory genius operating system is what was born from that discovery. And I want to share some of the principles of that system with you today. So, first of all, it's important for you to understand that I had warning signs all along the way with my retail brand. And I just walked right by them. I want to walk you through the four warning signs that I saw, what they were telling me at the time, what I didn't understand, and what I know now. Because my goal is for you today that you never get to the point that I got to. It was terrible. It was humiliating. It was something that I never would wish on anyone. But because of that experience, I've been able to see how I can help inventory-based business owners just like you build profitably, create a calm and peaceful brand that they love, get out of debt, and pay themselves what they're worth. So let's talk about these warning signs. Warning sign number one, the sales kept climbing, but I never got paid. In fact, I remember really early in the retail journey. Um, this is when I was, I just had my one store. I might have had my second location. I can't remember at the time, but it was very early in the journey before I was franchising. And we had a 2,500 square foot store, and it was downtown. So it was those long, narrow stores, you know, in traditional downtown buildings, right? So very long and narrow. And the alley's in the back. It was raised up, so there were multiple concrete steps that got from the alleyway up to the loading door in the back. So I was working alone, I was wearing high heels. I remember this specifically. I remember what they looked like, but I remember that specifically. I had the front door of the store propped open, I had the back loading door propped open. I had just received a palette of inventory. I was working alone. I was in my high heels, unpackaging that palette, running it up the stairs, listening for customers, helping people when they came in, going back, unloading more inventory. And I was like, this is ridiculous. I am doing all of this work for free. For free. There's no one that would do this work for me for free. Why do I continue to work for free? And I'm sad to say, sad to report to you, that that was the beginning of my journey. And while intellectually I wanted to change, I didn't know how. I didn't understand how the pieces went together. I didn't understand how cash and inventory fed each other. I really didn't understand the part that margin and profit played, which we're gonna talk about in a little bit here. And so I had this desire to pay myself. It wasn't for the lack of desire. It wasn't for the lack of my work ethic. I simply didn't know how to put the pieces of the puzzle together. And so I said to myself that day, I'm gonna pay myself starting tomorrow. And I did, except I never cashed the paychecks. So I started writing myself a paycheck every other week when I did payroll for everybody else. I wrote a paycheck and I just stacked those paychecks up on my desk because I couldn't afford to cash them. The number one sign, sales kept climbing, but I didn't get paid. What it looked like, it looked like record months, growing top line revenue, and visible metrics that everybody celebrated. But what it was actually saying about my business was that revenue was just a vanity number. I kept chasing sales. In fact, I'm really good at setting a goal and actually accomplishing it. I never had a revenue problem in my business. I had a profit problem, but I didn't know it at the time. So it looked like record months, but what it was telling me is that revenue was just a vanity metric. Warning sign number two, cash was always tight, no matter how good the sales were. What this looked like. We just had our best month ever. We just had an amazing weekend. We just had a phenomenal holiday season. But what it was telling me was that the business was cash-starved in practice because while we had those record months, while we had those record sales, while we had a phenomenal weekend where cash dropped into our account on Tuesday morning, I was always still scrambling to make payroll, to pay rent, to buy the buy or pay off the next amount of inventory. What this should have been a warning sign to tell me was the business was cash starved in practice. I didn't know my math problem. I want you guys, if you have a notebook and a pen right now, take this out and write it down. I want you to write this down. I say this to all my clients. It's just a math problem and I can do math. Write that down. It's just a math problem and I can do math because here's the thing: so many of us as entrepreneurs, founders, store leaders, right? Brand builders, we're fantastic at the art side of the business, but we're not often so good at the science side, right? And instead of saying we have to understand the art and the science and how they work together, we tend to say, that's for someone else. I'm not good at numbers. I'll let my bookkeeper handle that. I'll just make some more sales, right? We just keep chasing revenue to fix the problems that are right in front of us. And so this looked like having a phenomenal weekend, but no money by the next Friday to make payroll. This looked like having an amazing season, but come January 1, I was dipping into savings or getting another loan again. I didn't know my math problem. Sign number three, my cash-eating monster started needing debt for fuel. So if you're running a profitable, healthy inventory-based business, there is a way that your inventory sales can pay for the replenishment of that inventory. But when your math problem is off, you start to have to take more and more debt on to fuel that cash-eating monster. Here's what it looked like the credit cards started to not quite get paid in full. The line of credit just kept inching up a little bit more and a little bit more. Even though I knew that that line of credit was for inventory, and in theory, I understood how you buy the inventory, the cost of goods takes down the line of credit. I knew in theory how that worked, but it wasn't working. What this was telling me was that I didn't have enough margin to fuel my growth. I was constantly fueling my growth on the hope of tomorrow's sale. I'm guessing a few of you that are listening are like, uh, yeah, that's me. I was constantly fueling tomorrow's growth on the next sale, the hope of the next sale. Warning sign number four is that I was being held hostage more and more frequently by people, vendors, processes, and ultimately my debt. What this looked like, I started to have to say yes and to compromise to holding on to bad employees. How many people here can relate to this? You have a top salesperson with a horrible attitude, but you feel like you can't talk to them because you have to have the sales and they're your best salesperson. How many of you here know or understand the feeling of having a vendor that's constantly short shipping you, constantly shipping late, constantly shipping you damaged product? They're not very nice, they're a little nasty. However, it's your one vendor that will ship on terms. And because you don't have any more credit available, you just keep being held hostage by that vendor. This is what it looks like. And we don't understand this as founders and business owners that when money is tight, we say yes to the wrong things and we say no to the wrong things. I was constantly and more frequently being held hostage. In fact, as I sat and reflected when I lost everything on what I could have done differently, this was probably the first and biggest aha moment that helped me start to unravel what profit really meant in my business. I was thinking about the franchisees that I had said yes to. There's a massive franchise fee that comes every time you sign on a franchise. And then there's a recurring revenue stream, right? Because now you get royalties off their sales. Because I didn't understand my math problem, and because I didn't understand what profit truly meant to the vitality of a business, what happened was I was selling myself or hoping for the next sale to cover last week's decisions. So I'd sell a franchise. Now I had to, I was unfortunately being the bank. So I was buying the inventory and funding that inventory for them, which required more capital because my operations, my math problem was not in order. We'll talk about that in a minute. My operations outweighed the margin I was bringing in. And so every month I was going into the next month, a little more upside down in a cash position. So then I had to look to open another store. I need another big chunk of cash. I need another recurring revenue stream to pay for this. Only that led to more problems because now I had multiple stores that I was buying inventory for and that I was funding. I had multiple stores that I had to send operations teams to. So I had to bring in more team. I had to order or have more space, right? And so every sale left to let to a deeper cash deficit. I was held hostage to whoever could bring me more money. And what this was actually saying about my business is that my business was not structurally sound. In fact, what I should have done, which is so contrary to what we feel like we should do in the moments like these, is I should have stopped, slowed down, recalibrated, and then grew again. I'm gonna be real. I saw all four of these signs in real time. That was that feeling that I had, that 2015 uneasy feeling that I shared with my team. Something's brewing, something's not quite right. I knew, even though I didn't comprehend my math problem and how it should look, I knew it wasn't mathing. Something wasn't quite right. It felt like I was always on the edge of collapse, which in fact happened. But here's the thing: every time I felt or heard one of those warning signs, I would reframe that problem or that feeling as a temporary problem. It's a growing pains problem, it's a next season we'll fix it problem, or it'll fix itself problem. And that is one of the most costly habits that a business owner can make. Burring your head in the sand and just selling more stuff will put you out of business. And I'm saying this with love and experience. Burring your head in the sand, letting the bookkeepers figure out the numbers, letting the team handle that science part of the business. I'm just gonna keep selling more stuff. Eventually, you'll sell yourself out of business. I kept reframing these as growing pains, next season fixes. This is just how business is. And honestly, a lot of the business world feeds into this reframing. We hear this constantly. You won't make money, you won't be profitable for five years. Who decided that? Who made that up? I proved with that subscription model that that doesn't need to be the case, right? You won't pay yourself, you're gonna wear a million hats, pay everybody first, your due will come. How often did I tell myself that? I need to hire someone else, another hundred thousand dollar employee I'll bring in while I'm working for free because one day my paycheck will come. But in fact, it never came. So often the business space feeds into these reframes, and those reframes will work until they do. Don't, which is what happened with me. Here's something I want you to think about. Revenue tells you how busy you are. That's all it tells you. You're really busy. Cash or lack thereof, that's what tells you the truth about the health of your business. I had been playing store with my store for years. And I'm guessing some of you here are playing store with your store as well. So I want to give you some practical advice, some practical, tangible takeaways so that you can stop playing store with your store, stop the bleed, and start to really build a business that's profitable. So the one number that I wish I would have known 20 years ago now, profit. Let's go through that math problem I keep talking about. So we all know what a profit and loss statement is, what a PL is, right? An income statement. But I want you to really walk away today understanding how a PL is your math problem and where every number in your specific inventory basis needs to lock in so that you can pay down the debt and take a paycheck. Profit. It's the fifth number in the math problem and it's at the bottom. But let's start at the top. So we have our sales. We all know what that is. And then we have our cost of goods sold. Now, a really important distinction here: cost of goods sold is just that. It's the cost of the goods that have actually sold. It's not the inventory you purchased last week. It's not the inventory that you bought on Fair or the inventory you bought on Fashion Go or the inventory that you have coming in from, you know, overseas in a couple months. Your cost of goods sold is the cost of the goods that sold. It's directly attached to the sales. And that's really, really important to understand. So let's say I sold $100,000 last month. My cost of goods sold, let's say $50,000. That means in order to make the $100,000 in cash, I had to get rid of $50,000 worth of product. I exchanged $100,000 bills in exchange for $50,000 worth of inventory. The cost of goods sold is the cost of the goods that actually sold. The third number, the third bucket on our math problem is your gross margin. This is your secret weapon. This is the number that I work on with my clients from day one because this number is what will heal your business. In fact, I want to tell you I just had this conversation yesterday, just yesterday, um in my program. We had a group call and I was doing profit plan audits. So I was looking at the profit plans of the clients and giving them feedback and telling them next steps. And one of the clients came on and we worked through a couple problems. And she said, um, when I started with you, I had a margin of 55%. It was running at 55%. She's like, I'm up to 61% right now. My goal is 66%. And I was like, that's phenomenal, amazing. That's exactly what the inventory genius operating system is created for. And I'm glad you're working the system and it's working for you. Tell me what you're doing. And she said, Well, the first thing was when I came into the program, you said we need to get your margin up to 60. And I said, that's never gonna happen to myself. Um, but she said, but I started following the system and the process, and I'm at 61. And she talked about how she's mixing her margin or mixing her product categories differently, how she's saying no to the inventory that's not turning. So she's not having to mark stuff down as much, which is contributing to more margin. And she gave multiple examples of the things that she's doing that have brought up her margin by six points in under six months. That's phenomenal money, right? So that gross margin, that is your secret weapon. That's what she's using to pay down her debt and eventually start to take a paycheck. Sales minus your cost of goods sold is your gross margin. This is the third line item on a PL. This is the third bucket. This is the third piece of your math problem. The fourth bucket, the fourth section, operating expense. This is things like rent, payroll, marketing, travel, events, further education. This has nothing to do with debt, and it has nothing to do with inventory purchases. So sales minus our cost of goods sold equals our gross margin. Our gross margin then needs to cover our operating expense, which then in turn gives us a net profit or a net loss. The science behind the numbers in our business is actually not difficult. It's just a math problem. And you all can do addition and subtraction, and that's all it is. The math problem in my business was so out of whack. My margin wasn't enough to cover my operations. I didn't have enough profit in turn to put it back into inventory. And so I started taking on debt, which in turn caused my operating expense to rise even more with interest, et cetera. And I was going from month to month into in a worse cash deficit, trying to keep up and catch up with everything. If I would have understood this one number, profit, and that profit drives everything, top line revenue does not. It's a hustle number. Profit is a reality number. If I would have understood profit, things would have looked so drastically different. Revenue is not profit. And I want you to think about that and write that down. Revenue is not profit. Profit is directly tied to margin. What you keep is tied to your margin in an inventory-based business. And that is why we focus on margin first. That is why margin is your secret weapon. That is why if you can use your margin to right size your math problem, things could look so different for you. All right. So here's three questions I'm going to give you that your margin forces you to answer. And this is really important. Okay. So when you start focusing on your gross margin, number one, and how it drives profitability, focusing on that margin is going to force you to answer these three questions, which is in turn going to help you right size your math problem. Question number one, how much of a sale do I really get to keep? I was really towards the end of the life of my business. I was scrambling, I was hustling, I was trying so hard to keep it, but things were crumbling. It was really, really ugly. So I had a team of 12. I had 13 locations. Three of those were my own locations, or two of those were my own locations at that time. I ended up buying back a franchise location, another story for another day. Also not a good decision. But anyway, at that time I had two locations. The other 11 were franchise locations. I had a massive warehouse. I had a huge team, a corner office. I had all these things going for me, but things were starting to crumble. I was really behind in invoices. I wasn't able to keep up with what I owed for inventory. I was starting to get way behind in rent. I was really struggling to keep up with my SBA loan. And I found someone that I wish I would have found at the beginning of my journey, but honestly, I wouldn't have been ready for him then. His name was Randy. Randy was a strategic genius. So often with accountants, CPAs, bookkeepers, they're very black and white. They're very in the moment focused. So they're really good at what they do, looking at the numbers and delivering them to you on a clean piece of paper where everything's organized on paper. Typically, they're not very strategic. And this is not wrong or bad. It's just how their brain is wired. They're wired to take all your numbers, organize them for you, and deliver them to you in a tidy little folder. But a lot of times they're not very strategic. So I did not have strategic bookkeepers or accountants. I had no one on the science side to help me with strategy until I found Randy. But by the time I found him, I was in deep, deep trouble. And that's why he was recommended to me. So someone I can't even remember who sent him to me told me, you need to connect with Randy. He's a CPA and he works with businesses that are crumbling and falling apart. So basically, Randy did what I do today. I go into a business, think of it like an ER. So the business rolls in on a gurney, bleeding everywhere, the things do not look great. I diagnose, create a strategy, and help to heal and build back up. That's what Randy did for me. He just came in a little too late. But he taught me so much as we were starting to fall apart. And one of the things he taught me, I remember where we were sitting, it was at my desk. And at that time I had probably already started to let people go, if I can remember correctly, and I was struggling and it was tough. He said, Sierra, just because you buy something for $5 and sell it for 10, that doesn't mean that you have $5. You still have to pay for the lights, for your people, for the marketing. You have to pay for rent to open the door. In fact, buying something for five and selling it for 10, you could quite possibly be selling yourself out of business. That five could be completely consumed and then some just in operations. And that was an aha moment for me. Wow. Markup and margin are not the same thing. If you have a pen and paper, write that down for me today, too. Markup and margin are not the same thing. When you focus on your margin, it forces you to ask the question, how much of the sale do I really get to keep? When I talk to prospective new clients, I'll always ask them, what's your margin? And without fail, they will say, I markup two times. I mark up 2.6, I markup three. That's not the question I asked. What is your margin? Because markup and margin are different. Let me explain. So when you markup, that's wishful thinking. That's forward thinking. That's I hope I sell them all for what I bought and what I'm selling them for. Margin is the reality of what happened. Let's take this shirt, for example. Let's say I buy five of these shirts for $5 a piece. And I'm like, I mark up three times. So I bought them for five. I'm gonna sell them for $15. Amazing. So happy for you. Here's the thing of the five shirts, I might sell two of them for $15. Another one comes damage. So right away I'm marking it down to $7.50. Another two no one wants, sizes are wonky. It's came in too late for whatever reason. I mark that down to 10 and eventually down to $7.50, and I might even sell it for five. Your margin is the cost of all of the shirts and the actual total of all of the sales. The difference between those two things is margin. And there's so many factors that play into your margin beyond what you mark up a product. You can mark up all your products three times, be super excited. Yeah, Sierra, I mark it up three times. Awesome. But then you give unlimited discounts and coupons, and you're running constant sales because you need more cash. Your margin and your markup are two completely different things. I have another story for you, another example. I work with a client. I've worked with her for a couple of years now. She's debt-free, it's a third-generation business, thriving retail business. She just wants to be smarter with her numbers. And so that's why she's working with me. Like, how can I be more strategic with profitability? If I want to sell this one day, what is what do we need to do to prepare it? And we were reviewing her financials recently. And I said, okay, tell me about all these discounts. Because when I'm looking at your PL, I'm seeing a lot of discounts. There's a massive discount line. And so we did an audit of her rewards program. I'm guessing a lot of you here have rewards programs. So we did an audit of her rewards program and we found this is crazy. In fact, she did a little story for me. It's on my Instagram if you want to go watch it. We found in the last 12 calendar months that she gave away $250,000 in discounts. Let that sink in. In the last 12 calendar months, she gave away a quarter of a million dollars in discounts. She just gave it away with her rewards program. That directly affects her margin. She could buy everything for five and sell it for mark it up to $25. But if she's giving away all of that discount, she's completely eating into her margin. And so focusing on your margin is going to start to tell you how much of each of this sale do I really get to keep? Question number two when you focus on margin, you're going to start asking yourself, how much do I need to sell to keep the doors open? So if you think about that math problem again, sales minus cost of goods equals gross margin minus your operating expense. Your margin has to cover your opex. This is where I first started to get into trouble with my retail brand. I was outgrowing my margin because I was adding more and more complexity to my business, i.e., top-line revenue, it was costing more and more of my margin. I would have had to keep scaling my margin to keep up with the operating expense. But because I didn't understand profit and I didn't understand this math problem of mine, I wasn't looking at it that way. I was like, I'm just gonna sell more stuff. But because I didn't have enough margin to cover the operating expense, I was selling myself out of business. Question number three, is my inventory turning fast enough into cash? Is my inventory turning into cash fast enough to cover what's coming due? From today forward, every time you look at your inventory, every time you walk around at market, you look at the booths, you walk through an exhibit hall, you look at that beautiful inventory, I want you to look at it and think of it as a dollar bill. Your inventory is cash on hangers and cash in boxes. And until you fully believe this, until you fully buy into this, this is not pretty stuff, this is not a hope and a dream. I am taking a dollar bill. I'm investing it into a shirt, let's say. And then I need that shirt to create five more dollar bills for me. Your inventory is cash on hangers and cash in boxes. And when you focus on your margin, you'll start to ask yourself, is my earn inventory turning into cash fast enough to cover what's actually coming due? So with all I've learned, with all the people that I've worked with, with all the stories that I've heard, here's how I run a business now. Or here's how I help other entrepreneurs run their business. Number one, profit dictates their sales goals. We never start at the top and work down. We always start at the bottom and we work our way up. Do you have hundreds of thousands in debt? Then what do we need at the bottom to create enough profit to cover that debt? And then what does that sales goal need to look like? Do you want to take a paycheck consistently? Then what does that bottom line number need to look like? And how do we work back into it? Prof profit dictates the sales goal. Number two, we start with margin, we don't end with it. We start with margin, we don't end with it. When you have this mindset, it's gonna take all of the emotions out of buying. No more emotional buying, no more frantic selling. When you start with margin and you don't end with margin, it takes all of the emotion out of your buying. And number three, we treat inventory as cash sitting on a shelf. It is cash. And it needs to be cash that turns quickly and it needs to be cash that produces a lot more cash as quickly as possible. I stopped running on emotion and I started running on a system, the inventory genius operating system. So I'm gonna give you a practical formula that I want you to take. This is gonna be your one homework piece, if you will, from today's conversation. I want you to calculate your own break-even because this is what should dictate your sales goal. Not last year I did this, I'll add 10%, that'll be a new goal. Not I want to be a six-figure business or I want to be a seven-figure business, and that becomes my sales goal. No, you're gonna know your break-even, and your break-even is gonna show you what profit needs to look like and therefore what your top line revenue needs to look like. So here's the formula for you. I want you to take your fixed expenses. Now remember rent, payroll, things like that. This is not debt, this is not inventory. So, what does it cost to open the doors of your store, to open your warehouse, to run your e-com shop? Okay, your fixed expenses for one month. And then I want you to add that to your debt service for that month. So let's say you have a $2,500 SBA loan payment every month. Let's say you put $500 against credit cards you're trying to pay down every month. And then let's say you have some sort of Shopify or quick funding, fast funding loan, right, that you're paying on. What is the total debt service for a month? I want you to put that together, add that to your fixed expenses, and then I want you to divide it by your current margin. That is your break-even. Here's an example for you. So let's say you have $10,000 in fixed expenses, and then let's say you're servicing $5,000 in debt. So $10,000 plus $5,000 is $15,000. That's what your bottom nine needs to look like. You're gonna divide that by your margin. So let's say we have $15,000 and our margin's running at 50%. I'm gonna divide that by 50%. My break-even number is $30,000. So I need to make $30,000. That becomes my sales goal in order to keep replacing my inventory, cover my operating expense, and service my debt. That becomes my break-even. And here's what's exciting about understanding the break-even number. Once you have that number and you start working your business from that number, and at the same time you start pulling that margin lever and increasing your margin, your break-even number comes down. So you don't have to sell as much to cover your nut, if you will. Or if you continue to sell that much, that extra margin drops to the bottom and creates more and more profitability, which helps you escalate those debt payments or take that paycheck. Start with profit, build from the bottom up. I want you to start taking ownership of your numbers and stop playing store with your store. Hey there, thanks for listening to today's episode of the Inventory Genius Podcast. Now, before you go, I want you to remember this. Your business does not need another shiny new idea. It needs a plan, not a guess, not a hope, a real financial plan. When you're ready to stop guessing and start running your business on real numbers, I want to invite you to integrate the inventory genius operating system into your business. Go to Sierrestockland.com forward slash program. That's Sierra Stockland.com forward slash program. The link is also in the description of this episode. Thanks again for joining me. I'll see you on the next one. Bye for now.