What is Profit First? The Hack That Can Transform Your Business Finances

Running a small business can feel like a rollercoaster ride. Although ups and downs may be exhilarating at the fun park, it's not what you want when it comes to your finances.

It's time to flip the script and implement the “hack” that can transform your financial outlook: Profit First.

So, let’s have a look at what Profit First is all about, and how it can supercharge your profitability. Ready? 

What is Profit First?

Based on the book by entrepreneur and business author Mike Michalowicz, Profit First is:

• A mindset shift. Profit First is not an accounting method; it's a whole new way of thinking about your business's finances. It flips the traditional formula of "Sales - Expenses = Profit" on its head and replaces it with "Sales - Profit = Expenses." You prioritise profit, so that you can make sure that your business always makes money.
• Profit comes first: the clue is in the name! Instead of waiting until the end of the year to see if there's anything left for you as the business owner, Profit First sets profit aside from the beginning. By allocating a predetermined percentage of your revenue to profit, you're guaranteeing that you get rewarded for the risk you take when you own and run a business.
• Multiple bank accounts: To help implement the Profit First system effectively, you set up separate bank accounts for different purposes. The five basic bank accounts are Income, Profit, Owner's Compensation, Taxes, and Operating Expenses (OPEX). Each account has a specific purpose, so that you can make sure that money is allocated correctly and transparently.
• Small, consistent steps: Profit First recognises that big changes can be overwhelming. Instead, you take small, incremental steps towards financial prosperity. By gradually adjusting your percentages and making conscious spending decisions, you build a solid foundation for sustained profitability.

What are the benefits of Profit First?

1. Financial clarity: Profit First brings clarity to your business's financials. By having separate bank accounts for different purposes, you can see exactly how much money you have in different areas of your business. This visibility helps you to make informed decisions and proactively manage your cash flow.
2. Improved cash flow management: With Profit First, you don’t get caught out by unexpected expenses or have to scramble to pay your bills. By allocating funds for taxes and operating expenses upfront, you know that you can cover all your costs and still protect your profit.
3. Focus on what matters: Profit First enables you to focus on what truly matters – growing your business and delighting your customers. When you get paid first, and your cashflow is sorted, you have the mental resources and the energy to fully invest in creating, marketing, and providing exceptional customer experiences.
4. Financial stability: Traditional business models can leave you vulnerable during challenging times. With Profit First you’ll build a financial safety net. With reserves set aside for profit, taxes, owner's compensation AND a rainy day fund, you'll weather storms and maintain stability no matter what the world throws at you.
5. Greater profitability: Ultimately, Profit First is all about increasing your profitability. By consistently setting aside profit and making conscious spending decisions, you'll start reaping the rewards. Increasing your profit margin not only rewards your hard work but also opens doors and allows you to grab opportunities when they arise.

Say goodbye to the old way of doing business and say hello to Profit First – your one way ticket to financial success. By flipping the formula and making profit a priority, you'll unlock a world of financial stability, growth, and freedom. Remember, it's not about the money you make; it’s about the money you take and what that allows you to do with your wonderful life.

So take that first step, implement the Profit First system, and watch your bottom line soar!

Want to know more? Download our free One Page Profit First Process.