02 Dec What if you ran a Profit First business?
Hi, it’s Hilary. Can we talk about Profit First?
You’ve seen me talk about Profit First a few times over the past couple of weeks, but maybe it’s still new to you.
Mike Michalowicz published his book Profit First in 2017, and the response to his Profit First system was incredible.
Too many business owners follow the antiquated formula of [Sales – Expenses = Profit] in business. Yes, it’s widely accepted and seems logical, but it rarely leads to profits.
Why? It treats your profitability like leftovers. “If there’s something left at the end, I guess that’s as good as it gets.”
What if you changed that formula to [Sales – Profit = Expenses]? The math is the same, but it intentionally limits how much you get to spend in your business.
And all while moving a reliable percent of profits out of your business and into your pocket.
How good does that sound? It’s super simple, but the difference is life-changing.
Here’s how to get set up for a Profit First approach…
Step 1. Start by going to your bank and opening up five additional accounts.
You likely already have an Income Account already opened (that’s your business’ main account), so you’ll need the additional five accounts to complete your setup.
- Income Account
- Profit Account
- Owner’s Pay account
- Tax Account
- Retirement Savings Account
- Operating Expense account
Step 2. Name each of your accounts at your bank.
You can likely do that in your mobile banking app by assigning each account a ‘nickname’, as it were. This will help you when you look at your accounts to see their purpose AND the balance of each account.
Step 3: Deposit all of your income into your Income Account.
Your Income Account is your holding account. That’s all it does.
Step 4: Transfer income twice a month
Once all your accounts are set up and named, you then pre-determine a percentage that flows into each account from your Income Account.
Twice a month (we’ve learned that the 10th and the 25th of the month are the best days), transfer predetermined percentages of income with purpose into each account:
- Profit Account – Pay yourself your profit first, hence the name Profit First. Your Profit Account is your reward as an owner for running a healthy company.
- Owner’s Pay Account – Your Owner’s Pay Account is for your pay (think: salary). You need to be paid generously! Transfer money into your Owner’s Pay Account second.
- Tax Account – The Tax Account is for Uncle Sam. Do not ever use money in your Tax Account for anything other than taxes. Ever. Pay your Tax Account third after paying your Profit Account and Your Owner’s Pay Account.
- Retirement Savings Account – You allocate a percentage of your income into your Retirement Savings Account. If you’re unsure what your percentage is, just know that’s part of what we do for our wealth management clients. Another option is to check with your tax preparer. Pay into your Retirement Savings Account fourth.
- Operating Expense account – Whatever is left over after paying your other accounts is now in your Operating Account. This is the account that you look at, pay bills from, and cover business operating expenses. This is NOT your income account.
Maybe you’re reading this and already seeing this work in your business. If that’s you, if you’re serious about generating virtually guaranteed profits in your business, this system was made for you.
We give business owners in our Money Blueprint℠ Program a 1:1 Profit First Cash Flow Coach and a customized ‘map for your money’ – so we turn this into a ‘done for you’ opportunity.
With a clear process and the right support, you have the power to be more profitable than ever in your business.
To your prosperity,
P.S. – Chances are you are where you are because of what you’ve been taught about money or believed to be true. I know what that’s like, to have a money narrative that gets in the way of success. If that’s you, hit reply to share your story. I promise, I read every reply.