If your business raises capital and implements the Profit First methodology, this article is for you. Raising capital involves receiving additional money from investors, and Profit First helps you correctly allocate these funds to their intended functions.

Raising Capital

The purposes of capital raising will differ from business to business, depending on their size and industry. Capital funds may be in equity, debt, or a combination. Possible functions of capital include funding, expanding, and transforming the business.

Capital allows you to buy, maintain, or improve the fixed assets of your business. Specific examples of capital expenses may be purchasing a new piece of machinery, offering a new service, or upgrading your office. Thus, the purpose of raising capital is to grow your business and enhance your profits.

Profit First

Similarly to raising capital, Profit First not only allows you to enhance cash flow and tackle your debt, but also to grow your business. Profit First ensures that your profits grow, meaning your business can subsequently expand as well. Profit First follows the concept that profit = growth. Without that extra money, how would you grow your business?

Profit First approaches business growth with the resources available, rather than using growth to make more profits. When you create real business profit, you provide yourself with opportunities of true growth such as raising capital and expanding your team. With Profit First, you will grow your team once your business has available funds rather than expanding your team in an attempt to raise said available funds.

Profit First

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This book offers a simple, counterintuitive cash management solution that will help small businesses break out of the doom spiral and achieve instant profitability.

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How to Raise Capital with Profit First

Profit First helps your business to grow by physically separating your capital from your income. You do not place the capital into an account(s) with preexisting purposes. Instead, you put the capital into its own outside bank account with specific purposes, possibly to sit in quarantine out of sight until needed. This will make sure that the business owner is confident in their knowledge of when to access these funds. This concept will be foreign to many businesses who consistently and mistakenly classify capital under income despite their differing predetermined uses.

Distribute this amount based on the predetermined (and ideally, documented) purposes of the capital account, either to the operating expenses account if needed there or to the necessary bank account, excluding it from your usual Profit First distributions. Allocate the percentage of your capital account fortnightly. You could also allocate the quarterly profit distribution for this purpose too. This method provides you with a profit ‘buffer’ that will protect your business and guarantee it does not grow beyond its means. This creates sustainable and achievable goals within your business that will leave you feeling satisfied and accomplished instead of feeling as if you will never reach your targets.

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Book a call with Profit First Accounting & Coaching and we can help you to separate your capital, and grow your business. Get in touch.