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.
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.
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.
This book offers a simple, counterintuitive cash management solution that will help small businesses break out of the doom spiral and achieve instant profitability.
48 in stock
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.
Book a call with Profit First Accounting & Coaching and we can help you to separate your capital, and grow your business. Get in touch.
4.8 Rating
Building a profitable business is not an overnight success;
it’s a journey of consistent efforts and strategic financial management. In the world of entrepreneurship, profit isn’t just a destination; it’s a perpetual path.
-Mike Michalowicz
Ready to revolutionise your business's financial approach? Join us on a journey to financial success by embracing the Profit First Methodology. Partner with us now and pave the way for a brighter financial future.
Do you feel your business is suffering from bad cash flow? Are you waiting for money to come in to pay your invoices? Do you feel like each month you are holding on by a single thread? You are not
Whether you are a partnership or a sole trader looking to incorporate yourself, starting a new business, or being made a shareholder in the current business that you work in, you may be questioning – should I go for a
Many Australian small businesses are suffering from cash flow pressures; is your business one of them? The Profit First Tax Strategy can help. Thanks to a perfect storm created by the increased cost of goods, a crackdown from the ATO
For most businesses, the lead-up to June 30 can be stressful. Rallying sales to help boost those end-of-year figures. Promising yourself that next year you won’t be doing this mad last push. Then looking at your P&L and being shocked
Does the word “budgeting” scare you? Do you feel ‘shaken’ to your core? Perhaps your brain automatically changes the subject in your inner monologue when the ‘B’ word is spoken. You are not alone. According to Compare the Market, more
Discover the benefits of using a virtual accountant. Learn how cloud-based accounting solutions like Xero can streamline your business operations and offer seamless collaboration from anywhere.
