We know the age-old saying “If it ain’t broke, don’t fix it”, but we also are very familiar with “Nothing ventured nothing gained” and this is where we often find ourselves at a crossroads. Do we continue along a path that we can easily predict with a similar outcome to what we are currently experiencing, or take the path of the unknown? The path may have a few twists and turns, highs and lows, but the outcome is something that we have only seen in our dreams.
The question that many of our clients ask when we have our initial discovery call with them is, “Why should we change our traditional accounting processes, and move across to the Profit First methodology?” And our response is usually a set of questions:
- Do you currently pay yourself a regular wage?
- Do you make a profit? An actual one, not just on a P&L!
- Do you have the capacity to scale your business for growth?
- Do you struggle with cash flow?
- Do you experience bill shock regularly?
- Are you awake at night feeling anxious about money?
- Would you like all these issues to be solved?
It is usually at this point when the light bulb flicks on, and they are ready to choose a different path at that fork in the road. The path for the brave, the path for those who are ready to take control.
As the name suggests, Profit First prioritises profits before expenses. Profit First is the brainchild and book title by author and serial entrepreneur Mike Michalowicz. It ensures making a profit becomes a habit, not a goal or a dream. This challenges traditional accounting, which defines profit as ‘what’s left over’.
Taking your profit first, using the equation Sales – Profit = Expenses enables business owners to feel empowered and take back control of their business finances, sustainably, setting them up for long-term success. When implemented it also allows owners to future-proof their business plans, including scalability and growth.
You start by setting up your five (5) key bank accounts.
- Profit Account
- Tax Account
- Owner’s Pay Account
- Revenue / Income Account
- Operating Expenses Account
Then you distribute a percentage of your incoming revenue (account number 4) to the other accounts. To read more about percentage distributions, click here, or book a discovery call with us and we can help with your allocation percentages. This is key to keeping your business spending in check and encourages you to review spending habits consistently.
The beauty of this process is that it allows you to be prepared for any future business decisions that you may have coming up. Such as scaling for business growth. When you need to scale your business there are many additional expenses that will need to be incurred. Whether this be:
- Additional staff
- Additional products or services
- Larger office or warehouse space
- New equipment
It is possible to set aside a percentage of your revenue to dedicate towards your business growth. This enables you to do this sustainably and without fear of finding the money to do so, as the money is already there, waiting for you. Can you take a second just to imagine that scenario?
Finding the capital to expand when using traditional methods can be done, however, usually, this capital raising is done externally. Perhaps by securing a bank loan or taking on investors, all of which can add pressure financially as well as personally, or even dwindle your share and control over your business.
If you want to take sustainable steps towards your profitable future, then you have no option but to choose the Profit First path. As certified experts in Profit First, we can help you set up, implement and integrate Profit First into your business. Take your first step today and book a discovery call with us. Your future self and business will thank you for being brave and choosing the right path for you to achieve your goals.
