If you’ve been in business over the last several years, you’ve likely heard of one particular system of cash flow management that teaches you how to successfully manage your money so you can experience ultimate business growth, stability and profit in your business possibly for the first time.
This method is called Profit First. Profit First teaches you to do exactly as the method applies. To take your profit first before paying for expenses and normal overhead. Learning this method and applying it to your daily business financials will bring more fulfillment, increased business health and overall satisfaction with your business financials.
It’s no secret that my entire business has been built around this cash flow system because of the incredible results I see it produce in my own business, as well as the businesses (and lives) of my clients and students.
Why Profit First?
The Profit First model, introduced and popularized in the book by Mike Michalowicz, is a cash management strategy that flips your typical business accounting model on its head. Instead of labeling any leftover money as profit (the money left after paying all the bills), Profit First is based on the idea of training yourself in these alternate money habits so your business is no longer a cash-eating monster. Instead, the profit from your hard work and smart decisions is there for you to use, enjoy, and invest.
You see, it’s all about freedom. It’s not about how much revenue you earn as a business owner, but about how much money you KEEP in your own pocket. It really comes down to how much you bring home to your family and how satisfied and fulfilled you are through the work you’re putting in as the CEO of your company.
That’s why traditional accounting and cash allocation doesn’t work to help your business grow and thrive. It places profit at the end of the line, instead of first where it actually belongs.
As a Profit advisor and cash flow coach, my passion is to empower service-based businesses to optimize the daily financials in their business, so they can reclaim their profits AND truly have the freedom to get back to doing what they love as the visionary in their business.
There is nothing more important to us than driving freedom, passion, and purpose back into the lives of our clients. We are able to give them the tools and support needed to grow and scale.
I leverage specialized tools to bring clarity and confidence to my clients and students to increase cash flow and enable smarter financial decisions, leading to increased profits and purpose.
I have developed and fine-tuned these specialized tools so my clients and students can experience greater financial success, and the toolbox that holds them all is the Profit First method.
Profit First is more than just a cash flow system. Profit First drives freedom, passion, and purpose back into your business with clarity and tangible results (like $$$ in the bank that you can take as a bonus, use for your rainy day fund, or reward your team.
It’s your money, your Profit, to do with as you choose.
What is Profit First?
For decades, businesses have kept track of their revenue and expenses by adding up total sales and subtracting total expenses during that time period. What’s left for the CEO and his or her company has traditionally been the business profit.
It seems like a good plan, a logical way to manage your numbers, but what if nothing is left? If we take a look at this ancient method from a different angle, we will see that the profit amount left in the end is only the leftovers, the scraps (if any money is left at all).
It’s the money left after all the bills have been paid, all the overhead taken care of, all the rent and payroll and taxes have been covered. What’s left over after all those bills is NOT typically the amount of take-home pay that a business owner would want or need to adequately compensate themselves for the effort put into running the business.
Instead of using the traditionally formula:
Sales – Expenses = Profit
…the Profit First method flips that script to something completely different. A method that focuses on allocating PROFIT first in your business:
Sales – Profit = Expenses
…which prioritizes PROFIT and then uses the remaining revenue to pay for the expenses of the business.
This idea is actually based on something called Parkinson’s Law, which states that work (or resources) expands to fill the time or money given to complete it. As an entrepreneur, can you relate to this idea? If you give yourself a week to complete a project for a client, or if you say that you’ll launch a new offer in the next 3 months, the work will take exactly that long. The client project will take a week — even if you probably could have knocked it out in one day if required. The same with the offer launch — you probably could have pulled together a really solid launch plan in a few weeks, but instead you wait until the end of the three months to finalize the content, the timeline, and who on your team will do which tasks.
In his book, Profit First, the author Mike Michalowicz likens this to a tube of toothpaste. How much toothpaste do you use to brush your teeth when you have a brand new tube? Probably a big dollop of it. After all, you have a full tube of toothpaste.
But when you get down to the end of a tube, you squeeze and twist and fold until you can get the tiniest amount on your brush, and that’s enough to do the job.
The takeaway here is that we change based upon what’s available. Toothpaste, time, and especially money. When you have less, you use less. And when you have less, you become surprisingly innovative to find the solution.
We apply Parkinson’s Law to business finance by admitting that expenses will essentially increase to match the revenue coming into the business. If you have the money to spend, you likely will.
But when you allocate profit first, you become increasingly innovative to get the same or similar results with less. Twice a month you will allocate PROFIT, tax and even your own compensation. Teaching yourself to spend only the money that is available for expenses and start training yourself to prioritize your growing profits.
This cash management system is what I teach to all of my clients and students, and here’s why:
- By taking profit first, you’re setting yourself up for sustainable, long term success in your business.
- By taking profit first, you’ll make smarter decisions with the money that is allocated for your overhead and expenses..
- By taking your profit first, you will learn to think smarter and innovate more in your business. When your profit has been set aside and you are left with the remaining money to run your business, you’ll be training yourself to do well with less.
- By taking your profit first, you can set aside the tax responsibility for yourself and your company. Imagine a world each year when the taxman comes calling, you’re ready. No longer will you feel the stress of wondering where the money will come from.
How can the Profit First method help my business keep more cash?
“Jenni, my expenses are through the roof right now. Where did all my money go? I have good sales in my business and cash flow is great, but I can’t seem to have enough money left over, after paying for everything and covering my team, to pay myself well. It’s like this business has turned into a cash-eating monster and it’s out of control.” This is a prime example of conversations I have frequently with business owners that need a change in their business and don’t know where to begin.
The cool thing about Profit First is that it works WITH our habits as humans, not against those habits. If you’re like most of us, we see how much money we have in our bank accounts and we match our spending to that dollar amount. It usually takes some serious rewiring of our brains to not want to spend what we have or what we make.
So the way Profit First works is to allocate that profit amount BEFORE we even have the chance to want to spend it. Out of sight, out of mind.
If the money isn’t in our expense accounts in the first place, or if we don’t see those dollars in the account that we use to pay bills, we won’t be able to cover those additional expenses or even those monthly recurring expenses if we have not allocated them.. Makes sense, right?
It’s actually a system that will work FOR us if we let it, without having to fight our human tendencies or negative habits.
So we are essentially using this idea as a tool to save us from ourselves. We are putting the profit percentage in its own separate account before we can use it on expenses, and from the remaining amount after the Sales – Profit = Expenses formula, we pay out all the expenditures for the month.
Once this method is fully implemented in your business, it acts as a gatekeeper for all of your accounting. It gives you red flags if something is amiss with either cash flow (revenue) or expenses (a purchase you perhaps didn’t account for) so that you can STILL maintain profit margins in your business and keep enough set aside.
“But what if I don’t have enough cash flow to actually set aside profit? What if I need all the money to reinvest and maintain growth?”
This is a question I hear a lot, and it’s a valid question that points to the overall HEALTH of your business finances. So let’s talk about it. If you set aside profits, how will you continue to grow?
Chasing growth for growth’s sake is like chasing the wind, and honestly, it’s how you end up broke and with a broken business. But if you want growth for the sake of impact and continued scaling for your company, know that the healthiest growth is going to come from businesses that prioritize profit. That prioritize balance. That prioritize sustainability. That prioritize their own wellbeing, not just making another buck.
The healthiest (and fastest) growth comes from businesses who don’t just pump money back into the business, but rather invest money in the most profitable activities within the business. They grow the products, offers, and programs that are actually bringing in the most profit to the business because they know the numbers.
They know where their healthiest, most profitable margins are. They’ve been able to cut waste and determine the best use of their hard-earned dollars. They know what to focus on to continue that profitable curve, rather than plowing cash into growth strategies that aren’t worth it from a profit standpoint.
So yes, continued growth and investment is possible, even encouraged. When you implement Profit First into your business, you’ll be working the muscles that produce the most bang for your buck. Everything in your finances will be working together toward the same goal: overall profitability.
Profits mean more cash in your pocket, and profits also mean growth. The two work hand in hand to help you create a company that endures to leave a lasting legacy and help you feel fulfilled as the CEO of that company. That it’s all worth it.
Finally, higher profits, and a more fulfilling business for you as the CEO, will ultimately create a business with more impact.
Isn’t this what we are called to do? To love and serve others and to do good in this world. Through the Profit First process, you can create a system in your business to facilitate great impact, more freedom and higher passion, all while following the purpose you were created for.
Ready to take your first step toward putting profit FIRST in your business?
I challenge you today to start taking your profit first. Starting with your next deposit, save 1% of that deposit into a saving account and watch that account begin to grow with each deposit. This is the first step of your profit journey, Congratulations! Share your profit wins with us at firstname.lastname@example.org!
You’re invited to reach out for a discovery call to see if you would be a good fit for one of our services or programs.
If you would like to learn more about Profit First, Click Here
Click Here for a Profit First Assessment Download.