Use the Profit First money management methodology to make a healthy profit every single year of your business.

I see a lot of business owners who are still mastering their cashflow, but you don’t have to wait until the end of the year to check the profits you’ve made. A lot of business owners are passionate about what they do and the financial side comes second.

With the Profit First system, you can ensure that you make money while enjoying what you do. 

Profit First is a book by Mike Michalowicz that shows business owners how you can transform any business into a ‘money-making machine’. Profit is the money left over once the running costs and expenses are taken out of the revenue. The usual explanation is Sales – Expenses = Profit.

It’s important to ensure your expenses are covered, of course, but Profit First uses a different approach to guarantee your income. 

What is the Profit First methodology?

Mike Michalowicz has developed a system to build your business in a sustainable way.

Profit, taxes and your pay are prioritised, then everything else comes afterwards. Expenses such as rent, material, utilities, etc are usually considered essential, but actually, these can be re-adjusted or even eliminated.

When you focus on seeing profits first, then you adjust the rest of your income to ensure you can hit your targets. 

It requires getting granular with your cashflow, so be prepared to set up multiple bank accounts. You will need ones to cover:

  • Profit – savings account
  • Tax/GST – savings account
  • Owner’s pay – savings account
  • Revenue – transaction account
  • Operating costs (expenses) – transaction account
  • Materials and subcontractors (if applicable) – transaction account

The secret to your success is allocating a percentage of your revenue to each bank account. Use the Profit First accounts to pay your bills and your salary, and consider automating payments as much as possible. 

Why focus on profits in your business?

Everyone wants to make a profit. Many business owners started their business to turn a profit so it makes sense to prioritise that before everything else. It also ensures you have money available at the right times when you need to access it.

One of the common business failures is that they run out of money. Profit has been an afterthought rather than the focus. 

Often businesses don’t actually know how much money they’re making until an accountant or bookkeeper gets involved. It can be as little as once a year when the tax returns are due. Get control of your money with this worldwide renowned money management methodology.

What are the Profit First percentages?

The next step after arranging your bank accounts is breaking down your current spending.

It can be challenging to go through everything in detail but it’s absolutely worth it. You get a complete understanding of what is happening with your business right now.

Once you have the understanding then we can build and ensure you get the profit you deserve. 

Discover where your revenue is being spent with current allocation percentages (CAPS). Then use the target allocation percentages (TAPS) to establish where your money will go in the future. These are the numbers to hit when your business is running at the optimum level. It may take some time to hit these numbers but it’s good to have them and understand now. 

The percentages will be different depending on your:

  • Business structure
  • Current debt 
  • GST (if applicable)
  • Tax applicable
  • Current expenses
  • Current revenue
  • Business and financial goals

Keep in mind that your percentages will likely change over time as your business grows and develops. Businesses evolve, so too will your percentages.

Here is an example table of TAPS. The percentages will change according to your business and your industry but they will be achievable for you. 

Image: Profit First by Mike Michalowicz

Who can help you implement the methodology in your business?

Each business is different and has different needs and requirements.

A Profit First Professional (PFP) is certified in the money management methodology and as such is trained and experienced to ensure it works for your business in the way you need it to.

A PFP will assess your finances and set up the Profit First system for you, ensuring your business will reach peak profitability. 

You can, of course, always DIY the Profit First methodology in your business. See our extensive range of free resources to help you get started.

Let us help you experience Profit First

Book in a free ‘getting to know your business’ strategy call so we can help you grow your business profitability.