As you all probably know by now, I am a Profit First Professional. This means I take great pride in helping businesses grow profitably. Now, if you’re a business owner, you’re probably thinking: That sounds great to me, but what exactly does it mean? 

I’m here to give you the inside scoop on the Profit First methodology and how you can implement it in your business. 

An Explanation of Profit First 

Profit First makes profit the top priority for businesses instead of the traditional revenue-focused approach.

The commonly utilized formula for business finances, the GAAP (generally accepted accounting principles), dictates that Sales – Expenses = Profit. Seems simple, right? Unfortunately, GAAP doesn’t take human behaviour into account. The math checks out, sure, but it also dictates that Profit is taken last. This means profit takes a backseat to expenses and you, as the owner, are left hoping you get any piece of the pie at all. 

Profit First flips the formula. Sales – profit = expenses. This way, businesses can prioritize and optimize their profit margin from the beginning instead of leaving it for down the line. 

Why Does Profit First Work? 

You may be thinking to yourself, “If I’m working with the same numbers, surely just flipping the formula won’t make me more profitable.” Well, the beauty of Profit First is that it’s based on your behaviours and mindset. 

With Profit First, you’re thinking about your business’s profit in a different way. You don’t get stuck in the cycle of making a sale, paying all your expenses, and having little to nothing left over for profit. Instead, you get in the habit of assigning a purpose to every nickel and dime coming in, making your finances more intentional and smooth. 

With Profit First, you’re making more out of each sale. 

The Benefits of Profit First  

Let’s talk about some of the top reasons you should consider implementing Profit First in your business: 

  • It’s relatively simple and quick to implement (stay tuned for the simple 4-step implementation below). 
  • It encourages a mindset shift that prioritizes profit over revenue. 
  • It gives you the information you need to set profit margins on your products and services. 
  • It helps you plan for your business’s bright future! With Profit First, you’re always setting a little aside for profit (even if it’s just a few dollars). This discipline will absolutely pay off for when it’s time to think about growth or change! 
  • It keeps your finances clean and clear. Your system is honed, explicable, and easy to maintain. 

Implementing Profit First 

Now let’s get Profit First into your business! 

  • Outline your profit margin. What percentage of your revenue are you going to allocate to profit? It’s generally best practice to aim for about 5% profit, depending on your business type and goals. Now, if you’re looking at 5% and it seems like the biggest number in the world to you right now, it may be time to make some adjustments to your business budget. 
  • Open your Profit First accounts! I’d generally recommend starting with five main accounts: a checking account, a profit account, an expenses account, an owner’s pay account, and a savings account for business taxes. You can also choose your own adventure here a bit with something like an emergency fund or payroll account. 
  • Divide your revenue into each account. You’ve made a sale — great! Now it’s time to divvy it up among your handy Profit First accounts. Allocate your predetermined profit percentage into the profit account, then determine what percentage should go to each other account (this should stay consistent, but can shift a little as you perfect the system). 
  • Ensure expenses are paid from the correct accounts. If you have a payroll account, use it for payroll, and payroll only. This keeps your profit untouched, your finances clearly outlined, and gives you major insights into the story your numbers are telling. 

Profit First is a steady habit that’s built with time and discipline. The simple implementation brings immediate upsides, but the true benefits come from a commitment to the process. Those small profit deposits from each sale you make will add up. You’ll learn what products/services to charge more for to ensure your profit margins are being maintained. Sustainable growth will become a real possibility. And, best of all, you’ll be making a healthy living from the business you’ve put your blood, sweat, and tears into! 

If you think it’s time to give Profit First a try, feel free to reach out with any questions! I’m so excited to see your business flourish!