Now you understand why it’s so important to make a profit, I want to introduce you to a game-changer when it comes to implementing a system for making a profit.
And that game-changer is the Profit First method created by Mike Michalowicz.
Profit First is unlike the traditional method of business that we all know. It is a behavioural-based system that allows entrepreneurs to become profitable based on natural existing behaviours.
The general accepted accounting practice formula encourages us to believe that:
Sound familiar? Like many entrepreneurs, your focus will be on maximising sales. When you increase your revenue it gives you the perception that more cash is available so you will spend it. You will likely make key financial business decisions by checking in on your bank account, looking over the balance that you have, and deciding from there. But pleeeeease listen, looking at just your bank balance doesn’t give a true reflection of where your business is at.
This is based on a theory called Parkinsons Law. Essentially, whatever tasks you have to do, you will expand your time to fit that task. For example, if you have 1 month to complete a client report, you’ll take that month but if you only have 1 week to complete that client report you’ll get it done within that week. This theory is what we are applying to our business money mindset to frame the Profit First method.
What’s wrong with putting profit at the end of the equation? Surely it’s okay to “spend” what you have leftover. You’ve earned it right?
The issue with this comes when we are faced with a time when revenues decrease.
No matter how successful your business is, the market dips, seasonal trends fluctuate or even a global pandemic hits out of the blue, these will affect your revenues but your behaviors don’t change. Many businesses continue to have the same expenses, even when revenue decreases. This results in drastic cost cutting exercises or at the very worst, insolvency.
With the Profit First method, it teaches us to flip to the traditional way of calculating profit to:
Profit First will teach you the “pay yourself first” method and the “envelope” system for allocating money and setting budgets.
One of the reasons I love it so much is that it gives peace of mind. I have peace of mind knowing that money is allocated to tax savings, knowing what I have available for business expenses, knowing I have the money to pay my staff each week. It all gets allocated to its own little pot or “envelope’ if you like. I also love that it’s behavioral led. It encourages the natural behaviors of an entrepreneur and not accountants ( even though I am both 😉).
You may have already read the Profit First book, if not I highly recommend it. I would encourage you to apply these principles as early on into your business journey but if you are already established, don’t worry. It’s never too late for a money makeover.
I have a FREE download available to get you started with the Profit First method. You can download it here :
Until next time, stay safe, high vibes.
Jo ❤️ xx