Do you find managing your business finances overwhelming? You’re not alone. Many business owners struggle with cash flow, worry about covering expenses, and feel frustrated when there’s little to no profit left at the end of the month. But what if there was a way to ensure profitability from the start? You can with Profit First!
The Profit First system is a game-changer—it shifts the way you manage money by making PROFIT A PRIORITY rather than an afterthought. By restructuring how you manage your money, Profit First puts you in control and helps you confidently build a sustainable and profitable business.
What is Profit First?
Profit First is a cash management system developed by Mike Michalowicz that prioritizes profit from day one.
Instead of the traditional accounting formula: Revenue – Expenses = Profit
Profit First introduces a new approach: Revenue – Profit = Expenses
Allocating profit first ensures you operate within you means while consistently growing the financial health of your business.
How does Profit First Work?
The system is built on a simple yet effective principle: allocate percentages of your revenue to different accounts so that you always have money for profit, taxes, and owner’s pay before covering expenses. Here’s how to get started:
Set Up Five Core Bank Accounts
- Income Account – All revenue is deposited here before allocation.
- Profit Account – A percentage of revenue is set aside as profit.
- Owner’s Pay Account – Ensures the business owner gets paid fairly.
- Tax Account – Covers tax obligations, eliminating last-minute scrambling.
- Operating Expenses Account – Used to pay business expenses.
Allocate Your Revenue. Each time you receive income, allocate predetermined percentages to each account. The allocation percentages will vary according to your revenue – the following percentages are based on revenue between $0 – $250K:
- Profit: 5%
- Owner’s Pay: 50%
- Taxes: 15%
- Operating Expenses: 30%
You can adjust these percentages based on your business needs and, if you are not ready to jump right in, you can start off by just putting 1% of your revenue aside into the profit account.
Cut Unnecessary Expenses. Since your expenses are limited by what’s left after allocating profit, tax owner’s pay, you’ll naturally evaluate and cut unnecessary costs, making your business more efficient.
Distribute Profits Quarterly. Every quarter, take 50% of your Profit Account as a reward for your hard work. You can also use this to inject extra cash into growing your business, paying yourself more or paying down debt faster.
How can Profit First Transforms Your Business?
Ensures Profitability from Day One: You no longer wait until the end of the financial year to see if there’s anything left over. Profit becomes a regular and expected part of your financial system.
Provides Financial Clarity: With dedicated accounts for each financial category, you always know where your money is going.
Reduces Financial Stress: No more struggling to cover taxes or pay yourself last. You operate with confidence, knowing your finances are structured for sustainability.
Encourages Smart Spending: By limiting available funds for expenses, you make more intentional financial decisions and avoid unnecessary costs.
Helps You Build a Cash Reserve: The Profit Account becomes a cushion, providing financial security during slower months.
Profit First isn’t just an accounting system—it’s a financial mindset shift. By prioritizing profit and structuring your finances strategically, you can create a business that is both financially healthy and sustainable. Implementing Profit First means breaking free from the cycle of feast-and-famine finances and embracing a future where your business consistently generates profit and stability.
If it’s time to take control of your business finances and work towards your own financial freedom, start applying Profit First today – even if it’s just setting aside 1% into your profit account. Small steps lead to big transformations.
If you would like some support set up Profit First in your business book in a time to have a chat – I’m here to help.