Get Paid, Pay Off Debts, and Grow Profits using Profit First
Profit First is a revolutionary new system of money management for businesses. The concept behind it is a little bit mind-blowing but should be music to any business owner’s ears – you pay yourself first!
Using the Profit First approach to money management you can get paid and grow your profits as well.
Profit First was developed by Mike Michalowicz and is a relatively new system of bank balance accounting and money management but is quickly gaining results and, with it, supporters. He outlines this process in his book, Profit First: Transform Your Business from a Cash-Eating Monster to a Money-Making Machine.
For the basics of what Profit First is about, download my beginners guide here.
How can Profit First help small business?
With the surge of entrepreneurs and start-ups trying to make their own way in business, the Profit First system fits perfectly with an entrepreneurial way of thinking.
Start-ups can often fail because although they have innovative ideas, they use dated methods of accounting and have no idea about managing their money in a way that benefits the business long-term.
The way of doing business today is anything but conventional, and an age-old way of doing the maths doesn’t really apply.
The conventional way that a business manages its money is:
Revenue – Expenses = Profit
Profit First, as you might be able to guess, turns this equation around a little:
Revenue – Profit = Expenses
Profit First is an established system, not just an idea.
Using the Profit First methodology, you take your own wage and put aside money to grow the business, before you allocate funds to expenses.
This cash management system ensures that the business owner is always paid, no matter how small the income may be. It also gives business owners solid spending boundaries and ensures debts are taken care of before adding more expenses or cutting owner’s pay to pay bills.
After all, we don’t go into business to not get paid!!
Well, all of that sounds pretty awesome, but how is it possible?
In the Profit First system, you pay the owner’s wage, profit and taxes first using set percentages of the total revenue gained. The remainder is allocated to expenses.
If your expenses do not fit into the allocated expenses budget, you will need to focus on aggressively reducing the expenses to operate within your means. A Certified Profit First Professional can help you do that, find one near you here.
Working with me as your money mentor (or any Profit First Professional), you can learn strategies for growing profits and reducing expenses. Even expenses you thought of as fixed can be reduced.
We have a natural tendency to use all of the money available to cover our business expenses and keep the business running. Therefore, if we know exactly how much money is available to pay our bills we will, by necessity, learn how to run our business within the allocated budgets.
Profit First forces you to manage your debts efficiently, develop efficient operating processes, and make informed decisions that will grow your business.
It does take some adjustment and a good dose of discipline, but I guarantee it works.
A change in mindset
Money brings many a business owner constant waves of stress – regardless of income level!
Many small businesses have no idea how much revenue they will have made at the end of the financial year. They just live invoice to invoice. This is not an efficient way of making your business’ cash flow work; at the end of the year, you will have spent everything and be left wondering where all of that money went…
By implementing Profit First money stress is reduced because you are getting paid every month, debt bills are managed, and you have enough cash to pay tax and GST on time, every time. PLUS you are growing your business and your profits! What’s not to love about that?!
Profit First can involve difficult decisions to cut costs, but it also puts practical solutions at the forefront of your mind, rather than just worrying about the basic survival or functioning of your business.
It has some similarities to the Barefoot Investor’s way of thinking if you are familiar with Scott Pape’s work. You don’t spend money growing the business or buying the things you want to make your business broader. You cut your costs first, pay debts and your tax, and build your profits in the bank.
The growing evidence…
If you read online reviews and testimonials for the Profit First approach to money management, the evidence is growing that it really does work.
Small businesses who have waded into shallow cash-flow waters through mismanagement are finding they can pull their business back from the brink of collapse easily, and successfully thrive as they move forward with this system.
Whether you are just starting out in business, or you are looking for an easy to follow and implement money management approach that helps you grow your business, you can definitely benefit from Profit First.
Profit First can benefit the growth of your business from DAY ONE!
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