If you’re running a business, you probably like profit. Who doesn’t? Profit keeps the lights on and pays the bills. But saying the words “Profit First accounting” can seem both a little greedy — think Scrooge McDuck — and a little obvious. Don’t most businesses inherently put Profit First, anyhow?
Given that only 40% of small businesses are profitable (and another 30% only break even), you might be surprised.
Profit First accounting is neither greedy nor something that comes naturally to a lot of business owners. It might seem more logical to put your expenses first — after all, if you can’t keep the lights on, you can’t keep the door open. But if you neglect making profit and think of it as a nice surprise, your business will struggle. Putting Profit First is the key to a sustainable business.
What is Profit First accounting, anyway?
Profit First accounting helps business owners get more clarity and control over how they earn and spend money. Like the (slightly old-fashioned, these days) practice of putting cash into envelopes for specific expenses or to save money for a special occasion,
We believe the Profit First method is right for new business owners who want to establish a sound financial framework — one that focuses on Profit First and business sustainability.
The approach is also great for owners of established businesses who want to tighten up financial practices and become more profitable.
The four principles of Profit First accounting
Here are the four principles that underlie the Profit First method:
- Use multiple bank accounts.
- Pay yourself first (that’s the profit part), then fund everything else.
- Transfer money into the four bank accounts twice a month.
- Reap the rewards for giving every dollar a home.
Learn more about each principle. When you give every dollar a home like this, it’s a powerful step toward better cash flow management and a more profitable business.
Learn the Profit First accounting system
The first step in putting profit first into motion is, of course, figuring out what’s what. Here are some ways to learn Profit First accounting:
- Read my Why I’m All About Putting Profit First article.
- Download this Profit First Overview PDF.
- Watch this business success story on YouTube. (You’ll find others online, too.)
- Read the first two chapters of Profit First for free, or buy the book.
- Check out my new Profit First for Creatives community.
Set up your infrastructure
Once you’re familiar with how the system works, you’ll need to set up the infrastructure to support yourself (and/or your bookkeeper) so that you can reliably put profit first in the long term:
- Set up the five bank accounts
- Talk to your bookkeeper and create a plan, if needed
- Set reminders to follow up regularly
Reminders are a vital part of maintaining any accounting system by yourself. For profit first, you’ll need biweekly reminders to check in. Whether that’s a calendar reminder, a recurring reminder set on your phone, or a repeating Outlook calendar appointment, figure out the tech that works for you and stick with it.
Live the Profit First lifestyle
Though Profit First accounting isn’t particularly complex, it does require upkeep, and that can look intimidating from here. The good news is that Profit First is easy to incorporate into your business and life in small chunks. Remember that any progress is still progress! Your goal should be to avoid burnout while still making incremental progress on incorporating Profit First accounting.
Here’s an overview of what checking in with your books while putting Profit First looks like over time:
Daily:
- Be mindful of business expenses. Ask yourself.. can you get same quality for less?
- Know the difference between an expense and an investment (hint: it’s all about the return on the investment)
Weekly:
- Increase your knowledge of profit first with a small piece of reading or training.
- Make a money date with yourself to keep on top of your tasks. Make it as pleasant as possible (music, beverage, scented candle). If you schedule weekly you can miss one without getting too behind and keep the task small.
Biweekly:
- Move money from your Income account into your other accounts.
- If you don’t do your own books, check on them to ensure profit first is being maintained.
Overwhelmed? You’re not alone.
We regularly help our clients put Profit First, and incorporate the Profit First accounting method into everything we do. Schedule a complimentary call with me, where we’ll talk more about putting Profit First.