The answer? Reserve your decision making powers for the important things and use systems and routines to eliminate small, daily choices.
Profit First is a system for cash management that I recommend for business owners to improve financial decision-making and increase profits.
I first read the book Profit First more than two years ago. While I was immediately interested, I took some time experimenting before I embraced the system. As a New Yorker, I’m naturally skeptical of anything that comes wrapped in bows and looks like its too good to be true. But honestly, Profit First is a great tool with enough structure to help anyone learn to manage better and enough flexibility to work in any industry.
The typical accounting equation that everyone knows and uses looks like this:
Revenue - Expenses = Profit
Think about that for a moment. If a business follows this equation it deposits revenue in a bank account, writes checks for expenses, and hopes for profit at the end of the month. As a behavior pattern, this leads many business owners to spend whatever cash is in their bank leaving little, if anything, for profit.
In Profit First Mike Michaelowicz reverses that logic and creates a new behavior and systems to support it.
Last year I heard that Mike Michaelowicz had started a membership organization called Profit First Professionals; I took the dive and signed on. Profit First Professionals trains and certifies bookkeepers, accountants and coaches to help businesses fully utilize the power of Profit First.
Of course, the first rule for all members is that before we can be certified, we have to implement Profit First in our own business. I started full implementation in March 2015. By the end of 2015 my top line revenue had more than doubled; I was paying myself a salary, I had cash ready to pay taxes and I had profit. Now I'm a mastery level Profit First Professional. This means I'm part of a well-trained network of bookkeepers, accountants and coaches using Profit First to help companies improve profits and cash flow. Together, we have over 1,000 success stories.
My best personal experience implementing Profit First is with a yoga/wellness studio that suffered loses throughout 2015. Towards the end of the year they asked me to help them get back to even ground. They didn’t feel ready to begin with Profit First so I worked with the owners on pricing and sales strategy. In January the company implemented Profit First. In April (3 months later) each owner received a profit distribution and they paid off $2,000 in debt.
When I first tried using Profit First in my own business, I made some classic mistakes. I tried to use the theory without actually opening any new bank accounts. I put my allocation percentages into a spreadsheet and expected to find the money in the bank at the end of the month. That didn’t work.
And the reason it didn’t work? Profit First isn’t a theory or a principle. Its a cash management system based on human behavior. For it to work, you have to change your processes and behaviors.
Remove temptation by putting your profits safely away before you start making choices about purchases and bill payments and decision fatigue never touches your profits.
The Profit First system requires simple and effective changes. Follow it and you will be in the top 1% of all business owners in the country: the businesses who take profit regularly and have funds available to invest in further growth.
Sounds good? Check out my newly launched Profit Boost Lab program. In June I'll start working intensively with a small group of business owners eager to implement Profit First and achieve outstanding growth.
Remember: with Profit First you can be profitable with your next deposit.