Do you find that your business is “staying afloat”? Is your business always covering its expenses but with little to no profit left over?

You’re not alone. A US-based survey found that 30% of small businesses break even. Another 30% are running a loss.

Perhaps your business is stuck in a rut. Or, perhaps you have trouble growing the company since there are hardly any earnings to reinvest. No matter the case, a little innovation is often all that’s needed to go from staying afloat to becoming profitable!

One way to innovate is by changing up the way you handle your business’ finances. There are many great business strategies out there. However, there is one called Profit First that has become quickly popular!

What Is The Profit First Method?

Profit First is a cash flow management system that companies of any size can put in place. The most well-known accounting formula is profit = sales – expenses. The Profit First Method uses a rearranged version, where sales – profit = expenses.

The formulas are equal, but the takeaways are far different. The traditional formula has your company earning what is left over after paying expenses. Profit First uses the second formula. Here your business pays expenses with what is left after taking profits.

Profit First allows your business to earn a fixed profit margin. It also encourages innovation to meet all expenses with the remaining money.

Profit First works great for entrepreneurs, freelancers, and small business owners. These are the people who often find themselves doing “bank balance accounting”. Bank balance accounting is when business decisions are made based on bank account balances.

Many people resort to bank balance accounting. This is because they find themselves too busy to update their financial statements. Profit First allows you to keep doing bank balance accounting, as long as you’re taking the profit first and spending the rest. 

Mike Michalowicz is the mastermind behind the Profit First system. He is a renowned author on business and entrepreneurship. In fact, he wrote a book on the system that has sold over 250,000 copies to date!

Making Your Business Focus on Profit First

Your business can put Profit First by allocating money towards profit BEFORE spending on expenses. This is done in two parts. First, there are different bank accounts for everything. This includes profit, income, operating expenses, tax liabilities, and more. Income is allocated into these other accounts on a regular basis based on your “Allocation Percentages”. These percentages are determined by you and include your desired profit margin. Of course, there is more to it than that, but that is the gist of it.

If the Profit First system sounds like something that can help your business, you can consult a Profit First Professional to help. Profit First Professionals include accountants, bookkeepers, and business coaches. They all are experienced and are experts on the Profit First Method. They can help in both the initial setup and ongoing use of the Profit First method.

Jillian Verdun is a certified Profit First Professional. Jillian has the knowledge and expertise to help your company become consistently profitable. To read more about Profit First Professionals as well as the Profit First Method, click here.

Are you looking to make your business focus on profit first? Let’s talk!