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Profit First is a business mentality as much as it is an accounting method introduced by author Mike Michalowicz in his book Profit First. Profit First revolutionizes the concept of modern accounting, essentially proposing to reverse the order in which funds get allocated in a business.
The general concept behind the Profit First system is that business owners should pay themselves and allocate profits first and let what remains to dictate how much they can spend on operating expenses.
There is a bit more to the Profit First system, which is why we recommend reading Profit First before you dive in. You can buy a copy here HERE, if you are interested.
Yes, Profit First does work! It works by guiding you through changing your mindset and teaching you a different perspective on your finances. Profit is the priority and not a leftover or cashless (just a line on a report called profit). Through Profit First, you learn to budget your expenses more carefully.
If you want to increase your profits and manage your finances, better Profit First is 100% worth the effort.
The 5 basic Profit First accounts include:
Income account – this is where you receive your payments. All cash enters here.
Profit account – this account holds your profit and only profit!
Tax account – this account holds funds to ensure your taxes are paid on time every time.
Owner’s pay account – you deserve to be paid properly for your hard work. This account holds your pay, ensuring you get paid first instead of last.
Operating costs account – this account is for your operating expenses. It is now your leftover account instead of your profit account.
It’s never too late but the earlier, the better. It is never too late to start, but implementing this system in the early stages of your business will help with the perspective change on profits and expenses.
Profit First method works for all businesses, regardless of what industry.
We would love to help you implement the Profit First system. Let’s meet for an Alignment Assessment and determine what works best for your business.