The Profit First model is a new way of managing cash flow that will bring more money into your business, help you permanently eliminate debt and open up new revenue streams. You may know that it’s time for a change in the way you do things. Don’t let those who say “that’s the way we’ve always done things” stand in your way of trying this amazing system to boost profits, reduce expenses and keep you in the black.
Most businesses currently operate on a model where profit is the bottom line. They deduct expenses from sales revenue and whatever is left, that’s what you make. And whatever cash is “leftover” after all your vendors and employees are paid, is what you – the entrepreneur – is paid. If you use this formula, it’s easy to get stuck in a rut of meager profits, growing expenses and quite possibly, entrepreneur poverty.
As a Profit First certified firm, we are required to use the methodology in our own company and the results have been life-changing. This is why we are such big proponents of this system.
What is Profit First?
Mike Michalowicz, author of “Profit First” came up with a different way of doing things. He came up with a cash management system based on Parkinson’s Law. This is a concept that was first propounded by Cyril Parkinson in an article he wrote in The Economist in 1955. By observing human behavior, he noticed that “work expands to fill the time available for its completion.” Another way of putting it is the time you have to do something, that’s how long it will take to do. Using this model, Michalowicz created a new concept where a predetermined percentage of profits is taken from every sale first – to pay you, the founder and entrepreneur – and only the remainder is available for expenses. If you know that you only have a certain amount to spend, you will adjust your habits to reflect that amount.
Benefits of the Profit First Methodology for Your Business
Putting this to use for your business can bring many benefits.
- Keep in mind that the mission of Profit First and Mike Michalowicz is to eradicate entrepreneurial poverty! Therefore, the primary benefit of implementing this system is to ensure that the owner receives a steady paycheck.
- It keeps a steady ongoing focus on controlling expenses. If you can control your expenses, the primary focus of the business does not have to be on sales. Rather, you can create and maintain a business that serves your goals rather than having to constantly “feed sales” to cover your increasing expenses.
- You can also ensure steady debt reduction. For example, once you have created and started target allocations into your profit account, after the first quarter you will do a distribution of 50% of the profit deposits. If you have debt, 90% of that will go towards repayment. If you continue this quarterly and do not acquire new debt, your loans will be paid off in no time.
- Another benefit of this system is flexibility. Things change and new expenses can present themselves out of the blue. With Profit First, you can slightly adjust your allocations and create a new plan while still moving towards your goal.
It truly is all up to you and what you want to derive from your business!
If you are a business owner looking for an accountant, bookkeeper or business coach, finding one who utilizes the Profit First Method is likely one of the easiest things you can do to start maximizing the profitability of your business. Your Profit First Professionals at Williamson Advisors can also assist you in tax preparation and planning, general business consulting, evaluating your current systems for effectiveness and efficiency and strategic business and succession planning. While there are other companies out there who can do that, Williamson Advisors is one of the select few firms nationwide that have received certification in Profit First and can guide you to greatly increase the profitability of your business.
The Profit First model is a revolutionary way of conducting business. If you have the discipline and foresight to enact this method, you will see your business grow in a sustainable way that creates long-term success. Before you know it, you will have a strategy in place and see growing margins and reduced expenses. “That’s the way we’ve always done it” will turn into “Why haven’t we been doing this all along?!”