Can I really implement Profit First before my business is profitable?
Yep. Absolutely. As a small business owner, you NEED to implement Profit First TO make your business profitable. It will force you to become profitable.
Let me explain.
If you are waiting for your business to become profitable to implement Profit First, it will never become profitable. At least not anytime soon.
When you begin with Profit First, you’ll start off with lower allocations to the other accounts (profit, taxes, etc.), and the bulk of your money will stay in your operations account.
Start with 1%
It’s essential to begin with a profit account. Before you do anything else, set up a dedicated account for profit. Even if it’s just 1% of your revenue, it's crucial to get in the habit of setting aside money for profit. This will help you prove to yourself that you can have a profitable business. Remember in last week’s post when we talked about celebrating the small wins?? This would be one of those small wins to celebrate and help change your mindset.
When any money is deposited into your income account, you’ll transfer 1% into your profit account. The other 99% will go to your operating account.
Once you have done that for a couple of weeks, keep doing it for a couple of months! When you do, you’ll see that, yes, you can run your business on 99%. Then when you are confident with that process, you’ll start allocating some of your income to the other accounts and increasing percentages.
That first win with 1% in your profit account is critical.
When to start Profit First
It’s common when my clients are just starting their business or opening their shop to get overwhelmed about starting Profit First. There are start-up costs, operational expenses, and often unexpected expenses too when starting a business. It’s hard to think of saving for profit when there are so many other bills to pay.
If you take one thing from this post, it’s this: the sooner you start, the sooner you will master financial discipline. It will force your shop and business to run efficiently.
No matter how new or established your business is, you should not wait to implement the Profit First framework.
Profit First and personal finances
When Profit First is working well for your business, you may naturally wonder if you can implement it into your personal finances too. Yep. It works there too.
Most people typically already have a budget in place or use the envelope system. Even if you don’t, you can still use the Profit First framework in your personal finances.
A chapter towards the end of the book titled The Profit First Lifestyle Section shows you how to set it up. Essentially, you’ll have multiple bank accounts, income, and savings accounts (just like you do for your business). You’ll set up your recurring payments from a specific account and move a percentage of your income into savings each paycheck.
The Profit First system translates well into your personal life, and you’ll be able to see exactly where you’re spending your money and how much you need to be saving.
What percentages should I allocate?
If you need help figuring out what percentages need to go to each account, let’s talk. It’s probably easier to implement than you think.
Most importantly, though, you need to stick with the framework. Even when things get a little sticky, a little hairy, or a little more complicated, that is your business telling you that you can’t afford the expenses you currently have. It opens up the big picture to what you’re doing that’s working and isn’t.