8 Ways to Do Profit First Right
Like most entrepreneurs who pick up Mike Michalowicz’s Profit First, you probably started out excited to grow your business and increase your profits.
But if you’re like most people, you struggle putting the practices into effect.
Profit First is a great system. But it can be a challenge to implement on your own.
The last you want to do is read the book and end up right back where you started — riding the feast and famine cycle of business income and trying to stay in the black so you can continue to do what you love.
If you really want to transform your finances and take home more pay, you have to do Profit First right.
Here are 8 tips to help you get the results you’re looking for:
- Take it SLOW
- Get Accounting/Bookkeeping Out of Your Head
- Leave Your Assessment Behind
- Open a Reserve Vault Account
- Understand Owners Comp
- Do Quarterly Expense Analysis
- NEVER Take Shortcuts
- Work with a Certified Advanced Profit First Professional
1. Take It SLOW
Most businesspeople want to see results fast.
They’re so excited about the idea of finally having a handle on their finances and increasing profit, they want to race to the end goal.
I know it’s exciting, but profit is a process, not an event.
It takes time. There are no get-rich-quick hacks here.
And that’s a good thing because it means your results will last.
Think of it like exercise. There’s no magic pill you can take to build muscle overnight. If you want to get healthy, you make smart decisions that transform your lifestyle over time. Sure, it takes a little longer. But it works! And it gives you results you can enjoy for years to come.
The same thing is true if you want to do Profit First right. Don’t rush it.
At Profit Max Professionals, most of the businesses we work with take about a year and a half to become fiscally healthy. While they do see quick wins along the way, the real success is in setting their business up to be profitable for the long haul.
2. Get Accounting and Bookkeeping Out of Your Head
Most people shudder when they think about their finances.
That’s because they’re thinking of traditional accounting and bookkeeping. And they find all the confusing spreadsheets and formulas off-putting.
But if you want to do Profit First right, it’s important to know it is something very different.
Profit First is a cash flow methodology. Its system doesn’t weigh you down with numbers and unnecessary calculations. It organizes your cash flow so you’re free to make more money.
Profit First makes sure a business has the right amount of money, in the right place, at the right time, for the benefit of the owner. This is a mindset shift, one that allows you to enjoy business and make a profit.
3. Leave the Initial Assessment Behind You
The initial assessment lets you know where to start. It helps you set realistic goals so that afterward, you move forward.
Keep where you were in the rearview. Focus on practicing the Profit First methodology and increasing your cash flow.
If you want to change things, you have to focus on where you’re going, not where you started.
4. Open a Reserve Vault Account
To do Profit First right, you’ll want to open a reserve vault account.
Sounds fancy, right? But really a reserve vault account is just an account to supplement your operating expenses.
This is important to keep your business in good fiscal health. You want to have at least 90 days of operating expenses in this account. That way, when the bumps of business come, you won’t have to panic or close your doors.
5. Understand Owners Compensation
I see most businesses make one of two common mistakes.
- The owner drastically underpays themselves, making the business unfulfilling and stressful
- They drastically overpay themselves, starving the business into financial ruin.
To set realistic goals, you need to understand how much money it’ll take to maintain your current lifestyle. Know how much it takes to pay the mortgage, keep food on the table and enjoy vacations.
Once you understand how you need to be compensated, you can make sure both you and your business are making enough to thrive.
6. Do Quarterly Expense Analysis
Quarterly expense analysis might not be the reason you get out of bed in the morning, but it’s important if you want to do Profit First right.
Doing a quarterly expense analysis helps change your behavior and mindset around your cash flow.
It tells you where money is being spent and what benefit or return you are getting for that money. With this knowledge in hand, you can decide where to spend money and where to cut back.
7. Never Take Shortcuts
As you read through Profit First, it might be tempting to take shortcuts. But I’d strongly advise against it.
The Profit First method isn’t about blindly moving money around or finding the fastest way to your goal.
It’s a system that modifies your behavior and changes your mindset and relationship with money.
Do Profit First right and you’ll always know how and where cash is flowing through your business.
To really change your behavior, it’s important to stick with the whole system. Keeping to the path will only increase your chances of success.
8. Work with a Certified Advanced Profit First Professional
If you really want to do Profit First right, you might want a little help.
Working with a Certified Advanced Profit First Professional allows you to:
- Know your initial assessment is accurate
- Create a realistic roll out plan
- Make sure your allocations are timely
- Get advice when you need to problem solve
- Increase your chances of success