Profit First: We're in the business of making money

This month's meet-up topic was Profit First. We talked about Money, how we felt about it, and why it's important to pay attention to your numbers. "Profit First Philosophy'. Profit First? It's all about changing the way we think about money in our business.

A reframe if you like.

We've always been told that profits come after you've covered all your expenses, right? That’s normal yeah? Revenue – Expenses = Profit. But what this guy teaches us is that it needs to flip. And the number we need to pay attention to is expenses. Sales – Profits = Expenses

When you make profit a priority from the get-go. It's like saying, "Hey, profit, you're important, and we're going to ensure you're taken care of." And what’s taken care of grows!

The money nerd in me likes this approach because we can see where our money is going, whether it’s being spent on the right things, and where those money leaks are going. Multiple Accounts for different purposes, kind of like having different jars for different savings goals. Bit like the barefoot investor but for business. - Profit Account - GST/Tax - Pay - Operating Costs - Materials/Subcontractors - Revenue

Personally, I have four – operating, tax/GST, pay account, + a hold account (rainy day).

The theory is, you set up Automatic Allocations: So every time money comes in/out it's allocated to the right pots of money. You decide the percentages. But to do so, you need to know your numbers. - the cost of doing business - the cost of producing goods - admin costs - marketing costs - cost of getting clients etc. And it means you get paid. No more of the we leave all the money in the business. You get paid from day 1. No more stress at tax time because the money is already there. But also, you can take what you like from the book and make it work for you.

Ultimately, Profit First isn't just about making more money; it's about creating financial peace of mind and feeling good about your money. When you know your profit is taken care of, it's a game-changer.

With this approach, we're not just chasing income; we're building a sustainable, profitable business that stands the test of time.

Group Consensus: Business is more than profit, it's about enjoying what you do, using your money for good and giving back.

I asked Chat GPT to give me a book summary: Here's what they said we needed to know; 1. Shift in Perspective: Profit First flips the traditional business equation. Instead of calculating profits as sales minus expenses (SALES – EXPENSES = PROFITS), it focuses on calculating expenses differently (SALES – PROFITS = EXPENSES). 2. Putting Profit First: The core idea is to prioritize profit by allocating a portion of your income to profit before paying expenses. This change in perspective is crucial for sustaining cash flow, increasing income, and building profits. 3. Multiple Bank Accounts: Profit First recommends creating several bank accounts, each serving a specific financial function of your business. These typically include Profit, Tax/GST, Owner's Pay, Revenue, Operating Costs, and Materials & Subcontractors (if applicable). 4. Automatic Allocations: Once you have these accounts, set up automatic allocations where a percentage of your income is distributed into each account. This automation ensures that you consistently fund your profit, taxes, and other essential aspects of your business. 5. Percentage Allocations: The specific percentages you allocate to each account are critical. While general guidelines suggest percentages like 5% for Profit, 15% for Tax, 50% for Owner's Pay, and 30% for Operating Costs/Materials & Subcontractors, your business's unique factors will influence these percentages. 6. Sustainable Income and Profit: Profit First promotes sustainable income and profit by managing key financial aspects, including revenue, pricing, and expenses. Regular allocations to designated accounts help you pay off debts, pay yourself as the owner, control expenses, account for taxes, and save profits. 7. Customization and Growth: Profit First acknowledges that each business is unique. As your business evolves, your percentage allocations may change to fit your structure, debt, taxes, expenses, and financial goals. The key is to start slowly and adjust over time.