3 Ways Profit First is Good For You And Your Business’ Health
You’ve started your business and are reaping the rewards! Are you sure you’re maximizing the value of your business’ bottom line? For both your personal bank accounts and personal health? If you’re following traditional wisdom regarding your bottom line, you may be leaving money on the table while simultaneously setting yourself up for future stress.
Not only is this harmful to your business, but doesn’t it go against the personal purpose for your business? If you started a business to spend more time with your family, ease the financial burden, or help people, putting more stress on yourself is going to be counterproductive. It is time to get empowered and inspired!
What do we mean by maximizing your bottom line? Often, business owners are left with little to no residual cash after paying operating expenses, leaving them feeling undervalued. This creates stress that affects their mental and physical health.
It’s essential to change the mindset from one of “I’ll pay myself whatever’s leftover” to “I’ll take care of myself first, then pay expenses”. This mindset, commonly called Profit First (based on a book of the same name by Mike Michalowicz, link below), flips the traditional business equation on its head, providing a source of reliable income while providing peace of mind.
What is Profit First?
Before we discuss the benefits of this mindset, let’s first talk about how to shift your thinking. The commonly held equation in business goes something like this:
Sales – Expenses = Profits
Instead, a Profit First mindset flips that equation, signifying the importance of profits:
Sales – Profits = Expenses
This may seem like the same equation, but in reality, embracing this mindset ensures a steady source of income and forces you to act responsibly with the remaining amount of funds. This mindset also provides insight into whether an expense is truly necessary.
If you’re required to act frugally with the remaining funds, you’re much less likely to splurge on non-essential expenses.
There are various resources available to help structure your transition to the Profit First mindset, but the basics involve opening multiple bank accounts that serve specific purposes. Generally these accounts include:
- Your Income
- Owners’ Compensation
The percentages designated to each of these accounts vary, but the gist is that funds flow regularly through these accounts. Once the funds are allocated to their correct accounts, they remain there until the time comes for their intended use. This method is clearly regimented, but it provides a structure that creates security over the long run.
As mentioned, putting Profit First in your business can provide you with a reliable source of income, but it can also have a major impact on the way you feel mentally and emotionally. Here are three ways that putting Profit First can benefit both you and your business:
Profit First creates peace of mind.
This is arguably the most important benefit of Profit First. Because you are consciously setting aside funds to pay yourself, you won’t have to stress about how to pay your personal bills when they come due. Any entrepreneur out there will tell you, there is nothing more empowering!
Far too often, owners pay all the business expenses and are left with little to no cash to pay themselves, creating personal headaches that stem from their business. Instead, your burden will be lightened due to having cash stashed away. This occurs frequently, eliminating the possibility of feeling like you’re on a personal cash hamster wheel.
Profit First plans for the future.
After opening your specific bank accounts, you’ll notice that from a cash perspective, areas like income tax that previously induced stress no longer will. This is what happens when you have a plan.
Not only does it aid in preparing you for future events, but it also frees your mind to think higher-level, since the mundane is handled by these bank accounts. This feature allows you to dream big, taking the planning process for both your business and you to new heights.
Profit First can also be manipulated to align more closely with future personal or professional goals, which creates flexibility. Regardless, from a cash standpoint, your financial future will come into focus when utilizing this method.
Profit First sets the budget, both personally and professionally.
One unique aspect of this plan is that you can utilize the same playbook on your personal expenses. This system would allow you to build a personal rainy-day fund in a way that some other budgetary plans may not; since your budget is governed by Profit First, another source of stress falls away.
As demonstrated, this mindset can empower and inspire you both professionally and personally, allowing you to reach your financial goals in a structured manner. Having a sound plan is key in both areas of life, and Profit First is rock solid. It may be called Profit First, but in reality, this program indirectly puts your personal and professional well-being first.
If you would like to begin implementing Profit First but don’t know where to begin, reach out and we can help get you started.