We’re diving into the world of Profit First, a revolutionary approach to managing your money as a business owner. Here at Matterhorn we are certified Profit First professionals, trained directly by Mike Michalowicz, the author of the book “Profit First,” and his team.
Today, we’re here to share our insights on how to get started with Profit First and tackle the common challenges business owners face. This system can be a game-changer, but it can also seem overwhelming initially. So, let’s break it down and help you take your first steps toward financial success.
Start Small and Build Momentum
One of the most common pitfalls we’ve seen business owners fall into is the desire for instant gratification. They want that 10% profit from the get-go and dive in headfirst, only to find themselves struggling to pay their bills. It’s a recipe for disappointment and eventual abandonment of the system. So, where do you start? Begin with baby steps.
Our advice is to create two savings accounts in the same bank. Then, at least twice a month, allocate 1% of your collected revenue into a profit account and 1% into a tax account. It might not seem like much, even if it’s just $10 or $100, but it’s a start. This slow and steady approach will help you grasp the system’s fundamentals without overwhelming yourself. It’s about getting used to seeing those accounts grow over time, no matter how modest the beginnings.
Protect Your Profit and Tax Accounts
Once you’ve set up your profit and tax accounts, the next crucial step is to protect them at all costs. These accounts are sacred, and raiding them is a big no-no. Your tax account serves its purpose for quarterly estimates and tax payments, so dipping into it prematurely is off-limits.
Similarly, the profit account is not an emergency fund or a rainy-day savings account. You’ll find in the Profit First book that there are quarterly profit distributions, which means you won’t have immediate access to this money. However, when the time comes, it’s incredibly rewarding to see a balance you never thought possible. So, the key here is discipline—resist the temptation to dip into these accounts for any reason other than their intended use.
Reward Yourself Along the Way
As you continue with the Profit First system, it’s essential to reward yourself periodically. Remember, your profit account is there to celebrate your hard work and dedication. At the end of your first quarter, take half of what’s in your profit account and treat yourself, even if it’s just $20. The act of acknowledging your accomplishments and treating yourself is crucial to maintaining motivation.
Now, if you’re carrying business debt, which is quite common, a significant portion of your distributions should go toward paying that down. Roughly 95% to 99% of your distribution should be allocated to debt repayment. For instance, if you receive a $50 distribution, consider putting $45 towards your credit card or line of credit. It might leave you with only $5 for personal use, but even that small amount can be a rewarding gesture, like treating yourself to a specialty coffee.
Trim Your Expenses for Greater Profit
Now, let’s talk about another powerful way to boost your profits—cutting your expenses. Abby has a straightforward yet highly effective method for achieving this, one that could potentially reduce your expenses by as much as 10%.
Begin by taking a close look at your last two bank statements, a task that many business owners surprisingly overlook. Go through every expense in great detail, especially those recurring monthly charges. It’s astonishing how often people find ongoing subscriptions they didn’t even know were draining their accounts. Cancel anything that isn’t vital to your business or that you no longer need.
For example, check your QuickBooks subscription. Do you really need the $70 version, or can you comfortably switch to the $30 version without sacrificing functionality? Making such decisions can have a significant impact on your bottom line. In just a matter of minutes, you can potentially save hundreds of dollars each month. Over a year, that amounts to thousands of dollars you can redirect into your profit account. Remember, this is your money, and you should use it wisely.
In conclusion, Profit First is a powerful system that can transform the way you manage your business finances. The key is to start small, building momentum gradually, and protecting your profit and tax accounts. Reward yourself along the way to maintain motivation, and be diligent about trimming unnecessary expenses to maximize your profits.
By following these simple steps, you’ll not only set yourself on the path to financial success but also develop healthier financial habits that will benefit your business for years to come.
So, don’t hesitate to take that first step towards a more profitable future. And if you want to dive deeper into Profit First, don’t forget to check out our free download of the first few chapters of the book! Happy profit planning!
How We Can Help
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About Abby Johnson
Abby Johnson, is Matterhorn Business Development’s Chief Mentor, resident organizational genius and Certified Profit First Professional, helping our clients grow and organize their businesses. With a passion for empowering businesses to thrive and extensive experience in helping clients grow their revenue and manage their finances profitability, she’s committed to making a positive impact on your business.
About Greg Winteregg
Greg founded Matterhorn Business Development to assist small business owners in growing their businesses and increasing profitability at the same time.
He was an internationally recognized lecturer, sales trainer, and management consultant who spent close to 30 years working with professionals and small business owners across the US and Canada.
In 2019, he authored his book “Fun at Work.”