If you’ve been following my blogs and social media for a little while, you may have noticed a couple of words that pop up quite regularly when talking about business finances….Profit First.
But what is it? And why am I such a fan?
Profit First is a book by Mike Michalowicz which outlines an approach to business finance that just makes sense to everyone, not just accountants and tax professionals. It’s a behavioural based methodology to cash management, which leverages our natural instincts and habits, presented in an easy to understand and actionable way for all business owners.
Profit First is not just a what….it’s a how.
It's how you can transform your business.....
We’re going to duck into accounting land for just a minute…..wait….stay with me for just a sec!!
Traditional accounting goes a little something like this…..
SALES minus EXPENSES equals PROFIT
Now, the problem with this is that after you pay #allthethings for your business, your profit is what’s left over…..essentially, you get the scraps.
And let me ask you….how much of that profit do you remember actually receiving?
We all know that you get what you focus on. Law of attraction and all that. So what if you flip our perspective a bit?
What if we focus on profit first?
SALES minus PROFIT equals EXPENSES
Now this equation means YOU get to drive your profit. Plus, by capitalising on our human nature and building some healthy financial habits, you will also get to put your hands on that cash and utilise it in any way you wish (I suggest starting with celebrating you and your business ;-)).
With this formula, expenses become what you spend your money on AFTER you’ve taken a profit. You get to spend only what’s left, and by doing so you develop better cash management practices and encourage innovation to transform your business into a sustainable and profitable venture.
If you haven’t yet read the book Profit First you can buy a copy here.
Or, if you’d like to read the first two chapters for free, it’s my gift to you! Go ahead and download your copy.
And then just wait and see what a little change in your perspective can achieve.