Profit First Australia

Business owners focus on Profit by putting a percentage of income away as profit to a separate bank account and allocating the remainder of the money to different bank accounts so the entrepreneur sees the actual portion of deposits that are available for their own wages, taxes and day to day business expenses and they automatically adjust their spending accordingly.

The Profit First method uses the behaviour of business owners operating from their bank accounts to make financial decisions based on what they see (bank balance accounting) to allocating their money into separate bank accounts (starting with allocating money to a profit account first) and giving them clarity of how much money they actually have to run the business.

The Profit First strategy works because it flips the accounting equation of Sales - Expenses = Profit to Sales - Profit = Expenses, we place importance on what we put first. By putting the profit first, it becomes the primary focus. Entrepreneurs do not build businesses to pay suppliers and employees, they have a dream to have a profitable business that pays them an income, the Profit First strategy keeps the business owner true to their purpose.

No, the transferring of money to different bank accounts, called the Rhythm is simple and rewarding. Knowing how much to transfer and setting it up can be a challenge depending on your ability and understanding of finances, but the setup is simple when working with a Profit First Professional to guide you.

The Profit First Mission gives entrepreneurs a simple cash flow blueprint that brings clarity and control over their business finances.

It plays on the saying “out of sight, out of mind.” As you generate a profit, you remove the money from your immediate access. If you can’t see it, you won’t access it.

1. Small plates: This principle is based on Parkinson’s Law that the demand for something expands to meet its supply. In other words - when there is less money available, you automatically run your business more economically.
2. Serve sequentially: We place significance on whatever we encounter first. So, when we follow the traditional formula of Sales – Expenses = Profit, profit becomes an afterthought. When this is reorganised to Sales – Profit = Expenses, profit becomes the main focus and paying ourselves first becomes the priority.
3. Remove temptation: Remove the temptation of dipping into your profit account to pay your expenses by transferring your profit to an out of sight bank account.
4. Get into a rhythm: The majority of businesses don’t spend enough time on their cash management. There is no scheduled date to pay bills, these are paid whenever there is money available, so the business operates in starvation mode until the next lot of income is generated. When you consistently make regular transfers to your Profit First accounts you don’t get into a reactive habit of spending too much when you receive money and panicking when your bank account dips.

This strategy is a perfect accounting tactic for busy business owners who are time-poor, overwhelmed, and not achieving the financial goals or stability they seek in their business.

An all too common occurrence is that of companies with high revenue, but that operate under the pressure of mountains of debt, no way to cover running costs, business owners not being able to pay themselves for their time and effort, and the reality that without continued external investment the business would fold in a matter of months.

Despite fast growth and increasing revenue, there are usually no profits remaining and poor cash flow management doesn’t sustain growth.

The concept is simple, though at first glance it can seem complicated.

Your revenue is essentially broken down in 4 percentage brackets: Owners Pay, Expenses, Tax and Profit.

Your allocated percentages will depend on your business structure, type of business, and current financial situation. Contact a Profit First professional at Additional Business Concepts to determine your true percentages.

Twice a month, the money coming in is divided by the percentages you have calculated and allocated to its applicable bank account, to be used only for that specific purpose.

• Set your goals
• Determine your percentages and bridge the gap
• Create your accounts and establish the routine

Small business owners can manage their finances with Profit First but they need to understand the principles and have a basic knowledge of collating financial information. Using a Profit First Professional is recommended. The percentage structure can vary greatly on your business type, structure, service/product and current debt situation. This is why we recommend consulting with a certified Profit First Professional at Additional Business Concepts to get personalised advice in setting your Profit First percentages.