It’s time to start implementing the Profit First fundamentals in your business to earn profit starting today. If you haven’t already gone through the Profit First Instant Assessment click here to go back and do that now, then head back here once you’re done.
Before we dive in there are a few things we need to get straight first. If you are currently working with an accountant it’s important that you tell them what you’re up to. If they aren’t familiar with the Profit First system they might give you some push back, or think it won’t work. If that’s the case, it’s probably time to consider a new accountant. *wink wink nudge nudge (Click here to find out how we can help!)
The second step is to make sure you’ve set up your separate accounts with your bank. Most banks allow you to assign nicknames to your sub-accounts to make it easier to remember what you need to allocate. Give each of your Profit First accounts a nickname that makes them easy to identify and then put the percentage in the name in brackets. This makes running Profit First much easier.
For example:
OPERATING EXPENSES (45%)
OWNER PAY (25%)
PROFIT (15%)
TAXES (15%)
The last thing is to remember to start out easy, don’t go crazy on your allocations right off the bat. We’re going to work our way up to the Target Allocation Percentages you learned about in the Instant Assessment by starting small.
Start with your historical contribution levels for each account and then add 1%. If you’ve never had a profit in your business, start at 1%. If your taxes were usually 5% of your total revenue, set your tax reserve target at 6%. If your Owner’s Pay represented 20% of your income, let’s set the target to 21%.
The goal here is to start so small that you don’t even feel it and adjust your targets up each quarter until your business is aligned with the TAPs from the assessment.
Alright, now that we’ve got those out of the way, let’s take some action!
Take a look at the bank balance in your Operating Expenses account, subtract any outstanding checks and payments, and then divide the remainder into your accounts based on your TAPs.
For example, if you have $5,000 in your bank account, and have $3,000 in checks and payments still waiting to clear, that means you have $2,000 to distribute. Run your percentages on that $2,000 and move that money into your separate accounts. Do the same thing for any deposits you have to make today as well. The goal is to get into a bi-monthly rhythm that makes this process manageable.
Now that’s done (if you didn’t actually do it, do it now!) it’s time to celebrate! You’ve just taken a big step since this is probably the first time in your entire business life that you’ve accounted for profit first. It’s a big deal, and the first step to a healthy business!
If you want to keep this ball rolling and take your new Profit First system to the next level, we’ve got you covered. Click here to find out how we can help you implement the Profit First system in your business so you can achieve your goals even faster!
