Profit First is a revolutionary business approach. Instead of paying all your expenses first and just accepting that whatever is left over must be your profit, this method pays you the profit first and then takes care of the business expenses. The profit-first method flips traditional accounting on its head and allows business owners to see tangible returns from their business without sacrificing business stability.
One of the most impactful parts of this system is its emphasis on quarterly distributions. Each quarter, the business owner will pay themselves those profits. Here’s how it works.
When you start implementing the Profit First Method, the first thing you’ll do is set up different bank accounts for those quarterly distributions. The five bank accounts that companies will typically set up are…
Operating account: Your business revenue comes into this account and monthly operating expenses are paid from it. This account should be a checking account.
Profit: This account is usually a savings account and a percentage of revenue is transferred to this account from the Operating Account on a regular (weekly) basis.
Payroll: This account is generally a checking account and money is transferred into it from the Operating Account to make sure payroll and payroll taxes can always be paid on time.
Tax: This account is generally a savings account and a percentage is transferred from the Operating Account regularly (weekly) to pay business income taxes that are reported on your personal or business income tax returns.
Emergency: This account is generally a savings account and a percentage is transferred from the Operating Account on a regular (weekly) basis.
You may notice that these accounts are slightly different from what is shared in the book, “Profit First” by Mike Michalowicz. I’ve found that these accounts seem to work better for businesses with a minimum of $1M in annual gross revenue. By transferring money on a regular (weekly) basis, you will have money set aside to pay YOU first, and you also will have money set aside to pay your taxes, payroll, and ongoing business expenses, and you are funding an emergency fund, as well.
Your Profit Account builds up over time and each quarter you take 50% of that for YOU to do as you please! (Unless you have significant debt. Then, you take 10% for yourself and apply most of the balance toward a particular debt to pay it down quicker.)
My coaching clients look forward to the quarterly profit distributions. This is their favorite time of year!!
Look at what some of them have done with their profit distributions.
- Plan a vacation with their family (after all this is their WHY – spending time with family!). What a great reward for hard work.
- Plan a home renovation, so that they can pay for it upfront and not run up a line of credit or another form of debt. (One of my coaching clients paid for a swimming pool to be put in her backyard!)
- Add it to their retirement planning portfolio. Smart! (What a great way to beef up the portfolio!)
- Save it up to buy a rental property to gain passive income (which can also contribute to their retirement plan). This is my favorite! Some have paid for a property with cash, upfront, and then all the rental income is theirs each and every month. Amazing!
We’d love to hear what you’ve done with your quarterly profit distributions. Or, if you haven’t set up your bank accounts and started taking profit distributions, we’re here to help you! Let’s get you started with Profit First now!
You can book a profit impact call with me where I can save you a minimum of 50K as we go over 12 main areas of your business!
