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Profit First Implementation - Where to Start and How to Succeed

June 17th, 2024 | 2 min. read

By Anna Noa

Are you looking to see more profit in your business, improve your cash flow management, or want to have a purpose for where the money is actually going?  You're in the right place.

Welcome back to Profit Insights with Patrick Accounting. I'm Matt, and today we're continuing our series on Profit First with a step by step guide of how to get started with Profit First. This method is not just about managing money—it's about ensuring your business's profitability is a top priority. So let's jump in with where to start with setting up your Profit First system. 

Step 1: Understand the Profit First Philosophy
Profit First fundamentally changes how you view business transactions. Traditionally, profit is what's left after expenses. But with Profit First, you allocate profit before spending on anything else. If you haven't seen the first video in this series, make sure to check it out for a more comprehensive overview of the Profit First method and why it works.

Step 2: Set Up Your Bank Accounts

When implementing any new system, organization is key. To get started with Profit First, you'll set up five separate bank accounts to handle the different aspects of your finances. This includes accounts specifically for Income, Profit, Owner’s Compensation, Taxes, and Operating Expenses. Having separate accounts simplifies money management and helps to ensure that every dollar is accounted for.

Step 3: Determine Your Current Allocations
Before implementing Profit First, assess how your money flows through your business. Calculate how much you currently spend on expenses, taxes, and what you pay yourself. This will give you a clear picture of where adjustments are needed to prioritize profit.

Step 4: Allocate Percentages According to Profit First
With your accounts ready, allocate incoming funds based on predetermined percentages. Even if you start with allocating as little as 1% of every dollar to your Profit account, it's a step toward building a healthier business. Gradually, you'll be able to increase these percentages as your business adapts to this new approach.

Step 5: Implement a Quarterly Profit Distribution
Profit isn't just to be recorded—it's to be celebrated. Every quarter, take half of the funds in your Profit account as a bonus. This not only rewards you for your hard work but also reinforces the habit of profitability. Well, what do you do with the other half?  You could use that to pay down debt, you could use that for business savings, or you could use that really for whatever you want.  That's the beauty of having profit, right?

Step 6: Review and Adjust Regularly
The final step of Profit First is continual improvement. Regularly review how your allocations are impacting your business's financial health. Ideally, this is something you can partner with your accountant to do. Make adjustments to ensure that your profit grows, ensure that expenses are being mindfully managed, and experience feeling in control of your money.

Adopting Profit First is more than a method—it's a commitment to making your business's profitability a central goal. By ensuring profit comes first, you're setting up your business for long-term success.

If you're ready to jump in, but could use some help getting Profit First off the ground in your business, schedule some time to talk with us using the button below. We've implemented Profit First in our own business and helped many other business owners do the same, so we know the struggles that owners face when getting started. Check out the other resources in our learning center and schedule a time to talk with us about how Profit First could work for you.