I know what you’re thinking.. What the hell is a Profit First Professional? What the hell is he on about now!? Has he joined a cult? Well, short answer: I kind of have! The Profit First ‘cult’. Don’t worry, it’s not really a cult, though the book has been described as a cult hit, and the ‘leader’ a brilliant guy called Mike Michalowicz is a hugely energetic and charismatic personification of the organisation.
I stumbled over ‘Profit First’ when a client gave me a copy of the audio book because as he said I was telling him exactly the same things as the book was. I’d never heard of it, but by the end of the week I had listened to it twice through, bought the hard back version, subscribed to the ‘Profit First Podcast‘ and the ‘Grow your Accountancy practice’ podcast, and yes, joined the cult! I’m in training to become an accredited Profit First Professional myself.
Why has this hit home so hard with me? Because its given a voice to something I have tried to do for years. While a successful media executive I always enjoyed helping out with SMEs. I started my career not just selling them advertising like everyone else did, but helping them achieve their marketing goals, and I’ve found since, that setting out with the objective of helping has been a great way to go. Even while working in London, I’ve tried to stay true to the spirit of that and helped out on charity boards and what not.
Since starting up in my own business, I’ve found the most difficult thing is deciding what it is I actually do. I don’t mean this to sound weird, but I can do so much to help a business. I can help plan and write-up strategy for Sales and Marketing, Digital Marketing, Data, GDPR, etc. I found myself answering the question ‘so, what do you do?’ with a truthful ‘ ‘Im not too sure!’
Now I can with confidence and pride tell people I am a Profit First Professional – A profitability coach. I still do all the other stuff of course, but I will now be able to frame this service in a far more specific way and a far more powerful way too. Don’t you want to put your profit first?
The principle is really straight forward. Most entrepreneurs – think small and medium business owners – don’t take an awful lot of money from their businesses. They don’t tend to make a profit, or even have a reliable wage. Most live ‘cheque to cheque’. They practice bank balance accounting. In other words if checking the bank balance shows a bit of cash, they spend it, and it if shows a lack of cash they go into a sales frenzy! Sound familiar?
This results in what Mike Michalowcz calls the double helix of boom and bust or feast and famine. Once month you might make a good return, even be flush with cash, and pay down some of your debt, but other months you’ll not make a sale and so you’ll be scraping around for ways to pay the bills. Basically, when your selling, you kick off new projects and when you are working on the projects, you’re not selling. Feast and famine.
Generally Accepted Accountancy Practices see us put profit last. We take sales, subtract our expenses, and whatever is left over last is profit. GAAP makes running a small business very difficult. Profit First takes some science and adds in some pragmatic, well established systems and helps you put the Profit First. Why do this? Something called the Primacy Effect. Whatever comes first take most of our attention. So if we want to focus on our businesses becoming more profitable, we need to reverse the system and put Profit First.
Take a Profit First Assessment to understand the health of your business. You can do this yourself with the instant assessment tool, or you can get someone like me, a profit first professional to run a full Profit First Assessment with you. This will help understand how your business deals with cash right now, and help put you on a path to permanent profitability and give you the ability to crush that debt!
The system is deceptively easy.
Step one – set up your profit first accounts
Income – for all the incoming cash
Profit – what you’ll take from the business ON TOP of your pay.
Owners pay – a fair salary for your hard work.
Tax – Its not yours in the first place!
Operational Expenses – the money you spend to run the business.
Work out your current average percentages that go into each pot. Its likely your profit percentage is low if not a negative number, and your operational expenses are really high. During the profit first assessment we will calculate these percentages together. Then, for every entry into the Income account (where your invoices go) we distribute the cash according to the target average percentages we decide upon and begin the journey to profitability.
The science bit:
Parkinsons Law and Loss Aversion: The demand upon a resource tends to expand to match the supply of the resource. In other words, we will spend as much as we have. Or a task will take as long we give it. This is why a task takes 2 weeks when we give it two weeks, or an hour when we give it an hour! Parkinson’s law tells us when we have money available, we’ll spend it, and justify the spend to ourselves over and over. And due to loss aversion, we’ll do everything in our power to hold on to those expenses too!
Allocate your percentages. Take the money from the income account, and allocate it to the Profit account first, at the percentage allocation you / we’ve decided upon. Then add cash into the Owners Pay, your Tax account and the rest into your operational expenses. That’s it. Simple.
The tough bit is obviously sticking to it. And understanding the various systems I’m training in to help you stick to it. There are also a ton of advanced systems to help you do everything from save for major capital expenditure if you need it, to crushing your debt and ultimately making sure you can be financially secure.
I love this system. I live this system. And I would love to help you understand more about it and what it can do for you. Get in touch and I’ll even supply you with the first two chapters of the book ABSOLUTELY Free of charge!