Profit First sounds like magic. Get the owners paid! Have enough money for everything! Start learning how to forecast! But then you start to learn more and it all seems rather daunting.  

Profit First will take a little bit of adjustment before it runs smoothly. As with any change, there’s periods of trial and error before you’ll understand it, and you’ll “get” it.  

What does the Transition period for Profit First look like?  

The first step to implement Profit First is to REVIEW.  

You need to take a look at your current financial situation with honest and open eyes. Debts, outstanding invoices, coming invoices, expenses, staffing costs... be prepared to look at it all. Use the last 3 to six months of bank statements, invoices and receipts and bookwork to build out what your past looks like, so you can be prepared for the future.  

As part of this review, take the time to look at what expenses could be reduced or removed. Old subscriptions, software you don’t use any more, fees, or staffing costs. See if there’s anything obvious you can trim, and save the list of expenses so you can go through later and audit each one more carefully. Initially, we need the basics so we can spring from there.  

Using these figures, work out what your company is currently spending. Work out what percentage of your revenue is going to these four categories: Profit, Owner’s pay, Taxes, and Operational Expenses. Now is the time to be honest. The numbers may be triggering or uncomfortable, but without knowing these numbers, you won’t be able to make changes to improve.  

Next let’s open your bank accounts! 

You need these five accounts:  

• Income account (where all revenue will arrive)  

• Profit  

• Owner’s Pay  

• Tax 

• Operating Expenses.  

You may already have accounts that cover some of these functions, ie the income account. 

Our third step is to start SMALL 

Twice a month, you need to log into your bank accounts to redistribute funds according to the Profit First principles. We know what percentages we want to use but to start with, start small and stay flexible. Your past habits and expenses are on top of you, and it takes time and effort to make changes.  

Start with just 1 or 2 % into the categories that are giving you the most trouble, and gradually build the numbers until your business is humming along. It may take months or even a year to get a solid grounding in Profit First structures in your business, but the system is simple and easy to implement, and ensures that the highest priorities are covered first – Profit and the Owner!  

Next is to Reduce and Remove 

Everyone has old expenses lurking in the depths of their bank account.  This is completely normal. Shining a light on them will help your mental health as well as your bank balance!  

Take the list from the first step and go through each item. Is it still necessary? Is it being used effectively? Is there a cheaper alternative? Since the low hanging fruit was picked in the first step, this step may take a little time, and could also be a useful team exercise. Assign several items to each member of your team and delegate!  

Now we’re starting to USE Profit First!  

Part of the Profit First ethos is regular engagement with your finances. Moving money around your accounts not only keeps you aware of what’s happening where, but also allows you to stop worrying about money constantly. Your mind will learn to accept that money gets sorted at certain times – and stress can be released because YOU HAVE GOT THIS.  

• Allocate a few minutes a day to ensure invoices are paid correctly, expenses assigned correctly, and paperwork is completed.  
• Every fortnight, you distribute your funds and increase the transactions to be closer to your goal percentages.  
• Every month, run a Review and Remove check on your expenses for low hanging fruit.  

Every quarter, you take 50% of the Profit account as your reward for doing a great job! The rest remains as an emergency buffer, or can be used to invest in growth. This means that every time you log in to your bank, you can SEE the growth, and you can also see the Owner’s Pay account growing as well. This is also a great time to do a deeper audit of your ongoing expenses, and consider the future for you and your business. Funds for expansion, emergency buffer accounts, tidy books for loans and bank approvals, and money for taxes all contribute to a more stable, stress-free management system.  

You’re all set! But if you’d like help with this...  

If this sounds like something you need and would like to implement and learn with others, we’ll be running the Unexpected Bookkeeper on the 10th of March! Click here to sign up to our waiting list, where we’ll help you implement Profit First Principles with Xero, and get you on the road to stress free success!  

If you’ve got questions, we’ve got answers!. Book a free chat to find out more!