Budgeting is an intelligent way to plan your business finances. It helps you manage your cash flow and revenues to make sure you have enough money to pay your employees and creditors and meet your other financial obligations.

One of the most effective and practical ways of budgeting is the Profit first methodology. Profit First is a unique approach to managing your finances that focuses on the future, not the past. It helps you transform your business from a cost centre into a profit centre by paying yourself first — before expenses, taxes and other obligations.

It involves setting a percentage of your revenue that you can afford to spend on various expenses. Unfortunately, most businesses use the standard percentages, but occasionally those percentages are ineffective for their business needs because the bank accounts created for such percentages are used for reasons other than what the business's owner intends.

If you have read the book Profit First (or listened to the audiobook) you may have found the standard percentages that are recommended, known as Target Allocation Percentages (TAPs).  These are what your business aspires to achieve, based on profitable businesses all over the world.

However, these percentages don't always work and you may need to tweak them a bit.

Here are some examples of when you may need to change the bank accounts or change the percentages you use:

1. Your business is suffering from a cashflow hangover and there are some old debts that you need to pay off before you can work towards the Target Allocation Percentages.  In this case, you may need a lower % somewhere else in order to maintain the debts you pay back.

2. You want to put on a new staff member but you are not sure if you can afford it.  You can set up a new bank account and add a % of income to this new account so that you know you can afford your new staff member.

3. The tax % is not right for your business structure, or you want to fit more than just income tax into your tax account.  For some people, having a separate account for GST vs income tax is required.  For others, just lumping all of the tax money into one account is preferred.  Knowing what money you want to allocate to your tax account for spending, means that you may need to tweak the percentage you add in.

4. Based on your industry, you have different requirements.  Sometimes when we do a profit first rollout report, we incorporate all of your costs into the percentages, and not just the real revenue percentages.  So the percentages look a lot different to the TAPs in the book, because we are creating a percentage allocation that works for all of your income, so less maths required.

Despite the fact that you've established a strong foundation for your business and are now ready to turn a profit, you shouldn't give up on your budgeting strategies. Instead, customize your Profit First strategy to your business size and needs by using a Profit First Professional for guidance and results.

If you've got other questions about profit first or if you wanna have a free consultation book an appointment with Jodi (a Certified Profit First Professional) and we'd be happy to have a quick chat about how profit first can work for your business! BOOK NOW