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Profit First

What if, rather than you serving your business, your business served you? What if you could turn a profit from your very next deposit? And what if you had the power to guarantee that profitability?

Any accountant/bookkeeping firm can do you books.  Reconciled Solutions is one the few firms nationwide who is a Certified Profit First Professional and is trained to help entrepreneurs and small businesses maximize and drive profitability. The Profit First method is a cash management system that ensures that, no matter how much income a business owner generates, they always get paid, FIRST. We believe in Profit First and we know it works because we have implemented the Profit First system ourselves.  Our revenue was up 42% within the first 12 months! 

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Download the first 5 chapters of Profit First, written by award winning, best-selling author, Mike Michalowicz as our gift to help you on you new and profitable journey to managing your business’ finances.  Fore more information or Profit First coaching, contact us.

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PROFIT FIRST OVERVIEW

THE PROFIT FIRST FORMULA

The GAAP (Generally Accepted Accounting Principles) formula for determining a business’s profit is Sales – Expenses = Profit. It is simple, logical and clear. Unfortunately, it’s a lie. The formula, while logically accurate, does not account for human behavior. In the GAAP formula profit is a left over, a final consideration, something that is hopefully a nice surprise at the end of the year. Alas, the profit is rarely there and the business continues on its check to check survival.
Sales – Expenses = Profit
Sales – Profit = Expenses
With Profit First you to flip the formula to Sales – Profit = Expenses. Logically the math is the same, but from the stand point of the entrepreneur’s behavior it is radically different. With Profit First, you take a predetermined percentage of profit from every sale first, and only the remainder is available for expenses.

80% of profits come from 20% of customers
80% of profits come from 20% of effort

PARKINSON’S LAW

Author and historian C. Northcote Parkinson theorized that our demand for a resource increases to meet the supply of it. That is why when we are given two weeks to do a project it takes two weeks, and when we are given eight weeks to do the same project it takes eight weeks. That is why when given $1,000 to complete our work we get it done with $1,000 and when given $10,000 to complete the same work, it takes $10,000. Profit First makes Parkinson’s Law an asset. By taking profit first the money available for expenses lessens, and we are forced to find ways to get the same things done for less money.

BANK BALANCE ACCOUNTING

Most entrepreneurs don’t have the time or gumption to read the different accounting statements necessary to manage the financial aspect of their business. Theoretically you should review and correlate your Income Statement, Balance Sheet and Cash Flow Statement monthly (or more frequently), but few entrepreneurs do. Most resort to “bank balance accounting,” where we check our bank balance every day and make financial decisions based upon what we see. Per Parkinson’s Law, we consume what we see in our bank account. Profit First encourages the entrepreneur to continue “bank balance accounting” by first allocating money to profit (and other accounts) so that the entrepreneur sees the actual portion of deposits that are available for expenses and they automatically adjust their spending accordingly.

DON’T CHANGE HABITS, LEVERAGE THEM

Many entrepreneurs try to force themselves to become better at accounting and to become more disciplined in their fiscal management by pure willpower. But just like a muscle, willpower can be drained. And in a moment of financial stress or bigger than expected expenses the entrepreneur will break their own fiscal rules and spend the money they have. The Profit First principle does not try to change your habits (that is nearly impossible to do), Profit First works with your existing habits. By first allocating money to different accounts, and then removing the temptation to “borrow” from yourself, your business will become fiscally strong and you will benefit from regular profit distributions.

Take Our Profit First Assessment.  Get instant results and a 20 minute FREE session with Profit First PRO, Angie Noll.