PROFIT FIRST
PROFIT FIRST
Small business is complex. How do you choose where to focus when there’s so much noise, and so much of it seems impossible to decode? You’re left feeling lost and in need of a translator and a roadmap for your biz. We’ve got you!
Any accountant/bookkeeping firm can do your 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 profit grew by 61% within the first 12 months, while our revenue was only up 4%!
FREE DOWNLOAD
Download the first 5 chapters of Profit First, written by best-selling author, Mike Michalowicz, as our gift to help you on you new and profitable journey to managing your business’ finances. For more information or Profit First coaching, contact us.
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.
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.
Author and historian C. Northcote Parkinson theorized that our demand for a resource increases to meet the supply of it. That's why when we are given two weeks to do a project...it takes two weeks. If we are given eight weeks to do the same project it takes eight weeks.
That's also why when given $1,000 to complete our work, we get it done with $1,000. 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.
Most entrepreneurs don’t have the time (or gumption) to read all of the 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 often), but few entrepreneurs do. In fact, most resort to “bank balance accounting." We check our bank balance every day and make financial decisions based upon what we see. We consume what we see in our bank account.
Profit First encourages the entrepreneur to work with this “bank balance accounting” habit by allocating money to profit and other specific accounts. This allows you to see the true portion of deposits available for expenses and automatically adjust your spending.
Many entrepreneurs try to force themselves to become better at accounting. They try to become more disciplined in their fiscal management using pure willpower. But just like a muscle, willpower can be drained.
In a moment of financial stress or bigger than expected expenses, many entrepreneurs will break their own fiscal rules and spend the money they have.
The goal of Profit First isn't to change your habits. That's nearly impossible. Profit First works with your existing habits instead. By allocating your money as it comes in and removing the temptation to “borrow” from yourself, your business will become fiscally strong. You will benefit from regular profit distributions.
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