Why You Need To Use Profit First This Year
Profit First is a cashflow management tool invented by Mike Michalowicz and when you have read the book you find yourself saying “OMG this is so simple and will transform my business”. It shows you how to generate more cash in your business and increase your profits using very simple tools. All you need to do is open a few more bank accounts at your existing bank and agree a set % that you need to allocate to these bank accounts every 2 weeks.
It is important to get to know your Real Revenue after considering your direct costs and then you agree what your Profit % and Owners Pay % is allocated from the Real Revenue figure and you always take these two first (which is why it’s called Profit First), then you look at the Tax % and then your Overheads. It is from the Overheads account that you then need to make sure sufficient cash has been generated to cover your operating expenses.
If there are insufficient funds in the Operating Expenses account, then it is important to review your costs and try and cut out those that are not necessary to help grow your business or look for cheaper alternatives without compromising on service. If this list has been exhausted then look at the last time you increased your prices or looked at increasing product/service lines to your existing customers.
I think 2022 is going to be one of the most important years for businesses where they are seeing an increase in activity back to pre pandemic levels and keeping an eye on cash flow is going to be so important especially with costs increasing at rates that we have not seen for a long time.
Clients that have implemented Profit First have seen positive improvements in cash and profits and really gets them to look at the finances with a completely different mindset that benefits the business and most importantly you being the business owner. It’s about time you were rewarded for all the hard work you put into the business and the risks you take every day.
If you have any further questions don't hesitate to email me at lee.manning@raffingers.co.uk or click here to get in touch.
Have you listened to our interview with Mike Michalowicz, founder of Profit First on the Beyond The Balance Sheet podcast yet?
Michael Michalowicz is an American author, entrepreneur, and speaker dedicated to eradicating entrepreneurial poverty. Mike built four multi-million dollar companies and sold two of them: one to private equity and another to a Fortune 500. Mike is the author of multiple books including, 'Profit First: Transform Your Business from a Cash-Eating Monster to a Money-Making Machine' which is a counterintuitive cash management solution that helps small businesses. Since launching his book, the Profit First methodology has been used by hundreds of thousands of companies around the world.
In this episode, Ashlee talks to Mike about how losing his entire fortune and having to start all over again made him even more driven to find better ways to grow healthy, strong companies. They also discuss how the Profit First mindset helps you to change your mentality about your money, Mikes biggest successes and how to achieve job satisfaction.