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Profit First: Your Summer Project to Weather the Small Business Drought

Can you believe that more than 80% of small businesses fail due to cash flow problems? Yes, you read that right. It's not because of a lack of passion or a weak product; it's because the money coming in and going out isn't managed properly.

We know the summer time often brings a slower sales season for many of our businesses leaving entrepreneurs scrambling to cover expenses, and the much-needed profit dwindles or vanishes. This cycle of feast and famine can be nerve-wracking, right? There’s a palpable tension between wanting to grow your business and needing to cover costs, and often, profit becomes an afterthought rather than a priority.

This summer, let's flip the script. What if you could be assured of a profit from every sale, right from the get-go? This concept, known as the "Profit First" system, could revolutionize how you manage your finances, ensuring you're not just surviving, but truly thriving in your business.

Rather than stress, why not use this time to establish a "Profit First" system? Imagine running your business confidently, knowing that each transaction is contributing to your profit. Picture a stress-free summer, where slower sales don't spell disaster but opportunity. That’s the power of the Profit First system.

Let's dive into this, shall we?

Why a 'Profit First' System?

The Profit First system challenges the traditional sales-expenses=profit formula. Instead, it proposes a bold new approach: sales-profit=expenses. Rather than calculating profit as what remains after expenses, you take your profit first. This method is all about putting you, the entrepreneur, in the driver’s seat of your financial journey.

When you adopt a Profit First system, you distribute income into different accounts based on predetermined percentages as soon as it comes in. One account is solely for profit. The others can be for owner’s compensation, taxes, and operating expenses. This approach helps create a clear financial structure, allowing you to see exactly where your money goes. Let's say you have a month where you make $5,000 in sales. Instead of using that income to cover costs first, you allocate a percentage for profit right off the bat. For instance, if you've decided on a 5% profit margin, you put $250 into your profit account straight away.

Next, you might allocate 30% for owner's compensation ($1500), 15% for taxes ($750), and the remaining 50% ($2,500) for operating expenses. By doing so, you ensure your business is profitable every month, regardless of how much sales fluctuate.

But the magic doesn’t stop there. The Profit First system is more than just about ensuring profit; it’s a tool for transforming your mindset about money and breaking free from the survival trap.

With a clear view of your finances, you can make informed decisions that align with your growth goals. You become more disciplined in managing costs, more innovative in generating profit, and you start running your business with financial intentionality.

So, this summer, while business may be slow, seize the chance to establish your Profit First system. When the busy season rolls around, you'll be ready to ride the waves of increased sales, confident in your ability to navigate your business towards profitability and success. Implementing Profit First may require some adjustments, and it might feel a little uncomfortable at first. But remember, no significant growth comes from staying in our comfort zones. And when it comes to the financial health of your business, there's no better time to start than now.

Setting Up a Profit First System

It's simple, sis. We’re going to set up different bank accounts for specific purposes. Consider it your financial buffet, nicely separated into different sections - much easier to manage. Here's how:

  1. Income account: This is where all the money coming into your business will land. It’s a temporary holding space - no expenses should be paid from here.

  2. Profit account: This is your reward for being an entrepreneur, a business owner. Allocate a set percentage of your income to this account regularly.

  3. Owner's pay account: This is your paycheck. Yes, sis, as a business owner, you deserve to be paid too!

  4. Tax account: Let's keep Uncle Sam happy. Allocate a percentage of your income to this account for tax obligations.

  5. Operating expenses account: This is where you'll pay your bills from. After allocating to the other accounts, the rest goes here.

Now this my be a bit much to open 50 'leven bank accounts, so here's a modified approach I use with all of my clients who use a Profit First System:

  1. Income/Operating Expense account: This is where all the money coming into your business will land AND where you will pay all of your bills from.

  2. Profit/Savings account: This is your reward for being an entrepreneur, a business owner. Allocate a set percentage of your income to this account regularly - this is also where we save for a rainy day or break in case of emergency.

  3. Tax account: Let's keep Uncle Sam happy. Allocate a percentage of your income to this account for tax obligations. We do not touch this money except to pay Uncle Sam - dassit!

I find that we don't need a separate owner's pay account because we're just going to transfer that money out from our Income/Operating Expense account anyway.

How Much Goes Where?

Now, I won’t tell you to distribute 50% here, 10% there, because every business is unique. But, I do recommend you start with realistic percentages based on your current situation. The key is to allocate something to your profit account, no matter how small. Remember, we're cultivating a habit here - prioritizing profit, every time.

After you get comfortable, you can start adjusting these percentages. It might take a few tries to find your groove, but that’s okay, we’re all about growth over perfection here! As you move into implementing this system, remember the power of patience and persistence. Start with small percentages for your profit account if necessary and gradually increase it as your business grows and becomes more stable.

Don't worry if the figures you're setting aside for profit seem small at first - even a small percentage, consistently applied, can make a massive difference over time. And over time, you'll be amazed at how those 'small' amounts add up to a significant nest egg for your business.

The Summer Glow-Up 💁🏽‍♀️

Summer is the perfect time to start implementing the "Profit First" system. Why? Because the slower season gives you time to get comfortable with this new system before your sales start picking up again. It's your financial summer glow-up!

So, don't let slower summer sales get you down. Instead, see it as the perfect opportunity to change the way you manage your business finances. Implement the Profit First system, and let every transaction, no matter how small, bring you one step closer to your profitability goals.

In the end, adopting a Profit First approach means nurturing a healthier, more resilient business. It's about transforming your entrepreneurial journey from a path of financial survival to one of financial success.

You'll have the system in place, ready to maximize profits when your busy season rolls around again. Plus, by prioritizing profit, you'll be more intentional about your spending, making sure every dollar counts. So, sis, let’s make this summer all about profits! It’s time to make your money work for you, and not the other way around. With a "Profit First" system, you'll always know that you're focusing on what matters - the financial health of your business. If you want to get started with profit first - I like to use Relay Financial. They are the official banking platform for Profit First. Relay can easily keep you on track with the Profit First method. You can set up auto transfer rules and put your allocations on autopilot. Remember, your business success isn't just measured by the amount of hustle but the strategic decisions you make - make the Profit First system one of them this summer.



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