Cashflow is nearly always he the biggest challenge we see business owners face day to day. The constant week to week battle of money in money out. This constant struggle set us on a mission to find an easy, manageable and effective system to manage cashflow. This journey has lead us to Profit First. We practice what we preach and we have implemented Profit First in our own business, and we know it works.
Thinking Cloud is one of the select few firms, Australia wide (one of the first in Australia) trained and certified in the Profit First Method to guide business owners and entrepreneurs in maximising their profits.
Take a look at this quick video by "Profit First" author Mike Michalowicz
So, what is Profit First?
Simply, Profit First is a cash management system that ensures the business owner always take their profit first. No matter how small the income may be, they still get paid. Yes, you heard right, the owner of the business always take their profit first.
The Profit First system takes the traditional accounting formula
Income less Expenses = Profit
and turns it around
Income less Profit = Expenses
The 'old' Income less Expenses = Profit formula is not only contrary to human behaviour, but a myth that locks you into a never ending cycle of selling more yet profiting less, treating profit like an afterthought, secondary to growth. Profit First leverages human behaviour.
Taking your profit first and spending only what remains on expenses, makes it far easier to manage a profitable business by just looking at bank account balances. It also enforces frugality and inspires innovation.
Imagine the freedom, control and confidence of knowing that there is money set aside for payroll, suppliers, GST & taxes, as well as paying yourself a profit distribution every quarter.
At the heart of Profit First are these 4 Core Principles
- Use Small "Plates" - All income is deposited into an "Income" account, ready to be dispersed into different accounts and pre-determined percentages. (Don't worry, we can help work these out). Does Grandma's envelope system ring a bell?
- Serve Sequentially - Always, always allocate money based on the percentages to the accounts first. Never, ever, ever pay bills first. Only pay bills with what is available in the "Opex" account.
- Remove Temptation - Move your "Profit" account and other "tempting" accounts out of arm's reach. Remove the temptation to "borrow" (ie. steal) from yourself.
- Enforce a Rhythm - Do your allocations and payables fortnightly (or weekly for some). Get into a rhythm of allocating your income, and paying bills each fortnight so that you can see how cash accumulates and where the money really goes. This is controlled recurring cashflow management, not fly-by-the-seat-of-your-pants management.
Want to find out more?
Is your accountant or bookkeeper stuck in the old way of just doing the books and filling out your tax forms? Then we would love to show you what modern advisors do... they help you drive profitability. Please, book a time for a chat about Profit First. No strings attached.
To get you started, we would love to gift you the first 5 chapters of the Profit First book. Download it using the button below. If you have any questions at all, please let us know.