Profit First: A game changer for business owners

In the ever-evolving landscape of entrepreneurship, particularly for business owners (or self-employed individuals), the concept of "Profit First" has emerged as a revolutionary approach to managing finances. Developed by Mike Michalowicz, the Profit First methodology flips the traditional accounting formula on its head. Instead of focusing on revenue minus expenses equals profit which is the way so many of us look at our businesses, it advocates for a model where profit is prioritised first. This blog will explore the Profit First concept, its relevance to business owners in 2025, and practical steps to implement it effectively.

Understanding the Profit First concept

At its core, the Profit First methodology is about ensuring that business owners prioritise their profits before any other expenses. The traditional approach often leads entrepreneurs to operate on a tight budget, where profits are an afterthought. This can result in financial stress, burnout, and a lack of motivation.

The Profit First formula can be summarised as follows:

Sales - Profit = Expenses

This means that as soon as revenue comes in, a predetermined percentage is set aside for profit before any expenses are paid. This approach not only ensures that the business remains profitable but also instils a sense of financial discipline and accountability.

The four key principles of Profit First

1. Profit First: The first step in the Profit First methodology is to allocate a percentage of your income to profit before any other expenses. This ensures that you are rewarded for your hard work and that profit is a priority.

2. Use separate accounts: Michalowicz recommends setting up multiple bank accounts for different purposes: one for profit, one for taxes, one for operating expenses, and one for your salary. This separation helps you manage your finances more effectively and prevents overspending. In France this can be complicated when the banks so often apply fees, but it can still be done.

3. Determine your percentages: Each entrepreneur should determine what percentage of their income will go into each account. This can vary based on individual circumstances, but the key is to stick to these percentages consistently. For the profit part, you can start with just 1%, every little helps and you can increase this as you go.

4. Review and adjust: Regularly reviewing your financial situation and adjusting your percentages as necessary is crucial. This allows you to adapt to changes in your business and ensure that you are always prioritising profit.

The relevance of Profit First for business owners

As we move into 2025, the landscape for business owners is changing rapidly. With the rise of digital platforms, remote work, and a growing gig economy, self-employed individuals face unique challenges and opportunities. Here’s how the Profit First methodology can be particularly beneficial for business owners in this evolving environment:

1. Financial stability in uncertain times

The COVID-19 pandemic has taught us that economic stability can be unpredictable. For business owners, having a solid financial foundation is more important than ever. By implementing the Profit First methodology, entrepreneurs can build a buffer that allows them to weather financial storms. Setting aside profits first ensures that even during lean times, there is a safety net to fall back on.

2. Encouraging sustainable growth

In 2025, many business owners will be looking to scale their businesses. The Profit First approach encourages sustainable growth by ensuring that profits are reinvested wisely. Instead of chasing revenue at all costs, entrepreneurs can focus on building a business that is not only profitable but also sustainable in the long run.

3. Enhancing decision-making

With the Profit First methodology, business owners can make more informed decisions about their business. By having a clear understanding of their financial situation, they can evaluate opportunities based on profitability rather than just revenue potential. This leads to better strategic planning and resource allocation.

4.Reducing financial stress

Financial stress is a common issue for many entrepreneurs. By prioritising profit, business owners can alleviate some of this stress. Knowing that they are consistently setting aside money for profit can provide peace of mind and allow them to focus on growing their business rather than worrying about cash flow.

Implementing Profit First as a business owner

Now that we understand the benefits of the Profit First methodology, let’s explore how business owners can implement it effectively in 2025.

Step 1: Set up your accounts

The first step is to set up multiple bank accounts or pots. If you can, you should have the following accounts:
• Profit Account: Set aside a percentage of your income for profit.
• Tax Account: Allocate funds for taxes to avoid surprises during tax season.
• Operating Expenses Account: This account will cover your business expenses.
• Owner’s Pay Account: Ensure you are paying yourself a salary.

Step 2: Determine your percentages

Next, determine what percentage of your income will go into each account.
The book give these as a common starting point might be:
• Profit: 15%
• Taxes: 15%
• Operating Expenses: 70%
• Owner’s Pay: 15%

However, they will depend entirely on your personal and business situation.

Step 3: Allocate funds regularly

Whenever you receive income, allocate the funds to each account according to your predetermined percentages. This should be done consistently, and I do it monthly, but you could choose weekly or fortnightly.

Step 4: Review and adjust

Regularly review your financial situation and adjust your percentages as necessary. This will help you stay on track and ensure that you are prioritising profit effectively.

Step 5: Celebrate your profits

In the beginning it might be hard to use what you take as profit, for actual profit, but don’t beat yourself up. Great oaks come from the tiniest acorns. So, start small, as you get more experienced and your business grows, you should find that you can take more and more profit, and that you can either have fun with it or reinvest in the business.

Finally, don’t forget to celebrate your profits! When you reach your profit goals, take the time to reward yourself. This could be a small treat, a day off, or reinvesting in your business. Celebrating your successes reinforces the importance of prioritising profit.

The Profit First methodology offers a transformative approach for business owners in 2025. By prioritising profit, setting up separate accounts, and regularly reviewing financial goals, entrepreneurs can achieve greater financial stability, reduce stress, and make informed decisions about their businesses. As the entrepreneurial landscape continues to evolve, adopting the Profit First approach can be a game-changer for those looking to thrive in the competitive world of self-employment.

By implementing these strategies, business owners can not only ensure their financial success but also create a sustainable and fulfilling business that allows them to enjoy the fruits of their labour. So, are you ready to put profit first and take your business to new heights?

Photo by Natasha Hall - Unsplash