Unlocking Consistent Profitability: Transform Your Business with Profit First

Good Morning!

Thanks for joining me, I hope its been a fantastic week for you.

As a business owner, it’s crucial to understand where your money is going and how to manage it effectively. The Profit First model is a game-changer in this regard. If you missed my blog last week then stop right here and catch up on that first. I am so passionate about the profit first model,, I wanted to touch on it again this week and share some more insights after meeting with expert Annette Ferguson recently.

At its core, Profit First is a cash management system that ensures you take your profit first, rather than waiting until the end of the year to see if there’s any left. This approach not only provides financial clarity but also helps you create a sustainable, profitable business.

Why a Cash Management System you ask me?

Many businesses operate with a transaction management system like Xero or QuickBooks, which records all transactions for compliance with HMRC and Companies House. However, these systems don’t necessarily help you manage your cash flow. That’s where Profit First comes in. It focuses on allocating your cash into different ‘buckets’ or accounts for specific purposes, ensuring you have a clear picture of where your money is going and making it easier to manage your finances.

One of the fundamental principles of Profit First is to create a profit account where you regularly set aside a portion of your income. This not only ensures you are consistently making a profit but also provides a financial cushion for your business. Start small, especially if you’re not currently making a profit. Set aside just half a percent of your income into a separate profit account. The goal is to build the habit and mindset of prioritising profit. Over time, this small amount will grow, and you’ll be amazed at how it can transform your financial situation.

One of the most important things…. To Identify money Leaks! To find where you can start setting aside profit, you need to identify money leaks in your business.

Here’s an exercise to help you:

1. Gather Your Statements: Collect your business bank and credit card statements for the last 12 months.
2. Highlight Necessary Expenses: Go through each statement and highlight expenses that are 100% necessary to keep your business running.
3. Circle Positive Returns: With a red pen, circle expenses that deliver a positive return in terms of money or time.
4. Identify Unnecessary Expenses: Any expense that isn’t highlighted or circled is a potential money leak. These are the expenses that are not necessary and not providing a positive return.

Now its time to consider how to make informed decisions. Once you’ve identified unnecessary expenses, decide if they can be reduced or eliminated. This will free up cash that you can then set aside in your profit account. Remember, every penny saved can contribute to your profit.

My top tips for setting up profit first in your business would be to, create separate accounts, allocate regularly and do not dip into these accounts!! This discipline is crucial for maintaining financial health. Every quarter, transfer 50% of the money in your profit account to yourself as a bonus. This practice not only rewards you but also reinforces the habit of prioritising profit.

Implementing Profit First can be a transformative step for your business. By creating a system that prioritises profit and effectively manages cash flow, you’ll not only build a more sustainable business but also reduce financial stress. Start with small steps, identify your money leaks, and gradually build up your profit account. Over time, you’ll see a significant improvement in your financial health and business stability.

If you haven’t yet, I highly recommend giving Profit First a try. It’s a practical, easy-to-implement system that can make a huge difference in how you manage your business finances. And if you need further guidance, consider working with a certified Profit First professional who can help tailor the system to your specific needs. If you would like to explore this further and take a deeper look at your business health then take my business health check quiz here. In 2 minutes find out how well your business is performing AND what you need to take to move it forward. It’s 100% free you’ll see how well your business is performing in 5 different areas (Numbers, Sales & Marketing, Systems, Team Performance and Mindset).

We’ll pinpoint the areas that need fixing or improving and give you an action plan detailing the steps to take to move your business further forward!

Have a great week and I look forward to seeing your business health check results!

Katie X