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Unlocking Profitability: Exploring the Four Core Principles of the Profit First Method

Updated: Jun 26, 2023


A study conducted in 2021 found that most small business owners don’t know where their money is being spent and 56% are making decisions guided by incomplete information. In another study conducted in 2022, 40% said they consider themselves financially illiterate. The Profit First formula flips conventional accounting on its head, following four simple principles that simplify accounting and make it easier to manage a profitable business. Here’s a quick look at these guiding principles:

Principle 1: Use Small Plates

The more we have of something, the more of it we consume. Use a small plate, get smaller portions, and take in fewer calories. The same thinking should be applied to business financials. We do this by splitting our money in several accounts, ask us how.

Principle 2: Serve Sequentially

How is it that we can eat a lot of junk food and still be hungry? We’re not consuming foods that are rich in nutrients and vitamins, which satisfy hunger. Switching the sequence of food creates a healthier balance. What is your business consuming, and in what order? The order is important for clarity in our minds. We business owners are split into many different jobs within our company. We need to make sure our incoming revenue is split adequately between the most important categories for the business such as paying ourselves first, savings for taxes and an emergency fund.

Principle 3: Remove Temptation

If you’re trying to live a healthier lifestyle, it would be wise to remove temptation from where you eat. Even though I love those cookies, I will put them away or I’ll eat them all. The same applies to our finances. Remove the temptation to spend it all by having separate bank accounts for what is important, our Profit, and emergency fund and to pay for taxes. Out of sight, out of mind.

Principle 4: Enforce a Rhythm

Establish a healthy rhythm so that you never go “hungry.” This will ultimately help you create and measure your organization’s cashflow. This, in our finances, refers to allocating on a consistent basis. The standard suggested rhythm is to do transfers to the different bank accounts on the 10th and the 25th or each month, but you need to find the rhythm that works for your business.

Your business’ financial success needs accounting support, be it a dedicated accounting partner or a guided self-help approach. Through our accounting services we give our clients foundational information on cash flow, including how to set up structures to manage the flow of their transactions. We guide them to set goals to pay themselves and help them to create measurable savings for the unexpected. Our methods, based on Profit First, create measurable value for our clients, especially small and micro-businesses. One of those methods is the Bookkeeping Bootcamp.

Millions of new businesses are established each year, but statistically only 25% will make it past 15 years. Profit First helps you go the distance. Start your journey with SMG as a Profit First certified accounting firm.

Not sure yet? Click here to read the first two chapters of Profit First for free and let me know what you think!


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