Profit First Percentages Explained
Get to grips with your finances and make your business more profitable using the tried and tested Profit First percentages.
It’s easy to make your money work harder and get the profit you deserve using the Profit First system.
All you need to do is change your mindset and put your profit first.
Profit First is about money management and money mindset
So many business owners don’t put profit first. It seems counter-intuitive to refocus finances this way but using the Profit First percentages, you can arrange your money to get the profit you serve.
There are business owners who think they don’t deserve the profit they make or that they should be working all hours of the day and night. Imposter syndrome affects so many of us.
You should have a profitable business and you should put profit first.
The usual equation for a business is Sales - Expenses = Profit, which makes sense. You want to ensure that you have everything you need to run your business, from ensuring you can pay salaries to cash to purchasing stock or services to making sure your staff has the equipment that they need.
Change your mindset from expenses being essential by switching up the equation. Then you can see that many expenses are actually negligible.
So, what is it about Profit First?
This is where you may need to change your money mindset. Use the new equation of Sales - Profit = Expenses. It’s much more than just an equation, it’s a new way of thinking about your business.
How using Profit First percentages increases profitability
Separating out your money using the Profit First percentages means you know exactly where your money is going. The percentages help you to work out where you are and where you should be.
Your Current Allocation Percentages (CAPS) will let you know what your Real Revenue is and where your money is going right now. This benchmarks where you are right now.
Use the Profit First percentages to create your Target Allocation Percentages (TAPS), so this is where you want to be.
It may take some time to work to your end goal and you’ll need to adjust the percentages as your business becomes more profitable.
Work with a Profit First professional to develop the roadmap of how you’re going to get there.
How are Profit First percentages calculated?
As mentioned above, first you need to work out what your current ingoings and outgoings are. You’ll soon spot any potential problems with your cash flow.
Establish what your baseline income is and where you want your business to go. Create goals to help you focus your efforts.
Below is a table of example percentages of where you ideally want to move your business to. These are great percentages and shows you have a profitable company.
This won’t happen overnight, and based on your current situation, you will need to adjust your percentages over time, however, this is a great example to help you visualise your money goals.
The percentages change according to various factors such as:
- your staff
- how your business is structured
- any debt
- industry challenges
Use a Profit First Professional to help you work out your initial Profit First percentages.
Why use different bank accounts for the profit first percentages?
Using multiple bank accounts can bring clarity to your financial situation. Instead of having all the money in one account and seeing it as one lump sum, move your money into different accounts as it comes in.
This also ensures that all the essentials are covered. You don’t have to worry about paying taxes or your salary as it’s sorted into the right accounts.
Using the Profit First system, create one account for each of the below:
- owner’s salary
- operating expenses
These are the core parts of any business and ensuring these are covered is crucial. By separating the money out as it comes in, then you can be assured you’re prepared for these costs.
How can a Profit First Professional help?
There are certified Profit First Professionals who know the system and methodology inside out.
They will work with you to achieve the results you want, and in the best possible way for you. Their knowledge can apply the Profit First percentages to your business so you see improvement in your business’s profitability right away and to allow you to feel empowered about your finances again.
Head on over to our testimonials for Nourish Your Numbers reviews to see how we've helped many clients implement Profit First within their business.
Then, when you're ready to, book in a free Getting To Know Your Business strategy call and discover why you should turn to the Profit First system to see permanent profitability in your business.
Prepare Your Business For Profit First
A free guide to getting your business ready for Profit First implementation.