Do you feel like you aren’t making enough money to make ends meet AND grow your business? 

It’s a vicious cycle many business owners find themselves in.

And it doesn’t discriminate on income either. No matter how much work a business brings in, business owners never seem to have much leftover for themselves once they compute their hours and take expenses out.

These financial issues make building a highly profitable business that works without you appear impossible.

But, the good news is that it’s a problem you can fix quickly when you know your numbers.

You must gain control over your money, or the lack of it will forever control you.
Dave Ramsey

Dave Ramsey is a personal finance consultant, radio show host, author of several personal finance books, including the bestseller “The Total Money Makeover”

I want to introduce you to Profit First. It’s a concept that came from the mind of entrepreneur Mike Michalowicz and is the subject of his best-selling book.

Whether you call it a methodology or mindset, following it has helped many businesses become well-oiled profit machines, all while paying their owners handsomely.

How does putting profit first work?

When you calculate your profit, you probably do it like this:

Revenue – Expenses = Profit

But when you put profit first, the formula becomes this:

Profit – Revenue = Expenses

When you put profit first, you are setting yourself a goal of how much money you want to make.

Putting profit first in the equation might seem crazy at first. After all, revenue and expenses come before profit – Right!?

Here’s how putting profit first can help you manage your finances better than the traditional way:

The universal law that makes ‘Profit First’ so powerful

Putting your profit aside first forces you to become more resourceful with your revenue and expenses.

It is a principle-based on Parkinson's Law: The notion that work expands to fill the allocated time to complete it.

For example: If you have just started a job and have a year to complete it, the job will take a year. But if you have only six months to do it, you are just as likely to do the job in this timeframe and to the same standard without losing any earning potential.

To complete the job in six months instead of a year, you would allocate twice as much time every week to complete it. You might not have as much capacity to take on any other work during that six months as you would if the project stretched out for a year, but you know you’ll regain that capacity once you finish the job.

When you apply the Profit First principle to your business finances it works by structuring your business’s finances to reach that profit. It may just instigate some tough, but necessary, questions about your business.

Revenue:

When looking through your revenue, ask yourself, ‘am I making enough money to help grow my business?’.

Were you able to win your first few customers by lowering your prices and undercutting your competitors? While it might have got you where you are today, you can’t grow a profitable business by simply competing on price.

If you have already put your profit to the side, unsustainably low prices become impossible to ignore.

But of course, you can’t simply up your prices and expect your customers to keep doing business with you. You need to accompany any price rise with an increased and perceivable value that will ensure your customers are happy to pay more.

Here are some practical strategies to get out of price competition and maximise the value of your business.

Expenses:

When you put profit first, it is also impossible to ignore the unnecessary expenses that eat into your profit.

You see, every business expense is either an investment or a sunk cost. But some investments might generate an insignificant return or might even just be a cost to your business.

A Profit First strategy will keep you efficient and ensure that you make the necessary changes to stop haemorrhaging your own money!

Separate your bank accounts