Word is spreading fast on the effectiveness of using Profit First to scale businesses. Want to know why it’s so effective? Read on.
If you’re unaware of what Profit First is, it is a money management technique that can make almost any business type profitable from day one.
Sounds like a sham right? But it’s not! And there are thousands of entrepreneurs worldwide who attest to its effectiveness. Here’s why…
You know your numbers
Knowing your numbers in business is integral to making smart and informed decisions that move your business forward.
Using Profit First in your business:
- gives you a clear understanding of where your money is coming from and going to
- highlights gaps in profitability and opportunities for growth, and
- gives insight into how you structure your business to become more profitable.
You can price your products and services for profit
That’s right, by using Profit First you understand what it’s really costing you to create and deliver a product and service so that you can have confidence that your pricing is accurate and profitable.
No more guessing. No more pricing based on competitor pricing. Just pricing that is accurate and profitable.
Pricing for profit enables you to scale your business with ease because you know that every item/service you sell is making you money – not draining it.
Controls spending and debt
By implementing Profit First in your business you have an easy to follow system that keeps your expenses and debts under control.
This is where the Profit First method really shines because you simply cannot scale your business, let alone make it sustainable, if you are continually spending more than you’re making. And continually getting investment injections to float the business is NOT the way to build and scale a business.
The business owner gets paid
As Profit First Professionals we see this on the daily… Entrepreneurs with incredible ideas, doing amazing things, making money but quickly spending it all to grow their business or cover their expenses… but never actually paying themselves – especially during startup.
Would you take a job that didn’t pay you? NO. So don’t short change yourself for the hard work you’re putting into your business. Because guaranteed if you start like this, you end up either:
- resenting the business,
- resenting the staff/contractors you’re paying even though you work more hours, or
- waiting YEARS to pay yourself because you’re just waiting for when you have “enough”.
Well, things don’t fly like that with Profit First.
Using Profit First you have a percentage of revenue that is for paying yourself as the business owner. So as the business starts, sure your payment may be low because revenue is low, but you’re still getting paid. Then as the business grows so does your take-home pay.
Profit First Recommendation: We recommend paying your take-home owner pay into another bank account or bank, and not using that money to reinvest in the business. That’s what Profit can be for, not your wage.
Make calculated risks not gambles
The Profit First money management method does 3 key things that help entrepreneurs scale their businesses:
- You know your expenses/debts
- You can price for profit
- You manage your money effectively using the Profit First percentages
This helps businesses scale because as we’re sure you’ve heard before, “in business you’ve got to take risks to get anywhere.” Which is true to an extent but when a great opportunity or idea presents itself to you, using the Profit First approach can help you take calculated risks that pay off.
Even if that risk doesn’t pay off, by using this approach you prevent yourself from ending up in a worse financial position. Don’t forget that you can always set up another bank account for the new opportunity and allocate a percentage.
You’re able to set business goals that actually work
Making goals for business – especially financial ones – can sometimes feel like you’re pipe-dreaming. With the Profit First approach to money management, you get to know your business finances quite well – even if your not the numbers and accounting type! – which helps you, as the business owner, to make informed and strategic goals in your business.
Using Profit First you can set clear financial goals and sales targets because you:
- know which products and services bring in more profit.
- are controlling your expenses and debt
- know what it costs to operate your business
- know what revenue you need to bring in, versus just choosing a number
And lastly, entrepreneurs are using Profit First to scale their business because it…
Builds sustainable businesses through health money habits
Managing money using the Profit First method gives you the ability to easily set up a profitable business from day one as well as an understanding of the cash flow trends of your business. This helps you make informed decisions and opens up easy avenues to scale your business.
Healthy money management habits allow entrepreneurs to scale effectively for long term success.
Get started with Profit First
The Profit First method works for so many different business models and any stage of business. To get your business prepared for implementing Profit First, including an initial review of your pricing profitability and general cashflow trends, download our free guide to Preparing Your Business For Profit First.
Need to set up your bank accounts? Check out Thriday, they make the process really easy.