We are Profit First Professionals which means that we are fanatical about making you more profit! But more than that, we need you to see that profit in cold hard cash!
Our Founder, Scott Trevethan, has written a book called “Unfunk Your Business Finances” which is an easy to read guide to getting on top of your business financial management. You can grab the E-book version of Scott’s book.
Michael Michalowicz, author and entrepreneur, has a similar mission to increase profits and cash. The way Michael states it is to reduce Entrepreneurial Poverty!
You see what Michael and Scott realised is that people who get into business are an optimistic bunch! Given the failure rate of business – not just those that close but those that consistently underperform – entrepreneurs are indeed optimistic!
But Entrepreneurial optimism gets most people in deep trouble. They don’t have enough cash to pay taxes or key suppliers because they used this cash to pay personal expenses just to live. It seems like there is never enough cash to survive on and it causes cash stress in the business. You lose enjoyment and you end up never being able to get ahead and give the gift to the world that your business promised to give.
You truly are now working for the business, your suppliers, your employees and the tax office. It’s draining and tiring and frankly you would be much better off financially just working for someone else.
There has to be a better way!
Introducing the Profit First Professionals!
Profit First is Michael’s brilliant and world acclaimed book and system to solve the problem of Entrepreneurial poverty. The brilliance of this system is that it turns around the concept of profit last.
You see the “traditional” way of doing business is represented as:
Sales – Expenses = Profits
If this is your worldview then the way to get more profits is to increase sales right? So for the same level of expenses if you increase sales you should generate more cash and more profits. But….that doesn’t work. Why not?
Michael discovered “Parkinson’s Law” was at play. Parkinson’s law simply states that work expands in comparison to the time available to complete it. You know how you have all year to shop for Christmas presents but you leave it to the last minute to rush around and buy all the gifts? We are humans and we need deadlines or we soak up the extra time for no real value.
What has Parkinson’s law got to do with Sales – Expenses = Profits? Well, what Michael discovered was that Expenses were actually increasing in proportion to what was available to pay those expenses. Hmmm. So increasing Sales actually didn’t add that much to profits and cash. It made everyone very very busy and hectic and it seemed like it should be raining cash but for some reason, the business is worse off now than before!!! That was because your expenses increased the same proportion as sales increased!!
So.. if it’s human nature we are doomed right? Well… maybe we can leverage that human nature…
What if the business worldview can be turned on its head?
Sales – Profits = Expenses
Wow. Mind Blown right? Wait did anything change? It did. Now we use Parkinson’s law to expand our PROFITS in proportion to the increase in Sales NOT expenses. Profits come BEFORE expenses.
Ah that’s just rearranging the deck chairs on the Titanic you may say. It does seem like that but if you say that 15% of your SALES is going to be allocated to PROFITS then you only have 85% of your sales to allocate to expenses. You can’t spend more because you allocated to PROFITS FIRST! Hence the name.
BANK ACCOUNT ACCOUNTING
Another key discovery that Michael has was that most Entrepreneurs don’t really use the profit and loss, balance sheet and cashflow statements to run their business. They just look at what is in the bank account and that is how they make key business decisions.
Rather than change that habit, again Profit First seeks to LEVERAGE it by making it easy to know how much you can spend on expenses WITHOUT dipping into Profit. That’s because for every $ of sales that come in, you FIRST allocate the profit and only then, you allocate the Expenses to the expense account. Simple, easy and most importantly…it works.
BONUS IMPACTS ON YOUR LIFE
This is really just a simple cash management method but what actually happened for the thousands and thousands of businesses globally that have implemented the Profit First System into their business is that they actually increased their PROFITS and ELIMINATED their debt. They had more money for themselves and their family. All of a sudden they weren’t working for their business, suppliers, employees and the tax office anymore. Their business was working for them! It was growing! It was a cash generating machine! Phew. You got there in the end. The kind of respect from your friends and family you deserve is now forthcoming! That new boat, holiday, school fees, diamond rings! Upgrade your house. Just live with more options. And it all started with a few bank accounts and a new world view.
Sales – Profits = Expenses