Stop Paying Yourself Last: A Simple Intro to the “Profit First” Method
Here is the traditional, soul-crushing formula for business finances: Sales – Expenses = Profit.
This formula means the owner gets paid with whatever is left over, if anything. It’s why so many entrepreneurs are cash-rich in their business but can’t pay their personal bills.
The Profit First method, created by Mike Michalowicz, flips this on its head with a simple but revolutionary new formula: Sales – Profit = Expenses.
Here’s how it works: When revenue comes into your business, you immediately take a predetermined percentage of it and allocate it to PROFIT. You move this money into a separate savings account. You do the same for your OWNER’S PAY and TAXES. You then run your business off of what is left over in your operating expenses account.
This behavioral system forces you to be profitable from day one. It removes the temptation to spend every dollar that comes in. By taking your profit first, you ensure the business is serving you, its most important employee. It forces you to get creative and innovative with your expenses, building a leaner, healthier, and more resilient business.
This is the ultimate financial boundary. It’s how you build a business that is designed to be profitable from the very start.
Actionable Nurturing Step: You don’t have to switch your entire accounting system today. Just start small. Open a new, separate savings account at your bank. Label it “Profit.” The next time you get paid by a client, transfer just 1% of that payment into your new Profit account. Just start the habit.
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Makes a lot of sense to me. I’m reminded of the strategy “pay yourself first”. Putting a percentage away to a retirement fund first, enables you to use the remainder for today and still plan for your future.
I have been doing a pay myself first strategy pretty much always in my business (I can’t imagine another way), but I recently had a conversation with a CPA who mentioned paying myself from my business account *might* not be a good idea and that there was another way around it. But we never talked more after that. I’d be really interested if you had any perspectives on the financial end/taxes, etc, as when we pay ourselves first from the business, is it a business expense at that point? That’s where I get confused! The US doesn’t make taxes and tax law very easy! Do you have any blogs or resources on that? 🙂
Isn’t it amazing how much peace of mind comes from paying yourself first and building healthy boundaries around your business finances.
789win13? Don’t know much, but I’m always down to try something new! Let me know if anyone has tried it already? Check it out: 789win13