Managing cash flow is one of the biggest headaches for business owners. Too often, entrepreneurs find themselves just scraping by—covering expenses first and hoping there’s something left for profit. But what if you could guarantee profitability from day one? That’s exactly what the Profit First method helps you achieve.
Developed by Mike Michalowicz, Profit First flips traditional accounting on its head. Instead of the usual formula (Sales – Expenses = Profit), it becomes (Sales – Profit = Expenses). This ensures you prioritize profit rather than treating it as an afterthought.
In this guide, we’ll break down how to implement Profit First in your business step by step. By the end, you’ll have a clear system to gain financial control, ensure sustainability, and actually enjoy the rewards of your hard work.
Step 1: Understand the Profit First Concept
Most business owners believe that expenses must come first. But the Profit First system forces you to take a portion of your revenue as profit before you pay any expenses.
Think of it like a healthy diet—if you serve yourself a smaller plate, you naturally eat less. By setting aside profit first, you create financial constraints that push you to operate more efficiently and avoid wasteful spending.
Step 2: Assess Your Current Financial Situation
Before implementing Profit First, take a deep dive into your current finances. Here’s how:
- Review Financial Statements – Look at your profit and loss statement, balance sheet, and cash flow reports to understand where your money is going.
- Calculate Your Profit Margin – Figure out how much is actually left after expenses.
- Spot Unnecessary Spending – Identify where you’re overspending and what you can cut back on.
Knowing your starting point will help you set realistic goals and adjust your money habits accordingly.
Step 3: Set Up Separate Bank Accounts
A core principle of Profit First is dividing your income into different bank accounts. Here are the five essential ones:
- Income Account – All revenue is deposited here before distribution.
- Profit Account – A percentage of income goes here immediately to ensure profit.
- Owner’s Pay Account – This account is for paying yourself.
- Tax Account – Money set aside for taxes so you’re never caught off guard.
- Operating Expenses Account – The funds left over for running your business.
Having these separate accounts removes the temptation to spend money where it shouldn’t go.
Step 4: Decide on Your Allocation Percentages
Now it’s time to decide how much of your income goes into each account. A simple starting point for small businesses looks like this:
- Profit: 5%
- Owner’s Pay: 50%
- Taxes: 15%
- Operating Expenses: 30%
Your percentages might be different based on your business size and industry, but the key is sticking to a sustainable model. If 30% isn’t enough for expenses, it might be time to cut costs.
Step 5: Transfer Funds on a Set Schedule
Once your bank accounts are ready, consistency is key. Set up a bi-weekly or monthly schedule to move money from your Income Account to the others based on your percentages.
Here’s how it works:
- Deposit all revenue into the Income Account.
- Distribute funds into each account based on your set percentages.
- Only use the Operating Expenses Account for business costs.
This structure ensures that profit, taxes, and owner’s pay are handled before expenses.
Step 6: Run Your Business Within Your Budget
Now comes the real challenge—sticking to your budget. If your Operating Expenses Account runs low, resist the temptation to dip into other accounts. Instead, try:
- Cutting Unnecessary Costs – Eliminate expenses that don’t directly contribute to growth.
- Negotiating With Vendors – Ask for better terms or discounts.
- Increasing Revenue – Focus on bringing in more sales without adding unnecessary costs.
By forcing yourself to work within your means, you create a leaner, more sustainable business.
Step 7: Review and Adjust Regularly
Business finances aren’t static—they evolve. Every quarter, take a step back and assess:
- Are you consistently hitting your profit targets?
- Do your expense allocations need tweaking?
- Can you increase your profit percentage?
Making small adjustments ensures that your business stays profitable and adapts to changes as it grows.
Conclusion
Profit First isn’t just a financial system—it’s a mindset shift. By prioritizing profit, setting up structured accounts, and following disciplined money management, you build a healthier, more sustainable business.
Start small—open your accounts, set your percentages, and commit to regular transfers. Over time, you’ll see the benefits: financial stability, less stress, and the ability to enjoy the success you’ve worked so hard for.
Ready to take control of your finances? Start implementing Profit First today and set your business up for lasting success!
