Let’s talk about something every business owner has struggled with at some point—cash flow problems. You work hard, bring in revenue, and yet, somehow, there never seems to be enough left over. Sound familiar? You’re not alone!
Most businesses follow the traditional formula: Revenue – Expenses = Profit. But the problem is, profit ends up being whatever’s left—if anything at all. That’s where Profit First, a method created by Mike Michalowicz, changes the game.
It flips the script to Revenue – Profit = Expenses, ensuring that profit comes first—literally.
Let’s dive into the five biggest cash flow challenges and how the Profit First method helps you take control of your finances once and for all.
1. Late Client Payments
The Struggle
Ever had to chase down a client for payment? It’s frustrating, right? Late payments mess with your cash flow, making it hard to pay bills and plan ahead.
How Profit First Helps
With Profit First, every bit of income is immediately divided into different accounts, including one for expenses. This way, even if clients pay late, you still have money to keep your business running. Over time, you also build an emergency fund so a delayed payment doesn’t throw everything off balance.
Pro Tip:* Set clear payment terms upfront and use automated invoicing to remind clients—it helps a lot!*
2. Struggling to Make a Profit
The Struggle
You’re bringing in sales, but when you check your bank account, there’s barely anything left for yourself. Where does it all go?
How Profit First Helps
The key shift here is taking profit off the top. Instead of waiting to see what’s left after expenses, you set aside a percentage of every dollar earned for profit first. Magic? You learn to run your business with what remains, making you more mindful of spending.
Even if you start with just 1% to build the habit, it will train you to prioritize profit—and that’s a game-changer.
Pro Tip: Start small, then increase your profit percentage as you get comfortable.
3. Growing Too Fast, Too Soon
The Struggle
Scaling a business is exciting, but growing too quickly without financial stability can lead to cash flow nightmares. Hiring too many people, expanding too fast, or taking on huge expenses can put you in a tough spot.
How Profit First Helps
Since Profit First limits the amount of money available for expenses, it prevents overspending. You always know exactly how much you have for growth and can make smart, sustainable decisions instead of rushing into financial commitments you can’t support.
Pro Tip: Ask yourself, “Do I really need this now, or can it wait?” before making big investments.
4. Unexpected Expenses Wrecking Your Budget
The Struggle
A broken laptop, a surprise tax bill, or an emergency repair—unexpected expenses can derail your entire cash flow if you’re not prepared.
How Profit First Helps
With separate bank accounts, including one specifically for Taxes and Profit, you always have a buffer. So when unexpected costs pop up, you’re ready, not scrambling for cash.
Pro Tip:Set up a “Rainy Day” fund with a small percentage of income each month—it adds up quickly!
5. Tying Up Too Much Cash in Inventory
The Struggle
If you run a product-based business, it’s tempting to stock up on inventory. But too much inventory means less cash on hand, which can create liquidity problems.
How Profit First Helps
With Profit First, you allocate only a set percentage of revenue to inventory purchases. This keeps you from overbuying and encourages smarter inventory management based on actual demand.
Pro Tip: Use a just-in-time (JIT) inventory system to keep stock lean and cash flow strong.
Why Profit First Works
Profit First isn’t just a financial system—it’s a mindset shift. Instead of treating profit as an afterthought, you make it the top priority. By structuring your finances to always account for profit, you remove the stress of cash flow struggles and set your business up for long-term success.
If you’re ready to take control of your cash flow, here’s where to start:
- Open separate bank accounts for Profit, Taxes, Owner’s Pay, and Operating Expenses.
- Decide on allocation percentages and stick to them.
- Adjust your spending to fit what’s left after prioritizing profit.
Making these small changes can lead to big financial wins over time. Ready to give it a try?
