The GAAP (Generally Accepted Accounting Principles) formula for determining a business’s profit is Sales – Expenses = Profit. It is simple, logical and clear. Unfortunately, it does not work to make you profitable. It only reports numbers in a way consistent with a reporting model... not a profit or success model.
The formula, while logically accurate, does not account for human behavior. In the GAAP formula profit is a left over, a final consideration, something that is hopefully a nice surprise at the end of the year. Alas, the profit is rarely there and the business continues on its check to check survival.
With Profit First you flip the formula to Sales – Profit = Expenses. Logically the math is the same, but from the standpoint of the entrepreneur’s behavior it is radically different. With Profit First, you take a predetermined percentage of profit from every sale first, and only the remainder is available for expenses.
While Profit First allows you to connect with your cash in a new way, it is not a set and forget system. Profit is a process, and the process only works when you work it.
Profit funds your peak experiences in life, helps destroy debt, and allows the business you love to move forward with confidence. Sales – Profit = Expenses!
Your business is about serving others, but it is also about serving YOU. Starting the process is what matters. The business should be designed to Pay you, then you can fund your Play through Profit.
Mike is the entrepreneur behind three multimillion-dollar companies and is the author of Profit First, The Pumpkin Plan, and what BusinessWeek deemed the entrepreneurs cult classic: The Toilet Paper Entrepreneur. He is a former small business columnist for The Wall Street Journal. He speaks internationally on entrepreneurial topics and is the creator of the Profit First method. Mike is an active adviser on Profit First to our firm.
Contact us for your complementary initial consultation from a Certified Profit First Professional to begin your path to profitability.