Profit is the lifeblood of any organization.
Show me a small business with PROFIT at its center, and I’ll show you something worth modeling yourself after.
An organization NOT to model yourself after: the federal government. They prefer to operate in deficit mode, narrowly avoiding yet another shutdown this weekend with a temporary funding bill that expires around Thanksgiving.
So stay tuned for more drama on that front. Meanwhile, I’d like to help you avoid drama on your turf, by creating a strategic plan for prioritizing profitability. You might have heard the term “profit first accounting” in various business-type conversations.
It’s not a new philosophy. It was first made popular almost a decade ago by Mike Michalowicz and his book, Profit First.
I think it’s worth remembering, so today, I thought I’d cover some of those core principles so that it might spark new accounting ideas as you prepare your Ocean County business for the close of another year.
For a deeper dive, obviously, read the book, and we can talk more about putting it into practice.
But here’s a start.
Steps For Prioritizing Profit In Your Ocean County Small Business
“Money is a terrible master but an excellent servant.” ― P.T. Barnum
In the world of business, priorities are essential for long-term success.
So, where does profit fall on your list of priorities for your small business? Traditionally, profit might come after handling expenses like COGS and payroll, but a profit-first approach flips that. You pay yourself first.
Here are some shifts that would need to come first…
1. Structuring Your Accounts
One of the first steps in embracing the profit-first mindset is organizing your bank accounts strategically. This simple adjustment, implemented with your accounting team’s help (ahem), will keep your small business profit goals on track.
Here’s the setup:
Profit: Savings Account
Owner’s Pay: Savings Account
Tax: Savings Account
Operating: Transaction Account
Revenue: Transaction Account
2. The Weekly Instant Assessment
Fill out the Instant Assessment Table (from the author’s website) on a weekly basis to maintain allocation and accuracy. You and your team will need to record and report all revenue appropriately.
Be mindful that tax laws may impact the percentages year by year. This is a key area where I can help you walk out these principles.
3. Implementing Profit Transfers
Every two weeks, the transfer of funds becomes your small business profit-first ritual. Accountability is paramount here. Consider partnering with a trusted team member to ensure precise fund allocation according to these objectives:
Profit: Build Profit Reserves
Owner’s Pay: Take Home Your Compensation
Tax: Fulfill All Tax Obligations
Operating: Cover Day-to-Day Expenses
Revenue: Exclusively for Income Deposits
Making Profit Your Small Business Mantra
The profit-first mentality is not a groundbreaking concept anymore, but it’s a pivotal step for small businesses seeking improved cash flow management. And if your current strategies aren’t giving you what you want, why not give it a try for a month or two?
After all, adaptability is a hallmark of successful businesses, as I’ve said before. If you have any questions about these profit principles and how they can benefit your South Jersey small business, don’t hesitate to reach out:
Your profit is my priority,
Kevin Duffy