One of the game changers in my business when it comes to managing money was reading Profit First. I was so impressed I hired a Profit First trained consultant to set everything up for me within days of finishing the book.
Armed with the *very expense* formulated excel spreadsheet, I was on my way and ready to see my profits soar! The promise of two times the results with half the effort sounded too good to be true – I was in hook, line and sinker.
But it didn’t take long before it stopped working for me. And the first three times I couldn’t make distributions my spreadsheet was telling me to, I was ready to throw in the towel.
Luckily, instead of stopping altogether, I decided to adapt it to fit for me. If it worked for me, it might just work for you too.
Here are two aspects of Profit First that WILL work for anyone:
1. Separate Bank Accounts
A huge game-changer for me was setting up a separate account for annualised and regular payments. I added up the annual expenses (e.g. insurance, accountant, all monthly ongoing subscriptions, etc) and divided that by each fortnight to make sure there is enough to cover all those big bills when they come in. It’s been such a relief to know they are all covered no matter what my cash flow looks like at the time.
2. Twice A Month
Still doing this two years later. Every 1st and 15th of the month, I have blocked out an hour in my calendar to update and transfer my money, pay bills and update my cashflow spreadsheet. This discipline means that I am not missing anything, and it’s super time-efficient.
Here’s are two aspects of Profit First that will NOT work for everyone:
1. Irregular Income
Most businesses have weeks or months with high income, followed by the same of low income. Even if you can rely on a similar amount of income each month, at times life throws us a curveball and one of two things happen:
- A sure thing becomes not a sure thing – a client cancels, life happens for them, a pandemic hits
- An unexpected expense turns up – maybe your laptop dies, you smash your phone, or heaven forbid, you become sick and can’t deliver your services
When the cash flow dip comes, the Profit First system doesn’t work because there is barely enough to cover expenses, let alone pay yourself first.
2. Income targets aren’t hit
Some businesses have a long lag-time between all the outbound marketing and sales and when that money shows up on invoices. When I worked in corporate, it could take months before the appropriate person signed off a proposal. I remember nurturing a lead for two years before he became a client!
When you focus only on the sales, and not on the things that lead to sales (like marketing, networking, etc), then your energy can get all out of whack and you send off needy vibes. That’s not a good place to be, especially if you’re freaking out about your Profit First distributions!
What to do if Profit First doesn’t work for you
If this is you, don’t despair! The solution is about finding what does work for your specific business and adapting the Profit First system to ensure you are still making progress. Here are a few suggestions on how to do that:
- When you are in a period of high income in your business, put aside a larger portion to cover the lower months (your cash flow forecast should be able to guide you here)
- Keep a tally of any amounts you weren’t able to transfer (e.g. to your GST savings account) so that, the next time you’re in surplus, you can pay that money back
- Build up a buffer of three months of expenses to cover those longer droughts. This account is separate from everything else. I call mine ‘Emergency Fund’.
Have you resonated with any of this? If so, it might be a great time for a deep dive into your business with our True North in Business Diagnostic. You will complete a business health check, understand your natural behavioural style and leave with a bespoke roadmap for your business. This roadmap outlines clear next steps for you to create your profitable, wildly successful business without having to sacrifice your time or your life. Find out more by adding your details below and I will be in touch.