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December 24, 2021
Relying on traditional accounting methods to grow profitability is the equivalent of telling you to jump off a cliff and flap the living crap out of your arms.
The old profit formula creates monsters of businesses. Cash-eating monsters. But we stay loyal to the formula, and things get worse. The solution is profoundly simple: Take your profit first.
What I didn’t know was that I was about to learn the difference between making money (income) and taking money (profit). These are two very, very different things.
I had mastered how to grow businesses quickly, yet I never really graduated to understanding profitability. I had learned how to collect money, for sure, but I had never learned how to keep it, how to control it or how to grow
The perfect size for your business? It will happen naturally, when you take your profit first.
Here’s the deal, my friend: Profit is not an event. Profit is not something that happens at year-end or at the end of your five-year plan or someday. Profit isn’t even something that waits until tomorrow. Profit must happen now and always. Profit must be baked into your business. Every day, every transaction, every moment. Profit is not an event. Profit is a habit.
“Revenue is vanity, profit is sanity, and cash is king”?
She wants to grow, grow, grow so that she can make a profit one day. Alternatively, if you want to grow for ego, and to boast, that is just dumb (cough—that’s exactly what I did in the past—cough—so embarrassing—cough). If you want to grow to make money for yourself one day, you are playing a game of kick the profit can down the road.
When you focus on growth, it is inevitably a scramble to grow at all costs. Yes, at all costs (including the quality of your life). When you focus on profit first, you inevitably figure out how to make a profit consistently. Profitability. Stability. Sanity. Forevermore.
Only when you stay in the channel of the horizontal dotted lines do you make your vision for your business a reality.
Sustained profitability depends on efficiency. You can’t become efficient in crisis.
Here’s the deal. There is only one way to fix your financials: by facing your financials. You can’t ignore them. You can’t let someone else take care of them. You need to take charge of the numbers.
Parkinson’s Law: that the demand for something expands to match its supply.
When you have less, you do two things. The first is obvious: you become frugal. When there is less toothpaste in the tube, you use less to brush your teeth. That is the obvious part. But something else, far more impactful happens: you become extremely innovative and find all sorts of ways to extract that last drop of toothpaste from the tube.
You need to intentionally make less toothpaste (money) available to brush your teeth (to operate your business).
By taking your profit first, you will be forced to think smarter and innovate more.
Primacy Effect. The principle is this: We place additional significance on whatever we encounter first.
To grow the biggest and the fastest, you need to be the best at one thing you do. And to become the best at something, you need to first determine what you are best at and do it a whole lot better. To get there, you take your profit first and the answers to being the best at something will reveal themselves.
Eliminating unnecessary expenses will bring more health to your business than you can ever imagine.
Profit First triggers growth because it requires us to focus, streamline and innovate,
A financially healthy company is a result of a series of small daily financial wins, not one big moment. Profitability isn’t an event; it’s a habit.
The key to successful Profit First implementation lies in stringing together a series of many small steps in a repeating pattern.
The bigger your profit allocation percentage, the more efficiently you are running your business, which means less in operating expenses.
Working on your business is about building systems. Period.
Basically, you are a true entrepreneur (building systems) 10 percent of the time,
Always start with CAPs—where you are now—and increase by 1 percent each quarter.*
your “small plate” accounts. The Tax plate, so we are clear, is designed to pay the direct Tax liabilities of the business and (this is the big one), the personal income taxes of the owners.
If you focus all of your energy on paying down debt, that is all you will ever achieve. You’ll still be caught in the trap of top line thinking, which will likely result in more debt.
Even when you and your business are in debt up to your eyeballs, you must establish a habit of putting your profit first. You must still (and always) pay yourself first.
if you wait to implement Profit First until after you pay down your debt, you are less likely to ever build the business efficiencies that will permanently eradicate your debt and create a perpetual profit stream.
If you want to get out of debt, you must get more enjoyment out of saving your money than you do spending your money.”
The premise is simple—we avoid pain and move toward pleasure, putting a significant emphasis on the moment and very little emphasis on the long term.
Comparisons and rolling averages will give you a much clearer picture of where you truly stand.
Go line by line through each expense (past and present), even if you are not incurring the expense anymore, and with the pen, mark the expense with a P for any expense that directly generates (P)rofit; R for any expense that while necessary, can be (R)eplaced with a less expensive alternative; or U for any expense that is (U)necessary for delivering your offering.
Asking all your people to continue to work just as hard or harder than ever for less money is worse for the emotional welfare of your company than letting just one more person go.
Cut any U expense listed. If you doubt whether you can really cut it, cut it. An expense is always easy to add back. For the R expenses, it is time to negotiate. When something can be (R)eplaced, it puts you in a position of negotiating strength. And everything is up for negotiation—your rent, your credit card rates and debt, your vendors’ bills, your software license, your Internet bill, your weight, your height, your age, everything.
Momentum builds slowly but relentlessly. Small, repetitive, continuous actions, chained together, build momentous momentum
If you want to increase profitability (and you’d better friggin’ want to do that), you must first build efficiencies.
focusing solely on top line thinking (sales, sales, sales!) does not lead to profitability. In fact, more sales, without efficiency, lead to further inefficiency.
achieve greater efficiency first, then sell more,
Small questions yield only small answers.
Selling more is the most difficult way to increase profits, because in the best-case scenarios, the percentages stay the same; and in the worst-case more common scenarios, expenses generated to support sales increase faster, resulting in smaller percentages and a smaller profit margin.
You get what you focus on, so stop focusing on expenses. Focus on profit, and the expenses will be taken care of by default.
Be profitable first and when you know what exact elements of your business are making that profit, you can consider using outside money to amplify what is working.
For the next five years, you will lock it in and live the lifestyle you are designing now so that all of your extra profit goes toward giving you that ultimate reward: financial freedom.
The worst enemy of Profit First is you. The system is simple, but you have to have the discipline to implement it consistently, and that’s where most of us fall short. We won’t do the Debt Freeze all the way, or at all.
