Welcome back to another insightful episode of The Business Life of Husband and Wife Podcast! In this episode, we dive into the concept of Profit First with our expert guest, Angela Goodman. With her first-hand experience in implementing Profit First principles in her own restaurant business and her role as a mentor at Valkyrie Ventures Group, Angela shares invaluable insights on how businesses can leverage this alternative approach to achieve financial success.
Let’s first explore the key concepts from the book “Profit First” and discover how you can implement them in your own entrepreneurial journey.
Understanding the Profit First Philosophy:
At the heart of the Profit First philosophy lies a simple yet profound concept: to prioritize profit above all else. As Angela Goodman explains, “Profit First flips the traditional formula of Sales – Expenses = Profit to Sales – Profit = Expenses.” This shift in mindset enables business owners to proactively allocate funds for profit from the very beginning, ensuring financial stability and growth.
Setting Up Profit First Accounts:
To effectively implement Profit First, business owners must establish separate bank accounts designated for specific purposes. By opening 5 separate accounts including Income, Profit, Owner’s Compensation, Taxes, and Operating Expenses (OPEX), you can gain clarity and control over your cashflow.” These accounts act as “envelopes” that allocate funds proportionately, making it easier to track and manage financial goals. If you want to understand the concept of “envelopes” you should get the book and read chapter 2!
Establishing Target Allocation Percentages: TAPS
In Profit First, each account has a predetermined target allocation percentage. Start with small, realistic percentages using industry standards for labour and taxes and they gradually increase as your business grows. For example, you might initially allocate 1% of revenue to profit, 50% to operating expenses, 15% to owner’s compensation, and 15% to taxes. These percentages can be adjusted over time based on your business’s unique needs and goals. Consulting an expert like Angela is recommended prior to setting these allocations and you can always be fluid with the concepts and adjust.
Profit First in Action: Real-Life Examples:
Angela shares her personal experience of implementing Profit First in her restaurant business. “By adopting this system, we were able to see our financial situation with clarity and make informed decisions”. Profit First allowed her business to generate consistent profits, pay off debts, and have a healthy cash flow. By implementing Profit First principles, Angela’s restaurant achieved financial stability and that’s why she’s so passionate about educating other business owners on the concept!
Overcoming Challenges and Staying Committed:
Implementing any new financial system can present challenges and its against the traditionally standard principles of accounting when calculating profit, but Angela emphasizes the importance of staying committed to the process. “It takes discipline to make Profit First work effectively,” she advises. It’s crucial to regularly review your accounts as she does every Monday morning with her coffee and adjust allocation percentages and seek guidance from financial professionals as needed.
The concept of Profit First, as outlined in the book by Mike Michalowicz, has the power to transform businesses by shifting the focus to sustainable profitability. Our expert guest, Angela Goodman, has not only successfully implemented Profit First in her own restaurant business but also empowers others through her mentorship at Valkyrie Ventures Group. By embracing Profit First principles, you can gain control over your finances, achieve consistent profitability, and secure the future of your business.
Remember, Profit First is not a one-size-fits-all solution, but rather a framework that can be customized to suit your specific business needs. We encourage you to dive deeper into the book “Profit First” by Mike Michalowicz and seek guidance from professionals like Angela Goodman to unlock the full potential of this revolutionary financial system.
Tune in to this episode of The Business Life of Husband and Wife Podcast to gain further insights from Angela Goodman on implementing Profit First in your own entrepreneurial journey. Let’s take control of our finances and make profitability a priority! Like, Share and Subscribe to the show and help us grow!