How often have you heard someone say “don’t expect to make a profit in your business for the first 3 years” or “It is only the first year of business, it is ok to not make a profit?” Unfortunately, it is something that I have heard time and time again and I must respectfully disagree.
To accept those above statements as true, only sets us up to fail and removes the importance of profit when it comes to running a successful business. We are often told by reputable sources that profit is not really cash or sales, it is what is left over on paper. For example, this can be found on the Queensland Government website – “Profit is not the same as cash or sales, and it’s not the money in the bank or on hand. Profit is represented ‘on paper’ in your accounting system.”
Whilst this is the accounting norm and something that we have come to accept, it does not mean that we cannot have profit in CASH in the bank. It also does not mean that we have to go without paying ourselves or that we will be unable to pay all our expenses.
I totally understand that as a startup, cash flow can be at a minimum and the idea of profit, let alone paying yourself seems out of reach. I have been in that situation. What if I told you it is possible? Not just possible, but you can start straight away?
It almost sounds too good to be true, doesn’t it?
I promise you, this is no get rich quick scheme. You still need to work to bring in income and you will need to have business & income goals. You will also need to know what your monthly expenses are and ensure they are as low as possible, as every business should. The difference is how we handle the incoming money!
This is where Profit First comes in.
Profit First is a concept (and a book) by Mike Michalowicz. It is a cash management system that ensures the business owner takes a profit and is always paid, no matter how small the income may be. I strongly believe EVERY business should implement this and if you are just starting up, NOW is the time to do it.
The Profit First method turns the general accounting formula around to be Income – Profit = Expenses. This not only means you take your profit first, in cash, you then use what is left is for paying your expenses. It also gives you control over where your money is going and ensures that you can pay everything you need to, including debt and yourself.
Profit First really simplifies and takes away the worry and stress of not knowing whether there will be enough money in your account to pay things such as tax, GST or yourself, let alone have a profit amount sitting in your bank account.
I invite you to investigate this more if you have not already done so. It will revolutionise the way you handle your money and will even motivate you to bring in more. So let’s go and get that profit!