Profit First is a behavioural methodology. It seeks to achieve real change by taking advantage of your natural, human tendencies rather than trying to fight them.
The implementation process itself is not all puppy dogs and rainbows. There are plenty of challenges along the way. My aim with this article is to explore the five (5) stages that I see Profit First businesses go through on their journey to achieving the full benefits of the system.
You know your business has a problem. You’re working long hours, your team always seems busy but there just doesn’t seem to be anything left in the bank account at the end of each month.
You’ve read the Profit First book and the system sounds great. Mike explains it well and it seems simple enough, right?.
During this stage, you are weighing up the downsides (i.e. cost, effort, time, risk) against the benefits of making a change. Will it really be worth all the hassle? You may have even discussed the system with a Profit First Professional (as Mike recommends).
The sad truth is people can sit in this stage for years without actually moving forward.
2. Action – Initial Implementation
In this stage you’ve finally decided to make a change. While this is a time of great excitement you are also highly susceptible to relapse. Having a clearly defined implementation plan is crucial.
You’ll open your Profit First Bank Accounts, calculated your Current Allocation Percentages from your accounting data and use the book to work out what your Target Percentages should be.
Business owners make two crucial errors when working through this stage:
1. Opening too many bank accounts – the system becomes overly complex and drives them into relapse;
2. They miscalculate the CAPS – Any significant errors in the starting CAPS will very quickly lead to some bank accounts failing to meet their obligations. You’ll start to doubt yourself and the system. After a while, the system breaks down.
If you fail to get through the initial implementation stage your business will revert back to stage 1 and you will, again, consider whether or not the system is even worth the hassle.
3. Pain and Persistence
You’ve made it through the initial implementation and its time to get serious about achieving the goals in your implementation plan.
This is, by far, the most challenging stage of implementing Profit First. The initial enthusiasm and excitement may have partially (or completely) subsided. Replaced by the pain of constantly second guessing every decision you’ve ever made in your business. Why? Because it’s the only way to truly cut your operating expenses and find efficiency in your various business procedures.
Accountability in this stage is crucial. Whether it’s partners in the same business, independent business owners helping each other or a more formalised relationship with an Australian Profit First Professional.
Congratulations, if you’ve made it this far the system is up and running! You understand what you’re doing now. You’ve cut out a lot of unnecessary ‘waste’ in your business and money is flowing between your accounts like clockwork.
As each quarter passes you’re tweaking the percentages to further improve the functioning of Profit First in your business. You may have even paid off all your debt and started to take profit distributions. How much better do you feel?
When people read the Profit First book they look at the system as a way of getting a bit more profit out of their business. I see it as so much more than that. A business that is struggling under the weight of its own expenses isn’t fun..at all! Some days you even consider closing the doors and getting a job.
On the other hand, a business that is profitable and pays you the income you deserve is far more entertaining. Business owners get their drive and passion back. On top of that, the business can suddenly afford to invest in activities that will allow it to grow without having to borrow large sums of money.
A happier business owner + better cashflow = business growth potential
(Another equation for you, just in case you forgot i’m an accountant!)
Things can only get better from here. Stick to the system, tweak the percentages to suit changes in your business strategy and enjoy yourself!
Read our comprehensive review of Profit First here
Join the Community group here