Why Profit First and What It Means To My Business
In December of 2020, Leaf Book CFO Services became a Profit First Certified firm. We sent out a big announcement, but if you missed it that’s okay. I’ll just tell you that we are so excited and privileged to join this elite club of professionals that works to end “entrepreneurial poverty” (it's a real thing) worldwide.
Today I want to share with you how I’ve used the Profit First methodology to improve the financial health of my business.
I think most people have the view that accountants and CPAs know how to run a business. Let me be completely honest here and assure you that is not always the case. As a business owner I’ve made a lot (many, numerous, multiple) of boneheaded mistakes in my business that have cost me time and money. One bad decision made in 2014 almost ruined my business.
As a CPA I have witnessed many clients making boneheaded, expensive mistakes. In fact, I can only count on one hand the number of business clients that have made profitability their goal. Most clients I’ve had in the past were so focused on not paying taxes they let profitability fly out the window. They were shortsighted and misguided.
My hope in writing this series of blogs is that I can help you avoid or stop making the same boneheaded (and sometimes costly) blunders that I made and encourage you to implement Profit First in your business.
Put simply, Profit First is a cash flow system based on the national best-selling book Profit First by Mike Michalowicz. Note, I didn’t say accounting system. Profit First is most definitely not an accounting system. But more about that in future blogs.
The Profit First methodology is based on behavior. It is a life changing system because you, the business owner, start focusing on your profit first. Not revenues first, not expenses first, not employee payroll first, not loan payments first. Your profit comes FIRST. Why? It’s simple. Human behavior tells us that we focus on what comes first. More on that in future blogs too.
Once you start focusing on profit first, other benefits will follow. But first, let me ask you these questions:
Have you ever received a regular paycheck from your business? Many small business owners haven’t.
Do you have enough money in the bank at the end of the year to pay your taxes? Many business owners don’t.
Do you have enough money in the bank to cover your loan payments? Have you ever made a loan payment late? Many business owners have missed loan payments or paid loans late.
Have you ever taken a profit distribution from your business? Most business owners haven’t.
Implementing Profit First will change all of that. How do I know? I’ve been there. I understand because I’ve walked in your shoes. Four years ago, just like you, I would have answered no to all the above questions. And here is why.
Due to the seasonality of my business, I could guarantee that I WOULD NOT receive a paycheck during the months of November, December, and January. I had to pay my employees first, right? If I was able to scrape together some cash for a paycheck, it wasn’t for the full amount. Sound familiar?
I now get a regular bi-weekly paycheck from my business thanks to implementing Profit First. And I’ve given myself a few raises over the past two years! I’m finally contributing to my family’s finances on a regular basis and that makes me so proud!
If my business was profitable during a given year, you could bet I wasn’t able to scrape together enough cash to pay the taxes on that profit. Profit does not equal cash flow. Instead, I had to take money out of my family’s personal savings to pay the tax bill.
Now, I have money in the bank to make quarterly estimated tax payments and I usually have funds left over at year end in the account just in case my estimates weren’t enough. But give me some credit here. I am a tax professional after all, and my estimates are usually spot on.
When I bought my accounting practice in 2011, I took out an SBA loan for the purchase. The cash flow projections I prepared for the bank made it perfectly clear that I could afford these payments. Sure! I could afford the payments if I didn’t take a regular paycheck or a profit distribution for the first couple of years. I am so embarrassed that I fell into the trap of sacrificing my business and family’s financial health for the entrepreneurial myth that I had to sacrifice financially to build my business.
Thankfully, with Profit First and a plan to crush debt, I was able to whittle down that SBA loan and paid it off in August 2021. All while receiving a regular paycheck! Yep, during the aftermath of Covid I was able to pay off my SBA loan five years earlier than scheduled!
Since I started my business, I don’t ever recall that I paid myself a profit distribution until two years ago. There was never any cash in my company to do this. I pretty much weep with joy when I think about that first distribution.
On September 30, 2020, I paid myself a profit distribution in the amount of $382.95 and it was magical (with sparkles and unicorns)! I know it wasn’t a large amount of money. But in my struggling business, it was huge! It meant I was finally making changes to move my company toward financial stability and health. And it also meant that my Profit First plan was working!
Profit First is simple, but not easy. The beauty of the system is that it is adaptable and customizable to any type of business and any size business.
It has become my goal to help other business owners get out of entrepreneurial poverty and I would love to help you. Remember, you started your business to serve you.
What Working with Me Looks Like
Working with me to implement a Profitability Plan generally looks like this. I will analyze your financial statements, prepare a profit assessment, and put together a customized plan that you can put into place immediately.
Together we will look at every aspect of your business to see where you can increase profitability. It will probably be overwhelming and difficult at times, but don’t worry. I will be with you every step of the way, guiding you along your journey.
Profitability doesn’t occur overnight. In fact, it takes the average business owner six to eight quarters to implement the plan. But I can promise that if you put in the work, you will see a change. And I will be your biggest cheerleader.
Reach out to me today if you’re ready to commit to changing your business.
Resources for You
If you would like to learn more about how I can help you implement a cash flow and profit strategy, schedule an appointment here: https://calendly.com/summer-4/45-min-meeting.
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About the Author
Summer Wilkinson, CPA, is the founder and owner of Leaf Book CFO Services and a certified Profit First Professional. She works with small businesses, to drive profitability. If you would like to connect with her, you can email her at summer@leafbookcfo.com or visit the firm’s website at www.leafbookcfo.com.
