Why You Must Practice Profit First

business May 20, 2022

If you are not doing this – you won’t be doing you or your business any justice.  You will also, most likely, feel more stressed than you want to or need to.  But when you do this not only are your finances in great shape but everything in your business works better.

What I am talking about is putting profit first.

Now, what do I mean by putting profit first? We all want to make a profit, don’t we?  What most people don’t do though is implement this religiously.  Whenever you are doing any planning in your business (or your home) you should know exactly what the implication of your decisions are on your profit.  You need a profit-first mentality in all things.

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This simple philosophy of profit first, has been identified by many different people in the past.

However, amazingly, I’m still finding that some businesses are not doing this! What they do is go through the required business processes.  They complete statutory accounts on time.  They may do a little bit of P&L reporting, or maybe a balance sheet to identify where they are from a day-to-day management standpoint. They do the break-point analysis, so they understand how much they need to bring in to cover all costs.

That’s all fine.  But without putting the idea of profit first into every process, you are not going to be taking home what you want.  And you will be reliant on banks for finance.  Alternatively, putting profit first and building wealth, means you can grow your business in a self-funded way and not have to go to the banks for finance.

Why Put Profit First?

Now for me, it makes perfect sense to put profit first, when running a business or even home accounts. Because you need to make sure you’ve got money available in the right places at the correct times. After all, the biggest reason for business failure is running out of cash.

However, the biggest reason that business owners voluntarily close their business – even if they are meeting all their costs – is because the business is not giving them enough back. And that is probably because they are focusing on the wrong break event point – the break-even point which covers all their costs.  You should be focused on the break-even point that includes what you, as the business owner want out of the business and then the costs.

With a profit-first mentality, you build this awareness into your break-even point analysis, your P&L’s, your balance sheets or any other financial analysis you do. You allow for the money that you need as a business AND the amount you want to take home.  So, you’re achieving business success and the comfortable lifestyle that you want.

After all, what are you doing it all for?  Are you running a charity which pays for everyone to have a job but pays you little or nothing?  Unless the answer to that is ‘yes’ you need to change your thinking to a profit-first one.  In fact, even if you ARE running a charity, if it doesn’t make “profit” then you won’t achieve your aims and support the projects you want to support.

So, when you are next doing your planning or your forecasting, are you going to make sure you’re putting your profit first?  Alternatively, are you just going to get the end of the month and then take whatever scraps are left?