Profit First is a money management system for small businesses. For every dollar that comes in, it gets distributed as:
With Profit First, the philosophy is to flip traditional business practices on their head. Rather than using the formula revenue – expenses = profit you use revenue – profit = expenses. It’s up to you to make the expenses fit the new formula.
We got into depth about profit first on our recent episode Tips for Managing Your Business Finances with the author of Profit First, Mike Michalowicz. Check it in our Show Links and Related Episodes below.
How to Do a Profit First Distribution
To do a Profit First Distribution, you take the income that has come into the account and distribute it according to your distribution percentages. For example, 50% expenses, 20% taxes, 20% owner pay, 10% operating costs.
Your distribution will ultimately depend on your business structure. Kevin will often change his distribution percentages as the business grows and evolves.