Blog

Profit First

24-August-2020
24-August-2020 12:10
in Accountants
by Admin

If you’re a Business Owner it’s most likely you don’t reward yourself enough from your business.

The age old accounting analysis of:-

Sales - Expenses = Profit

This pushes us into spending most of our income on operating expenses leaving little left as Profit to pay out to business owners.

Implementing the Profit First system into our business changes the way business owners think and operate by rearranging the formula to:-

Sales - Profit = Expenses

Simply put, we now give greater emphasis to taking the Profit First from the income, with the remaining amount used for operating expenses.

Have you heard of Parkinson’s Law? This demonstrates that we use up all our available resources. For example, if we are given 8 weeks to complete a project, we will take 8 weeks, however, if we are given 2 weeks to complete the same project, we will complete it in 2 weeks.

Similarly, if we have £100,000 worth of income, we will consume this all on operating expenses, if we take the Profit First, we will still be able to run our business on the remaining amount left to use up on operating expenses. We adjust our spending according to how much is available to use.

How many times have you spoken to your Accountant who tells you, you’ve made a nice little profit last year, leaving you to ask where the money is, as there’s nothing in the company bank account, your Accountant laughs and says well, it’s a profit on paper but there’s no actual cash.

Well, using the Profit First system will actually help you to understand your Profits from your Bank Accounts, something most Business Owners would welcome and find easier than trying to understand Balance Sheets and Cash Flow Statements.

You could call this a form of Bank Balance Accounting

Implementing the Profit First system into any business is very straighforward. I've implemented into my business and am already seeing the benefits!

The first step is to have a Profit Assessment completed based on the cash position of the business, look at the current position and look at the target position which, by the way, will be achievable over a period of time. This could be 12 months, it could be 24 months, sometimes even longer, but what you will find, as long as you commit fully is that each quarter you will be able to reward yourself, and the closer you get to your targets the higher the reward will become each quarter.

In time you will see how the Profit First system has regenerated your business, improved your Profits and increased your personal income.

For your free Profit First Assessment; register on the link below and enter Profit First in the comments box.

https://www.tjsbs.co.uk/contact/

I hope you found this interesting and I look forward to hearing from you.

 

Tim J Seymour

Accountant & Business Advisor

TJS Business Solutions Ltd

To get some help with your Business call Tim J Seymour:

01454 501 600