Traditionally, the formula for determining profit is Sales - Expenses = Profit, which is a simple Generally Accepted Accounting Principle (GAAP) formula. However, it does not account for human behavior, in this equation "profit" is considered what is left over from your expenses.
The Profit First formula is Sales - Profit = Expenses, which is mathematically the same formula, but changes your mindset of profit and expenses. Using the Profit First Cash Management System, a percentage of the profits are taken from sales before you pay expenses. Profit First uses Parkinson's Law as an asset, meaning that if the money available for expenses is reduced, then the business will be forced to do the same things for less money.
Managing the financial aspect of a business is difficult and requires knowledge to interpret many different financial statements, including: The Income Statement, Balance Sheet, and Statement of Cash Flows. The issue is that most people do not understand how to interpret the data on the financial statements and resort to "bank-balance accounting", which means that you check the balance daily and use the balance to make financial decisions. Profit First utilizes the "bank-balance" method by moving a portion of deposits into different accounts for expenses, taxes, owner's pay, and profit.
By creating many different bank accounts and a simple formula, business owners can take a percentage of deposits for each account and still use the "bank-balance" method, but cut costs throughout the company. Utilizing a Profit First Professional will help increase the financial health of your company.
Let us prove that the Profit First Philosophy works! Schedule a free profit maximizer session using the link below. We will assess where you currently stand and provide you with actions that you can use immediately to increase profits.
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