In our other blog, we explored exactly what Profit First was and who Profit First professionals are https://www.dkaccs.co.uk/what-is-profit-first-and-who-are-profit-first-professionals/ However, today following on from that we are going to look at how integrating profit first into your business plan and your day-to-day activities can help your business become not only more profitable but more sustainable. Putting you back in full control of your business, its finances and its future.
One of the foundational processes you need to embed in your mind before integrating Profit First is differentiating exactly what profit is. There is a difference between the income that your business makes and the profit that it makes. To work out your profit the simple formula you have to remember is:-
Sales – Expenses = Profit
Once you start knowing what profit your business is making it then allows you to be able to calculate and forecast where these profits can be spent in areas of your business in order to grow both sales and to enhance your brand. The way in which the formula is laid out can sometimes lead business owners to focus on sales solely in order to gain traction and can sometimes mean that not as much attention is paid to the profit that comes last in the equation.
So what are the steps to integrating Profit First into your business model? Well, the first step focuses on the motive of ‘finishing everything on your plate’. However, when there is too much on your plate this can sometimes be difficult. This metaphor essentially encourages business owners to reduce how much is on the plate. In accounting terms, this is referring to when money comes into your business ensure that as soon as possible it gets sent to where it should be. For example, you should open an account for tax, one for profits and one for expenses. This means that you are reducing your workload into digestible portions.
When money does come into the business you’re going to want to ensure that money that needs to be paid into profit is done with priority. And you’re also going to want to move the temptation of spending the profit on things that you shouldn’t. Therefore it might be an idea to move your profits into a different bank so that they can only be accessed and spent when forethought has gone into what they are going to be spent on.
All of this is designed with the idea of changing your mentality in regards to your business finances. Paying more attention to profit than you have previously and thus increasing the value of your business and also helping you to decide where profits need to be spent more wisely.
If you want to know more about integrating Profit First into your business model and how it can help your business. Why not get in touch. Here at D&K Accounting, we are certified advanced Profit First professionals who can help you understand how the model can help your business grow.