Set Intention behind your profits
Reason #4 for Implementing Profit First in 2024 - Set Intention Behind Your Profits
Intention – an idea or plan meant to carry out. We’ve heard a lot of inspirational messages over recent years about “being intentional” and “living a life of intention” – but what does that mean for you and your business day-to-day?
Well, with the Profit First method – we have the “intention” baked into the name. To have a profitable business, first.
Let’s face it: if your business is not profitable, it is not sustainable. If it is a season of growth or investment, we can expect blips, or highs and lows – but how will you know when you’ve entered the next season? Or need to make a big decision to change the trajectory of your business?
The Profit First method creates a habit out of making a profit in your business – and there are structured benchmarks to aim for when evaluating profitability, based on revenue brackets. These benchmarks, called “TAPs” – Target Allocation Percentages – establish a metric to use in assessing the financial health of your business. Now that’s a strong intention: to have a financially healthy business.
So if our business is profitable - now what? Invest it back in? NO! “Profit” in the Profit First method is a mechanism to reward the owner of the business for a successful quarter (90 days or 3 months). This cadence allows for regular measurement of success in short, attainable timeframes that can be influenced in the short-term, rather than waiting for the fiscal year to close. This “profit” can also be used as a rainy day fund if the need arises – but for most of our clients, we suggest a designated emergency fund for such purposes, based on your individual needs and risks as a company.
If you save your profit, only to “plow” it back into the company at a later date – it is no longer a profit. It is a (delayed) expense. Our clients, and all followers of the Profit First method, are encouraged to take a Profit Bonus OUT of the business - every quarter (90 days) to ensure that the business continues on a path of forward momentum. This positive feedback mechanism allows for the cash flow “pulse” of the business to be seen on a regular basis. If cash flow suddenly changes, it will be felt much quicker in a business operating on lean margins and ratios, such as those recommended by the Profit First method Target Allocation Percentages. This will empower the business owner to see problems before they erupt – and allow them to take quick action to right the ship.
All this talk of intention is really summed up by saying: be the CEO your business needs. Profit First can help empower you to step into that role.
Having trouble being objective with your cash flow? The Beyond Your Books team is here to help! Our staff of remote bookkeepers and coaches help clients in a wide variety of industries and professions find clarity in their cash flow every day.