Profit First was founded in the US by Mike Michalowicz and majority of Profit First Professionals (PFP) are located in the US. I am happy to report that there are a few of us in Australia and the numbers are growing!
Before becoming the first certified Profit First Professional Bookkeeperin Perth, Western Australia I not only read the book by Mike Michalowicz, but also implemented it in my own business to make sure that this method actually worked and wasn’t just something theoretical and difficult to implement. I can assure you, it not only works but it was such a simple method to implement.
Profit Firstis a simple system that enables any business to generate a profit from the very next deposit forward. There are many complex approaches to evaluating your financials. Profit First is an extremely simple method and will allow you to ensure profitability without the need to dig into your financial statements.
The formula for profitability has been established for ages. It is even supported – scratch that, required – by Generally Accepted Accounting Principles (GAAP), which is enforced by the SEC in the United States and the International Accounting Standards Board internationally. GAAP’s fundamental formula for profit is simple:
Sales – Expenses = Profit
According to Mike there is just one problem… The formula hurts profitability and is flawed.
Sales – Expenses = Profit is a lie. The formula doesn’t yield a profit.
While the GAAP formula makes logical sense, it ignores the fact that it is managed by people. We are, first and foremost, emotional beings, prone to ignore (or even defy) logic. This method goes against human nature, trapping business owners in a panic driven cycle of operating pay cheque to pay cheque.
Mathematically the formula is identical to GAAP’s. But from the perspective of human behavior, the Profit First formula is radically different. In the Profit First formula, a preset percentage of deposits generated through sales are first allocated to profit. The remainder is then used to pay yourself, taxes, and expenses.
The Profit First method, on the other hand, turns this formula around to be: managed by people. We are, first and foremost, emotional beings, prone to ignore (or even defy) logic. This method goes against human nature, trapping business owners in a panic-driven cycle of operating pay cheque to pay cheque. assure you, it not only works but it was such a simple method to implement.
Mathematically the formula is identical to GAAP’s. But from the perspective of human behavior, the Profit First formula is radically different. In the Profit First formula a preset percentage of deposits generated through sales are first allocated to profit. The remainder is then used to pay yourself, taxes and expenses.
Profit First has transformed my own businesses for the better and I would love to help you do the same for yours.
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