Profit First flips the GAAP formula so that Revenue-Profit=Expenses. Logically the math is the same, but from the standpoint of the entrepreneur’s behavior it is radically different. With Profit First, you take a predetermined percentage of profit from every sale first, and only the remainder is available for expenses. By taking profit first, the money available for expenses lessens, and we are forced to find ways to get the same things done for less money. Your profit grows, and your expenses decrease.

There are 5 main accounts: Profit, Owner's Comp, Tax, Operating Expenses, and Income. All deposits and money received from sales/services goes into the income account and is then allocated in certain percentages on the schedule you have determined.

We also recommend opening  "Profit Hold" and Tax Hold" accounts at a separate bank account to transfer your Profit and Tax balances to keep them further out of reach/avoid temptation. 

Profit First is absolutely worth the effort!

The additional bookkeeping time required to manage and reconcile multiple accounts for Profit First is negligible, and possibly even more efficient than using just one account. With Profit First, you simply need to reconcile the deposits and periodic transfers from the Income account. All expenses and payments come from the OpEx account. All the other accounts are typically a single transfer in on the 10th and another on the 25th, and a single transfer out at those times.

The additional accounts are easy to manage and reconcile. More importantly, the Profit First benefits of instantly knowing what money is allocated to what purpose will have profound effects on the financial health of your business.​

This is the "moment of reckoning" when you follow Profit First. The moment will come for every business when there is not enough money in the Operating Expense account to cover all the expenses.

You may NOT use other money. Your business is yelling at you and shaking you saying you CAN’T afford to continue to carry all these expenses and you need to find a better way.

Yes. This is explained in more detail in "The Profit FIrst Lifestyle" section of ​Profit First​, but the premise is the same. Set up multiple bank accounts: Income (for deposits only,) Vault (savings account to cover the unexpected,) Recurring Payments (for recurring fixed, varying, and short-term bills,) Day to Day (for groceries, school supplies, etc.,) and Debt Destroyer (all money remaining after allocation to the previous four accounts goes into this account.) Then, determine your allocation percentages and your allocation schedule. Most importantly, STICK WITH IT, even when it gets hard.​

No. The allocations start the day you implement Profit First, with your very next deposit. You don't make retroactive allocations apart from the transfers you have to make from your existing bank account to open your Profit First accounts.

If your business is not profitable, you ​need​ to implement Profit First right away! Implementing Profit First forces profitability rather than waiting for it. Start with low allocation percentages - like 1% to Profit and Tax - but get started NOW!

Allocations are when you take the money that has come into your income account (deposits, sales, services) and transfer percentages of the balance out to your other accounts (Profit account first, then the other 3).

These percentages have been predetermined by a Profit First Professional (provided in all packages), and the money is transferred out on a specific day(s) each month (we recommend the 10th and 25th).

These allocations serve to build your Profit and Tax accounts, increase your balance for Owner's Pay, and replenish your OPEX account to get you through to the next allocation. 

Immediately. The sooner you start with Profit First, the sooner you will master financial discipline and force your business to run efficiently. No matter how new or established your business is, you should not wait to implement Profit First.

Wrong. In fact, the only way to pay off debt (which is simply past expenses that you haven’t paid for yet) is to be profitable. You must make more money than you are currently spending in order to have current profits. You then use those profits to pay off your debt (past expenses).

How do you pay off your debt while also taking a profit? Here's what we say: 

Pay the minimum balances due out of your Operating Expenses account. These should be considered "regular" bill payments. Then, use any money you have left in Operating Expenses after paying your other "regular" bills to make an additional payment to your smallest debt.

No matter what, keep allocating to your Profit account on the 10th and 25th. This may sound crazy since you have debt to pay, but you MUST build up that habit of always taking your Profit first.