Profit First

Take profit FIRST and then pay everything else, or else you won’t have any profit left.

Profit is often defined as what’s left when you subtract your expenses from your revenue. Say you make $10,000 in a month, and then spend $9,000. You’d have $1,000 left, or a 10% profit margin.

In theory that works great, but in practice, that profit margin can often get spent because it’s there to spend.

Instead, it is important to take the profit out first for your business, just as it is important to pay yourself first in your personal finances by saving and investing.

Why? Because profit leads to growth. If you take the profit first and put it in a separate account where it can’t be spent, then it starts to accrue. You then have cash available to invest in the business or pay yourself dividends.

Yes, even small businesses can pay dividends to their owners!

It also means that being profitable is a priority for you and your business. Being profitable means you’re more resilient when things get bad, like the last year with the uncertainty of the pandemic. It means that you’ll be around to serve your clients in deeper ways over a longer period of time.

Start small. Take 1% of what you make as profit and put it aside. Then adjust every quarter and increase that percentage little by little. It adds up slowly, then less slowly, then a lot over time.

Choose to be profitable, then prioritize taking profit first.