If you follow me on social media (and if you don’t – uh…awkward...follow me on Instagram @cleareyesconsulting), you may have seen a list of the go-to books that are on my shelf and have done a lot to shape my business and money philosophies.

Today I want to tell you about one of the biggest number’s nerds that I follow – Mike Michaloicz.  He’s got several books out there – and yes, I’ve read them all ;) – but the one that had the biggest impact on me was Profit First.

Profit First is a money management system that flips the traditional approach to money management on its head. Instead of waiting to see what's left after paying all your bills, "Profit First" puts your profit – and business goals - center stage.

Picture this: You start your dream business, all excited and pumped up. You're making sales, getting clients, and doing your thing. But as time goes on, you realize that your bank account seems to resemble a leaky bucket more than a money-making machine. Bills keep piling up, and profit? What's that?  Can you picture it?  Or wait…are you LIVING this??

You might be wondering, "Wait, isn't profit supposed to be the reward for my hard work, not the starting point?" I hear you, but here's the secret sauce: By setting aside your profit first, you're ensuring that your business stays healthy and profitable from the get-go. 

It’s kind of a “mind-over-matter” type situation…if you only plan to spend a portion of your earnings, you’ll adapt, spend less, and find there actually IS money left over at the end of the day – BONUS!!  Over in THIS blog post, I talked about how I am a true believer that we spend what we see as available to us.  If my bank account has $10 in it, I’m eating KD; if there’s $100 I might get a salad; if there’s $1000...$10,000…$100,000 well I might be heading for a night on the town!

The Profit First system (or at least how I apply it) is really about getting money OUT of your main bank account and tucking it away.  Out of sight, out of mind.

Imagine getting your paycheck, and before you pay rent, buy groceries, or splurge on those fancy shoes you've been eyeing, you put a chunk of money into your savings account. That's what "Profit First" does for your business.

You create a bunch of different bank accounts with names like "Profit," "Owner's Pay," "Taxes," and "Operating Expenses." Each account has a specific purpose, and together, they form your dream team of money management.

You can make these accounts anything that is meaningful to you/your business.  I always want to see an account for Taxes, and one for Profit.  For me, I have an account for Annual Expenses (cause I have some BIG subscriptions that I need to pay for once a year, so I want to save up for that), and I actually split up GST and Corporate taxes.  I also have an INVESTMENT account…not for literal “investing” in stocks and such, but it’s money that I’m setting aside to help in some “growth” plans that I’ve got; this account helps me to fund the start-up costs for these.

I also use this same system in our personal lives…yes my super-dork powers transcend to my family too ;P.  I’ve got our main account, and then have accounts for:

• Mortgage top-up – for making extra payments on our mortgage

• Savings – just for general savings

• Vacation – one day we’ll go on a vacation again, right?

• Random Expenses – Braces? Glasses? New TV? That’s what this account is for

Now, I don’t want you to think that I live this fairy-tale life of budgeting and cashflow bliss, far from it.  We’re a 2-entrepreneur household (aka we’re regularly in financial panic mode hahaha), and so there have been MANY months where none of those accounts have seen a DROP of money go into them.  But when we can, we do.  And that’s A-OK.

The Profit First system has you go in twice a month and transfer funds from your main account to your other accounts.  How much?  Well, this is something you decide as well.  First, you figure out how much you need to run your business (and you may need to reign in your spending for this all to work!), then you decide what percent of the remainder needs to go to taxes, profit, owners pay, and whatever other goals/accounts you have. Here are some general guidelines:

• Taxes: GST - you want to set aside 2.5 - 4.5% The amount will depend on if you have a ton of expenses that help to reduce your GST owing

• Taxes: Corporate – I set aside 10-15% for corporate taxes

• Taxes: Personal – If you’re a sole prop, your tax rate is a lot higher so you’ll want to do 20-30% for personal taxes

• Profit – I start small 1-5% is perfect to start and you can adjust this anytime

• Owners Pay – base this on what you NEED for your family’s budget; everyone will be different

Any other accounts and amounts will be tailored to your goals and needs.  And the balance goes to “operating” your business (aka your bills).  Here’s an example of how your income could be split up.

Whatever money you earn in the first part of the month, you split up using the percentages above.  For example, if you had $5000 come into your account, you’d move it around like this:

• $150 to GST (3%)

• $1250 to Taxes (25%)

• $250 to Profit (5%)

• $2250 to Operations (45%)

• $1000 to me! (20%) Owners pay

• $100 to Annual Expenses (2%)

What if you’re operating expenses are more than the $2250 you have for operations?  Well, this is where you need to do some problem-solving.  You have 3 choices:

1. Cut your spending,

2. Make more money so that your 45% will cover your business costs, or

3. Adjust your percentages so the move will go to operations.  Increasing operations, though, means that you need to DECREASE somewhere else.

What I love most about "Profit First" is that it's practical and doable. It's not some far-fetched, unrealistic strategy that only works for big corporations. Nope, this is tailor-made for small businesses and real families like ours.

Imagine the peace of mind you'll feel when you know your profit is secure, your taxes are covered, and you still have enough to pay yourself a decent wage. It's like financial nirvana!

You've got this! Let's show our businesses some love by putting "Profit First" and watching them thrive like never before. Here's to your success and a wallet that's happier than a kid in a candy store! Cheers! 🎉