The Downside of “Profit First” for Small Business

Рет қаралды 13,236

Күн бұрын

It’s no secret that I LOVE the Profit First method. But there is a downside to “Profit First” that not enough of us are talking about.
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Profit First by Mike Michalowicz did for me just what it promised - it transformed my business from a cash-eating monster to a money maker. It helped me make sense of small business finances and small business budgeting. And it helped me increase profit.
In the short term. But it won’t teach you how to start a business, how to grow a business, or how to scale a business. In fact, it could hurt those things. Because it’s just going to teach you business budgeting with an eye on your profits.
Here’s what you need to know:
0:00 - Intro
0:25 - Profit First Accounting Overview
1:35 - The Upside of Profit First
4:17 - The Downside of Profit First
5:10 - The Solution
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Пікірлер: 48

@TaraWagner 3 жыл бұрын

What do you think of the Profit First method? Do you utilize it in your biz? P.S. Be sure to jump on my free training, “How to Use a Holistic Approach to Create a Profitable Business Without Burning Yourself Out”. Learn more and reserve a seat here: xotara.us/training

@TheElizabethAlarcon 3 жыл бұрын

✨ No lies detected! ✨ I think you hit the nail right on the head. You do have to find the right balance that works for you and your business. I kept adjusting and I think I’m in a good place for now. Definitely not a one and done or one size fits all system.

@TimGoree 8 ай бұрын

To me, the solution you're talking about is a simple tweak in the percentages of the system. Still use the same system, but instead of taking 50% of the total hanging out in your Profit Hold Savings Account every quarter, take less, or none at all. That Profit Hold account is meant as a quarterly profit distribution for the owners (like a dividend) AND disaster recovery AND a future growth fund for your business. So if you want to build up a big future growth fund to invest back in your business, pump up your total Profit percentage, and ratchet down your percentage of profit take quarterly for the owners. Done deal. Same system, just a change in percentages based on your desire as the owner.

@TaraWagner 7 ай бұрын

Precisely!

@hussainsabbier6693 3 ай бұрын

Well explaexplained.

@akeemhimself 2 жыл бұрын

But half of the problems you talked about are against what he said... he said to start with 1% and move up to whatever is comfortable and sustainable. The 50% of profits at the end of each quarter, (not from every single sale) comes from the smaller percentage you take from each time you get revenue. He said to always have cash reserves in case of rainy days.

@TaraWagner 2 жыл бұрын

Yes, true. And the problems I'm talking about are what I see happening over time working with his method. To follow it 100% is often complex so other habits tend to take over. But as I mentioned, I still agree with most of his method, just think it needs to be managed thoughtfully. Would you agree?

@MinnieOnCam Жыл бұрын

I haven't read the full book yet, but I have watched a lot of videos on Profit First, and I've created a chart in my spreadsheet that show me how my profit first system would work in my business. Which is a nice addition to my existing household budget.

@TaraWagner Жыл бұрын

Fantastic Minnie! It sounds like you are growing in the profit area. :)

@pandorasunboxing Жыл бұрын

Awesome video!!! Thank you for this great video🙏

@TaraWagner Жыл бұрын

My pleasure!

@tomaskey6844 5 ай бұрын

I just started the audiobook and decided to get a shorter video to help me see it visually. I liked seeing your view right from the beginning so I have that in mind from the start. I have my first YNAB coaching session and will see how she responds to profit first. I’m exploring business banks and came to this through researching Relay. Very interesting

@TaraWagner 5 ай бұрын

Glad it was helpful! Hope the session goes well

@furmanfurman Жыл бұрын

@TaraWagner Good points! I'm new to Profit First and trying to implement asap. Q. Do you have an account for Profit and an account for Owner's Draw...aka your paycheck?.

@TaraWagner Жыл бұрын

I don't do all the accounts he recs. I have an Income and Expense account, a tax and payroll account, and I transfer my owner draw monthly from the first into my personal checking, and my wages from the 1st into the second. Find what works for you!

@michaelsohocki1573 10 ай бұрын

Thank you for the video, my company evolution is similar to yours, I've been open for fourteen years now, considering profit first seriously.

@TaraWagner 10 ай бұрын

Best of luck!

@jojose417 2 ай бұрын

I love this!! Getting the book I’m just starting out selling on the side

@TaraWagner 2 ай бұрын

So glad you're starting early with it! I hope this video helps your process with it!

@jojose417 2 ай бұрын

Definitely helpful thank you so much!!

@TeaPourSixFour 2 жыл бұрын

I Subscribed to your channel. Thank you 🙏🏾 Ms. Ayden in Nevada

@TaraWagner 2 жыл бұрын

Woo hoo!! Welcome! :)

@Shrimpyyyyyyyy 2 жыл бұрын

I’m listening to the book right now and he says to accumulated 3 months worth of expenses in the profit account and then anything over that should be used to reinvest back into the business so maybe I’m listening to an update version of the book?

@TaraWagner 2 жыл бұрын

That is a great way to do it as well. Remember to evaluate your business needs first and discover what method of organization around your biz profits will work best. There are a plethora of ways to manage it successfully. What do you believe will work best for your biz right now? I'd love to hear it.

@jazzmoon77 5 ай бұрын

Agreed. The “problem” isn’t a problem - it’s not following the guidance in the book which is to differentiate between putting too much into regular opex vs making profits that can be reinvested into growing the business, not just drawing down all profit as owners pay.

@UrbanCajunGirl 2 жыл бұрын

#2 is spot on!

@TaraWagner 2 жыл бұрын

Nice! Glad you enjoyed the vid. Have you read the book yet?

@TeaPourSixFour 2 жыл бұрын

🫶🏻 yes, helpful & humane review. I am a fan of all money mindset books and programs but especially Toyin Crandell 💓 where I am learning about & implementing Profit First. I’m happy to hear about your business thoughts and journey Tara ! Keep at it lady.

@TaraWagner 2 жыл бұрын

I 100% agree! What is your biggest takeaway from the Toyin Crandell?

@sidi.soueina Жыл бұрын

thanks!

@TaraWagner Жыл бұрын

You bet!

@carrieschultz7165 6 ай бұрын

I don't really understand the difference between profit and owner's pay. Is profit something we put away for a rainy day and Owner's pay simply our paycheque? Might be a silly question but these are two separate categories in the Profit First book.

@TaraWagner 6 ай бұрын

not silly at all! And there might be a variety of answers based on POV/opinion or who wants to know (the IRS will be more exact than you might need to be for example). But I view them on a very practical level, as essentially the same thing. It's money you take out of the business for yourself to do what you want. (Although if you're saving for a business rainy day, talk to your accountant about whether that's profit or not. Def not owner pay.) It IS different than if you pay yourself a salary under an S-corp but if you're not an s- or c-corp, then owner's draw and salary and profit will feel like interchangeable words.

@carrieschultz7165 6 ай бұрын

Thank you!! That makes sense. I appreciate you taking the time!

@JacobBall75 6 ай бұрын

I would look at it differently. The Owners Draw or salary are interchangeable, but PROFIT should be viewed as a separate entity. It’s a bonus, not part of your owners draw or salary. Your owners draw / salary is your regular pay that hopefully covers your own personal lifestyle expenses. That owners draw / salary is a regular business expense, and should be treated as such. The whole premise behind Profit First is that it’s a separate line item to be extracted FIRST, not to be confused with owner draw or salary or an expense. It’s on TOP of your salary, and it’s only distributed to the owner/s of the business quarterly AND you (as a guide) only distribute 50% of whatever is in the profit account with the balance being left for a rainy day or business growth 😊

@westandbyher 2 жыл бұрын

I do profit from the profit. I put 25 percent from my profit into crypto(here you need first to analyze the market and to invest in the right time) and then I have more profit, then I take back 25% and reinvest it back into my business and the best part is that those "old 25%" they keeping to grow.

@TaraWagner 2 жыл бұрын

Nice! I love that you have a pretty solid strategy in place for your biz.

@DunBossNyakundi Жыл бұрын

Hey I thought the author already talks about starting a small %....... isn't your so called "solution covered..... or its me

@G.Family. 5 ай бұрын

Profit First Changed my Life ❤ I need to be more disciplined though because I definitely used the tax money for a trip to Barbados 😂 😂😂

@TaraWagner 5 ай бұрын

Love that! You've got this! What is the first step you're going to take?

@G.Family. 5 ай бұрын

@@TaraWagner step 1 pay my tax on 31st Jan (uk deadline) Step 2 pay off the bank overdraft ☠️

@TaraWagner 5 ай бұрын

You got this!

@G.Family. 5 ай бұрын

@@TaraWagner 🙌

@OtakuBoxes 4 ай бұрын

Show me the money 🎉.

@KingAndrew5000 6 ай бұрын

this book is Business 101. Honestly, if you're not capable of keeping track of your money, you shouldn't be in business in the first place.

@TaraWagner 6 ай бұрын

Unfortunately this kind of mindset only hurts small business owners who are good at what they do as a business, but are still learning how to "do business". We all start somewhere! Do you remember the mistakes you made in the beginning that seem simple now? I sure do!