Profit First Chapter 11 and 12 - Where it all falls apart

Just because you are out of the woods, doesn't mean you are out of the woods.

It’s a human tendency that once we have come out of a crisis, we tend to slip back into old habits.

In Profit First this translates to you getting a handle on your finances and then returning to your old accounting habits.

Don’t do this!

It’s a fast track back to crises.

Stick with the Profit First method, and you will stay profitable.

There are a few other common pitfalls to avoid also.

You may be tempted to put away a big percentage for profit right from the start.

The problem with this is that if you discover you actually need that money to pay the bills, you will end up reversing the transaction, otherwise known as “reinvesting” back into the business.

This reversing of money defeats the whole Profit First philosophy. You want to allocate profit and not touch it.

It is far better to start small so you can stick to it. Then, every quarter, as you adjust and your business becomes more efficient, you can slowly increase the percentage closer to your goals. Even if it is just 1% at a time.

Frugality does not mean cutting every single cost you find.

There are some things that you may be able to run the business without, but the value of keeping them outweighs the savings.

Specifically, it is wise to continue investing in things (tools or people) that make your business more efficient. Things that make it easier to get better results.

When you pay for something with a credit card, you are spending money that is not yours.

You may call your credit card bill an expense. You are lying to yourself. It is a debt, plain and simple.

Credit cards are for real emergencies only. Do not use them to pay day-to-day expenses.

Another thing you may be tempted to do is use the money you have allocated for tax. This is even worse than using a credit card because when you steal from the government you could end up in jail!

Don’t rely on just paying your estimates. They are based on past performance, and when you use the Profit First system, the performance of your business will increase. Increased performance = higher profits = more tax to pay.

Transforming your business from unprofitable to profitable requires many changes. Some small, some large.

Unfortunately, as the old saying goes, ‘old habits die hard.’

Instead, put systems in place which take advantage of good habits while shedding the bad.

That is what the Profit First system does.

So go do it!

Read the first chapter summary of “Models” here.

Buy “Profit First” here: https://amzn.to/4bEg0iQ