Profit First Summary: Chapter 1 - Taming the Beast

Many people think that if you own a business you must have lots of money.

It makes sense when you hear about people like Elon Musk and Jeff Bezos. Unfortunately, they are the exception, and big exceptions at that.

The truth is, many entrepreneurs are barely staying afloat, and are often on a sinking ship.

Fortunately, I am extremely debt averse, so my small business has always turned a meager profit over the financial year.

We stay afloat, but we don’t seem to get ahead.

In order to build the “Goldilocks Pyramids Homestead” without taking on debt, I need more money. I know I can go work in Australia for a couple of years and save up a couple of hundred grand… but that would kill my current lifestyle.

Instead, I plan to level up the business, and the first thing I will do is incorporate lessons learned from the book Profit First.

In the beginning, it’s exciting to start a business. There are so many possibilities and the potential for earning is massive.

Too often, however, the business becomes a beast you can’t control. You make some money and decide that to make more you need to grow. The problem is, in order to grow you need to spend money, and usually, you end up spending more than you earn. In order to bridge that gap, you need to grow some more.

You grow, spend more, earn more (but not enough) then grow again so you can earn more to continue to exist.

It is a vicious cycle, but there is another way.

Growth isn’t bad, but you need the right type of growth for the stage your business is in.

For small businesses without a lot of capital, it is far better to increase profit by doing more of the same thing, as opposed to branching out to other services or products.

This is because often, the cost of new opportunities is more than the income that opportunity brings in.

It is far better to be excellent at one thing rather than a jack of all trades.

Not all revenue is the same. You need to be able to recognize the difference between profitable and unprofitable income and focus on the former.

Consider how much it will cost in time and money to offer a product or service outside of your current catalog. Will you really turn a profit by offering it?

GAAP is an acronym for Generally Accepted Accounting Principles.

The primary formula for GAAP is this:

Sales - Expenses = Profit.

In other words, according to GAAP, to have a successful business you need to sell as much as you can, spend as little as possible, and whatever is left over is your profit.

It is logical, but it goes against Parkinson's Law.

Parkinson’s Law states that the time you take to complete a task will expand to fill the time allocated for its completion.

The same is true when it comes to expenses. However much you allocate for your budget of expenses, chances are you will spend it.

When you work with the formula of Sales - Expenses = Profit, there is a good chance you will keep spending, and at the end of the cycle there will be no profit.

Fortunately, there is another way: the Profit First way.

Now is the time to make a commitment to yourself that you will turn your business into a profitable one.

It doesn’t matter what your current financial state is, if you follow the Profit First system, your business will become profitable.

But you need to make that commitment. You must promise yourself to trust the system and stick to it.

Read the next chapter here.

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