Profit First Summary: Chapter 5 - Day One, Quarter One, Year One and Forever

It’s time to take action!

You are going to learn step by step how to apply the Profit First system to your business.

It’s very important you do not just read. You must do it!

Don’t save it for later. As you read it, do it.

It is important to let those who need to know what you are doing.

This includes your accountant, payroll, and other key financial members of your business.

Your accountant may resist. He or she probably doesn’t fully understand cash flow management or human behavior. Get a new accountant.

The Target Allocation Percentages (TAPS) for your Profit, Owner’s Pay and Tax Accounts are your targets.

Don’t worry if they seem out of reach. They are not. Believe in the system. It will work. Start slow and work towards it.

Using your Instant Assessment figures as your baseline, start with your current actual percentage ratio and add 1%.

If your profit is negative, you start from 1%.

Each quarter you will readjust your percentages until they are aligned with your TAPS.

The Instant Assessment Calculator automatically calculates your current actual percentage based on your actual figures in column G.

Get your free Instant Assessment calculator with instructions on use here: https://www.samfury.com/instant-assessment-calculator

In chapter two you created some separate accounts. If you didn’t, do it now. The four accounts are:

• Profit
• Owner’s pay
• Taxes
• Operating expenses

Look at your bank balance in your operating expenses account. Subtract any outstanding invoices. Divide the remainder into your accounts based on your TAPS.

You just accounted for at least 3% of your income. 1% for profit, 1% for owner’s pay and 1% for taxes.

Now you need to make that up.

Increasing sales is one way, and is best for growth, but that takes time.

The faster way is to cut costs.

Analyze all expenses for the previous 12 months.

Add them all up and multiply that number by 10%. This is how much you need to cut costs.

1. Cancel whatever you don’t need to run your business efficiently and keep your customers happy.

2. Negotiate all other expenses, except payroll.

Start doing your accounting two times a month. No more, no less.

You can choose your days, but set them evenly apart, e.g., the 1st and the 15th.

On your accounting days you will:

1. Tally all deposits since the last accounting day and distribute the money into the different accounts.

2. Pay yourself and your employees. Leave remaining money in the allocated accounts. For example, if your Owner’s account has $3000 and your salary is $2500, then you leave the remaining $500 in the Owner’s Pay account.

3. Pay all outstanding bills with what’s left in the Operating Expenses account

You may not have enough money to do all this. It means you can’t afford all the bills you are paying.

Try not to worry too much. In future chapters you learn how to adjust to the two times a month rhythm. For now, the important thing is to get into the rhythm.

Mark the first business day of each financial quarter in your calendar.

On this day, take 50% of what is in the profit account and put it in your personal account.

You earned it!

The remaining 50% stays in the profit account as a reserve emergency fund. Once that amount is enough to cover three months of cash reserves, you can use the excess to grow the business. This is covered more in future chapters.

From now on, every quarter you will take 50% of what is in the profit account and put it in your personal account.

Never give the profit distribution back to the company. It is yours.

The other thing you must do every quarter is pay your estimated taxes. Doing this quarterly will take off the full burden at the end of the year and remove temptation from stealing from your tax account.

Give the government its money. It is not your money. Do not steal from the government. You will end up in jail!

Finally, each quarter you need to reassess your percentages and move them closer to your TAPS.

You can move any percentage you choose as little as you choose, but you may never take a step back.

It is better to be conservative than to go big only to find you need to reverse it. Increasing by 3% over all accounts is a good start. Whether all 3% is for one account or it is divided amongst several accounts is up to you.

At the end of the year, finalize your taxes and analyze how far off you were in your estimates and why.

If you owe money at the end of the year and don’t have enough in your tax account you can pull it from your profit account. This is the only time you are allowed to do this.

Ensure to adjust your percentages from the next year. If you increase your tax percentage, reduce your profit percentage by that amount.

If you have money leftover in your tax account, i.e. you saved more than you need to, then move the remainder into your profit account.

Here you will learn a more profitable way to organize your to-do list. Get all of your staff to follow it.

Next to each item in your to-do list mark it with one or more of the following symbols.

$ (dollar sign): It will likely make you money within the next 60 days.

🙂(smiley face) : It is something for a top client.

∞ (infinity symbol) : It is something you can automate, i.e., other people or things can do it instead of you.

Some tasks will have multiple symbols and some may have none.

Once all your tasks have their relative symbols, reorder them as follows:

1. $🙂∞ : All three symbols

2. $🙂: Dollar sign and smiley face

3. $∞ : Dollar sign and infinity symbol

4. 🙂∞ : Smiley face and infinity symbol

5. $ : Dollar sign

6. 🙂 : Smiley face

7. ∞ : Infinity symbol

8. No symbol

Read the next chapter here.

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