Erika Jones, CFO, CCTAProfit First Professionals · Certified Fractional CFO and Profit First Professional

Ask Mike- What Percentage To Allocate Toward Profit Using Profit First?

11 Dec 2019 · 1 min

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In this Ask Mike Q&A, host Mike Michalowicz answers a question from new waffle‑business owner Dan Ferguson, who carries $4,000 of debt and is unsure how much of his revenue to set aside as profit. Mike advises calculating an "optimal profit percentage" by adding 1–2 % to the business’s historical profit margin, then applying that percentage each quarter. He recommends using at least 95 % of the quarterly profit allocation to aggressively pay down debt while reserving about 5 % for celebration. The process repeats each quarter, with the profit percentage gradually increased over time. Once all debt is eliminated, the full profit allocation (including the celebratory portion) goes to the owner, allowing Dan to enjoy the fruits of his waffle business. Mike closes by inviting viewers to submit future questions via askmikecalos.com.

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Welcome to Ask Mike. I'm Mike Michalowicz and I got a question from Dan Ferguson about how he's using profit. First, he's got a brand new business and he's in the waffle business and they have $4,000 of debt. He doesn't know what amount of money to allocate to a profit. Here's what you do. Allocate the optimal profit percentage that you determine based upon your historical profits plus 1 or 2%. Build the profits and every quarter keep ramping it up even if you have debt. Dan and here's what happens when you do your profit allocations at the end of each quarter, use the vast majority of it, 95% or more to eradicate your debts, 5% to celebrate. Repeat that process until all your debts eradicated and then the next profit distribution. In that case, Dan, you're going to eat a lot of waffles because it's all going to you. And if you have a question, make sure you send a question to ask mikemcalos.com and I'll answer your question on the next video.