John Briggs explains how to maintain the Profit First system for small businesses. Set up allocation days weekly or twice monthly to move money into profit, owner pay, tax, and operating accounts. Review percentages quarterly as revenue grows, since Briggs cut his own owner-pay rate from 22% as his team expanded but still took home more cash.
What are some best practices for maintaining the Profit First system? Well, if you're in your early years of running the system, I would recommend looking at the percentages you currently have. How tight is your cash flow by using those percentages? We've had clients over the past that we sit down, we go over the numbers, but then in execution of them Things are just— they for some reason are a little bit different. This is one of the roadblocks that you may have. And so to maintain the system, the percentages have to work for you. So it's okay if you tweak some of those initial numbers so that it's a little bit more comfortable to give you enough time to clear up some of the financial fat to cut it out. After the initial stage, the, the best way to maintain it is to follow the system. You want to be sitting down on Your rhythm days. Sometimes we call those your allocation days. That's either gonna be once a week or twice a month. Those are the 2 frequencies that we recommend. Sitting down on those days is in fact maintaining the Profit First system, which is great because it's actually the only way you can run the system. You have to sit down and look at your numbers so that you can then move it around, move all the numbers around. I should say that clearer. Moving your money from the income account into your other accounts, that has to be done. The Profit First system is not gonna work. You're not gonna be able to maintain it if you're sitting down sporadically to transfer the money and allocate it to your different smaller plates. Quarterly, we recommend that you sit down and look at your percentages. And see if there's any way you can improve them for the better, meaning the business is more profitable. Therefore, as the owners, you can allocate more cash towards your benefit. And, you know, maybe you're at a point where it's like, look, we're— I'm— I live a great life and I don't need to adjust the numbers, so I'm not really going to sit down. I'd ask you to still sit down and look at your numbers because One thing that you'll notice is as your business grows, the revenue, top line revenue increases. Most of the time your real revenue also is going to increase. And that often means that we actually take less of a percentage as owners, even though the dollar amount is going to be a lot higher. If you pay attention to Mike's Mike Michalowicz, the founder of Profit First. If you look at his initial tables, the larger the revenue, the lower the percentages are. But if you look at the math, the smaller percentages on a higher revenue is significantly more cash to the owner. I ran into this with my company. I ran at a 22% owner's pay rate for many years, but then things started to get tight. And I realized when I sat down for my quarterly analysis to see how the numbers are, Well, it's because I'm doing a lot less work and I have a much bigger team. So instead of being 25% of the team, now I'm like 5% of the team. Well, that team obviously needs compensation, so it's not fair for me to keep taking 22% when in the beginning, let's say, I— it was being allocated off of, uh, $75,000 or $100,000. Or $1 million, and now it would be allocated off of multiple millions of dollars. And so that— you have to look at those numbers to make sure that it's still within bounds to be a healthy, financially fit business. And then without making the change, what would be happening is I would actually be taking more money from the business than the business can afford for me to take. So quarterly reviews of your actual allocation percentages is a super important way to maintain the Profit First system. That and sitting down and actually allocating money once a week or twice a month are the 2 best ways to maintain Profit First. Remember, profit is a choice. Have the courage and wisdom to choose it.
