Putting Profits First: The Smart Way to Navigate Business Challenges
In today’s competitive business landscape, the mantra of “profits first” has become more than just a financial strategy; it’s a vital approach for any business looking to navigate through challenges and emerge stronger. This concept, more than a mere accounting trick, is a mindset shift that can revolutionise how businesses of all kinds operate and thrive.
“Good fortune is what happens when opportunity meets with planning.” – Thomas Edison, was an American Inventor and Businessman
The Essence of the ‘Profits First’ Philosophy
Traditionally, businesses have followed the formula of sales minus expenses equals profit. However, this often leads to profit being treated as a residual – what’s left after all expenses. The ‘Profits First’ model turns this equation on its head, proposing a new formula: sales minus profit equals expenses. This shift prioritises profit, ensuring it is not a hopeful outcome but a deliberate action taken from the start.
Why Embrace ‘Profits First’
Financial Health and Sustainability
By setting aside profits first, businesses ensure their financial health with money in the bank and create a cushion against unforeseen challenges. This strategy works like a safety net, providing stability during economic downturns or market fluctuations.
Disciplined Spending
With profit taken out first, businesses are forced to operate within the means of what’s left. This leads to more disciplined and efficient use of resources, cutting down unnecessary expenses and fostering a culture of innovation and lean operations.
“Discipline is the bridge between goals and accomplishment.” – Jim Rohn, was an American Entrepreneur, Author and Motivational speaker
Goal-Oriented Growth
‘Profits First’ aligns a business’s financial goals with its operational strategies. It sets a clear target and forces a business to grow in a way that is financially sustainable.
Implementing ‘Profits First’ in Your Business
Start Small
Begin by allocating a small percentage of each sale to profit. Even a small amount, consistently set aside, can build up over time.
Evaluate Expenses
With profit taken off the top, assess your current expenses. What is essential, and what can be trimmed? This can lead to smarter spending decisions.
Continuous Monitoring
Regularly review your financials. Keeping a close eye on profit allocation, expenses, and revenue helps in making informed decisions. Additionally, according to the article 4 Reasons Why You Should Review Your Financial Statements Each Month, keeping track of your finances is also beneficial as it warns you for any issue before they become a huge concern.
Adapt and Adjust
Be prepared to adjust your ‘Profits First’ approach as your business evolves. Flexibility is key to maintaining the balance between profitability and growth.
Balancing the ‘Profits First’ Approach
While ‘Profits First’ is a powerful system, it’s crucial to remember that it is a behavioural cashflow methodology that encourages you to think differently. For example, how might you think of wider aspects of the business once you’ve implemented:
Customer Satisfaction
Prioritising profits should not come at the cost of customer experience. Therefore, how can we maintain high-quality products/services whilst also being innovative and creative around how we do so with the same or less resources.
Employee Well-being
Businesses must ensure that cost-cutting does not negatively impact their team’s morale and well-being. Therefore thinking with an approach around the return on our ‘people investment’ needs to factor that in. How can we build a great team culture without necessarily needing to increase wage spend.
Innovation and Growth
Continuous investment in innovation and growth is vital to stay competitive and relevant in the market. In fact, a blog by Harvard Business School Online mentioned that innovation will set you apart or will make you stand out of the competition.
‘Profits First’ is not just about ensuring that your business is financially sound; it’s about creating a sustainable model where profit, growth, and operational excellence coexist. By adopting this approach, businesses can navigate challenges more effectively, ensuring longevity and success.
As businesses strive to flourish in an ever-evolving landscape, adopting a ‘Profits First‘ approach can be the compass that guides them through financial storms to a future of stability and growth. Whether you’re a startup or a well-established company, rethinking your financial strategy to put profits first might just be the game-changer you need.
Curious about how this approach is going to give your business a winning edge? Our financial experts at The Healthy Business Lab are here to shed some light on how you can navigate any challenges through the Profit First approach. Book a biz fit call now to begin a successful journey with us!
FAQs
What is the ‘Profits First’ approach in business?
The ‘Profits First’ approach is based on the book Profit First by Mike Michalowicz where businesses prioritise profit allocation from each sale before handling expenses. This methodology aims to ensure financial health and discipline in resource management.
How does ‘Profits First’ differ from traditional business accounting?
Unlike traditional accounting that calculates profit as what remains after expenses (sales – expenses = profit), ‘Profits First‘ reverses this equation to (sales – profit = expenses). This emphasises profit as a primary goal, not an afterthought.
Can small businesses effectively implement the ‘Profits First’ model?
Absolutely! Small businesses can benefit significantly from the ‘Profits First’ model. It encourages financial discipline and sustainability, essential for the growth and stability of small enterprises.
Does prioritising profits harm customer satisfaction or product quality?
Prioritising profits doesn’t mean compromising on quality or customer satisfaction. It’s about efficient resource management to maintain high standards while ensuring financial health.
What are the first steps to implementing a ‘Profits First’ approach?
Start by allocating a fixed percentage of revenue to profits before managing expenses. Regularly review and adjust this percentage as your business grows and evolves.
How does ‘Profits First’ help in navigating business challenges?
‘Profits First’ creates a financial buffer and instils disciplined spending, making businesses more resilient against market fluctuations and unforeseen challenges.
Can ‘Profits First’ be integrated with other financial management strategies?
Yes, ‘Profits First’ can complement other financial strategies. It’s flexible and can be adapted to suit various business models and financial management techniques.
What are the long-term benefits of adopting a ‘Profits First’ methodology?
Long-term benefits include improved financial stability, sustainable growth, and the ability to invest wisely in innovation and expansion, ensuring the longevity and success of the business.
Transform your business’s financial future with a personalised consultation from our experts at The Healthy Business Lab. Book your biz fit call to discuss your unique business needs and learn how the ‘Profits First’ model can be tailored to drive your success.
