How to become more profitable 💰
I’ve never met a business owner who told me that they started a business with the hopes of it running their life, squeezing out any margin to do what they value with the people they love.
Yet, it’s often what happens when its growth goes unchecked.
While working with a client who runs a 7-figure travel company, she mentioned that they’re retooling their accounting on the ‘profit first’ model. Ever curious, I picked up the book and was floored (in the best way) to find how well it supports the foundational work my clients do with me to build a business that funds the life they want.
I suggest you read and apply it (to your business and/or personal finances).
In case helpful, before you do, here are some of the primary themes it emphasizes:
1. Prioritize profit first
Businesses often treat profit as an afterthought. by taking a percentage of income as profit first, you ensure financial stability and sustainability. The book challenges the traditional accounting formula of sales - expenses = profit, and replaces it with a new approach of sales - profit = expenses. This shift ensures that profit is prioritized from the outset.
2. The small plate principle
Similar to eating smaller portions by using smaller plates, allocating money into smaller accounts (like profit, taxes, and owner’s pay) helps manage spending. This limits the temptation to overspend and ensures money is distributed intentionally.
3. Bank account structure
The system recommends setting up five key bank accounts:
Income (where all revenue is deposited)
Profit (a percentage allocated to ensure profit)
Owner’s pay (to compensate the owner appropriately)
Taxes (to prepare for tax obligations)
Operating expenses (to cover daily business costs)
This structure forces business owners to allocate money for specific purposes rather than treating all income as general funds.
4. Parkinson’s law
Expenses will rise to match the resources available. by reducing the funds in the operating expenses account, businesses naturally find ways to operate more efficiently and avoid unnecessary spending.
5. Profit distribution
At the end of each quarter, the money in the profit account is distributed to the owner as a reward for running the business. this creates motivation to maintain profitability.
6. Tap into financial discipline
By automating the allocation of income across accounts, owners reduce emotional decision-making and establish disciplined financial habits.
7. Assess and adjust financial health
Businesses often focus on growing revenue, but profit margins and efficiency are more important. Regularly review and adjust allocations based on your business’s performance and goals.
8. Avoid the growth trap
Rapid growth can lead to overspending and cash flow issues. This encourages sustainable growth, ensuring the business remains profitable at every stage.
9. Celebrate profit
Celebrate profit distributions as a way to reward the business owner(s) and reinforce the system.
If you’re working hard and not seeing the benefit, your team is always being paid and you’re at the bottom of the list, margins are thin, you plan to grow a team, and/or you’re not flush with cash… read and apply this book.