Profit first methodology

I have recently come across profit first methodology that some consultants are advocating to small business owners to ensure their businesses are always making profit.

I thought this is a great way of thinking. It is similar to Jim Rohn’s teachings where he advocates people to keep a percentage of their income aside regularly. This is their investment money and they should use this to make more money. In a way this money is not for risky endeavours. Profit first methodology advocates a similar style where the small business owners first count their profit and set that aside in a separate bank account called profit. Like that every business should have 4 other bank accounts vis 1 for tax man, 1 for Owners salary and another for expenses. The idea is to take profit first then set aside money that belongs to tax man and take salary for your own service in the business and then finally whatever is left that is for other expenses in the business.

Although it looks simple when you put it in those simple terms. But, in reality business can’t wait until all other important matters are taken care of before spending on expenses. However, behaviorally this is a great way to think so that strategically land in profits – not only in book value but also in bank account.