3 Reasons Most People Fail with Profit First and How to Avoid Them
Profit First is an excellent system to use when you want to guarantee yourself a paycheque with your business. The goal of the Profit First system is to prioritize profit and allocating income before you pay for any of your expenses. This may sound crazy, but it works quite well when it is done right. Plus, it is the best way to make sure you give yourself a paycheque every month!
However, as simple as this system is to use, many people will fail when they first implement it. The reasons vary, but three of them stand out as being the main ones.
3 Reasons Most People Fail with Profit First and How to Avoid Them
1. Get overwhelmed with the allocation percentages
Many businesses get hung up on where to start with their allocation percentages and don’t get started because they are afraid they will be wrong. Profit First is a process that evolves over time and as you are implementing it, you will be making minor adjustments here and there. The best thing to do is to start small and work your way up to your target allocations. Start with at least 1% to Profit, 5% to Tax and slip the remainder between your Owners pay and Opex. This is going to get you started and a feel for how your cash flows in your business.
2. Use the Wrong Report To Calculate Their Allocations
There are going to be times when you are unsure of which report looking at before you complete any of your bi-monthly allocations. While you think you will be fine with any of them, it is always best to pull the total deposits directly from your bank account. This is the most accurate and has the exact amount of money you have available. This is especially important if the money you deposited hasn't been cleared yet. You can easily overdraw your accounts if you are not using the proper information.
The only way to avoid this issue is to always use your bank account report before you do your allocations on a bi-monthly basis.
3. Forget to Add Credit Card Fees to Their Expenses
How many times do your clients or customers pay you via credit card? If you are like many business owners, you are being charged a couple of dollars here and a few more dollars there, multiple times a month. At the end of the month, you are going to have a hefty amount in credit card fees that you need to account for under your expenses. While this shouldn’t be an issue, it will be if you forgot to put those credit card fees under all of the expenses you need to pay for from your expense account.
The best way to avoid this is to make sure you account for any credit card fees that you will need to pay for at the end of any month.
These are the three reasons most people fail with Profit First, as well as how to avoid making those mistakes yourself. If you have made them already, you now know what went wrong and how to fix them, and if you haven’t, then you know what to do to avoid them altogether.
Profit First is a wonderful system and it will change how successful you are with your business in more ways than one, so embrace it and avoid the mistakes that many others have made when they first started using it.
