Breaking Down the Four Core Principles of Profit First
Note from Donna… Progress is being made on my Profit First Certification adventure. I have created my 5 bank accounts (smaller Plates), started with the allocations and I have a set rhythm for them. I decided to have a bit of a different cycle than the 5th/20th. I’m doing every other Tuesday which is in sync with payroll. The one thing I still haven’t been able to get myself to do is remove the temptation. I haven’t started the 2 holding accounts outside my bank. Since this exercise is about experiencing what my clients experience, I’ll say there’s a block in my willingness to let go of the money. A stubbornness if you will – I know none of you can imagine me being stubborn.
The four core principles of this book are:
1. Use smaller plates
2. Serve sequentially
3. Remove temptation
4. Enforce a rhythm
Use smaller plates – I love how Mike uses a food analogy here. It’s something that most people can relate to. I use salad/dessert plates for each of my meals and it really does work. I may want more food, but if I just wait 10 minutes, I find that I’m very satisfied with the food that fit on a smaller plate.
That same principle can be applied to money and how we use it. If we divide the money into different accounts and only look at what is left in the operating account, we will figure out a way to live inside that budget. Will there be some hard choices to make – you bet there will be. However, after you make those hard choices you will find that you don’t miss it quite as much as you thought. During the great recession, I gave up cable and only used Netflix. Cable never came back in my budget. It’s not that I can’t afford it – it’s that I found another way to get what I wanted for less money. Same thing in business. We will miss something for awhile and then find another way around it.
Serve sequentially – Once again, Mike uses food. Eating your veggies first will not only fill you up but allow you to have the nutritional balance your body needs. I do this as well. I eat my salad first – it’s the only thing on the plate, then I bring in my main dinner starting with the veggies. By the time I’m done with the veggies, I only have room for a bit of meat and carbs.
The point Mike’s making is to split out the profit, owners pay, and tax money first. It will bring a balance to your business. At the beginning of the book, Mike challenges us to start putting 1% into a savings account and see if we miss it. I took him up on the challenge – Guess what – I’m not missing it.
Remove temptation – I think we can all find a story or two to tell about this one. Anytime you are going to change a habit you need to remove the temptation. It doesn’t matter what habit you are trying to break – overspending, overeating, watching too much TV… you need to remove the temptation.
True story from last week – my husband put a 3 Musketeers bar in the pantry. I know it’s his favorite and he doesn’t struggle with sugar like I do. I was able to stay away from it for 3 weeks. Then last week I had a stressful situation happen and BAM that chocolate made its way into my belly. I regretted it later and had to confess at dinner time… it was an ugly situation.
So, going back to money – YES – you need to physically remove it to another account. If you have your tax money in your operating account, it will get used up.
Enforce a rhythm – Mike food analogy runs true in my own life. I do eat about 5 small meals a day and it helps keep me from overeating at dinner time.
The takeaway from this for money is – get into a cycle. I’ve been a big proponent of setting aside time every couple week for money management. He suggests the 5th and 20th and that’s a great idea. The habit I set into is to work on accounting every other Monday. I’m doing payroll so I might as well do all the bill paying and dividing out the funds all at the same time.
The main point here is set time aside on your calendar – scratch that – block time on your calendar that is time for you to work with your money. Make sure your team knows you are not available and by no means should you take a client call. That’s your time to make sure your business is done first.
Next time we will discuss Parkinson’s law. I found this law to be at work in my business in many different ways.