Embracing Profit First after the 1% Challenge

As we reflect on the lessons learned from the 1% Challenge and continue to adhere to the guidelines it sets for our businesses, it’s time to impart an essential insight: the 1% Challenge is just the beginning. While transitioning to this system undoubtedly presents challenges and may have required significant adjustments, the benefits are clear. The challenge has made businesses healthier, more efficient, and better positioned for growth. However, the Profit First system offers even greater potential. Today, let’s explore the next steps for expanding on the 1% Challenge.

Step One: Embrace the 2% Challenge

The first and most obvious progression is to take the 2% Challenge. While this may seem like a small increment, the leap from 1% to 2% can feel just as significant as the initial step from 0% to 1%. The "low-hanging fruit" in expense trimming may have already been picked, and accountability becomes even more critical. However, this straightforward increase can lead to substantial improvements in your business’ financial health.

Exploring Different Approaches

Expanding beyond the 1% Challenge doesn’t have to be limited to increasing your profit savings. The Profit First system offers various ways to allocate your resources effectively. Consider the following:

• Tax Account: Instead of increasing profit savings to 2%, allocate 1% of your revenue to a tax account. This ensures you’re always prepared for tax obligations.

• Owner’s Compensation: Commit to paying yourself consistently on a scheduled basis, providing stability and recognizing your hard work.

• Operating Expenses: Implement an operating expense account to better manage your business’s spending. Define what qualifies as an operating expense—does it include payroll, cost of goods sold, or transportation? These decisions require careful thought but can lead to greater efficiency.

The Importance of Separate Accounts

If you choose to establish an operating expense account, avoid the temptation to manage it through a spreadsheet. Like your profit account, this account should be a separate bank account. This separation reinforces discipline and transparency, making it easier to stick to your financial plan.

Accountability and Education

No matter which path you take, accountability and continued education are crucial. The Profit First method emphasizes taking responsibility for your financial well-being and recognizing your power to effect change within your business. Engage with others for support, whether through accountability partners, educational resources, or group discussions.

Tailoring the Profit First Method to Your Business

Every business is unique, and there’s no one-size-fits-all approach. If you decide to stick with the 1% Challenge indefinitely, that’s perfectly reasonable. However, if you’re ready to take the next step but feel uncertain about how to proceed, reach out for support.

Final Thoughts

The beauty of the Profit First system lies in its flexibility. Whether you choose to maintain your current strategy or take the next step forward, the decision is yours. What matters most is that you continue striving for financial health and sustainability, ensuring that your business thrives in the long term.