Profit First 1% Challenge
Note From Larissa For Donna... This week, we are sharing Donna’s story of Profit First. It might shock you if you read Donna’s social media, but it took many years for the system to prove itself to her. Are you ready to take the 1% challenge?
“I was introduced to Profit First back in 2014. I read the book and thought all of the bank accounts sounded complex. Then, the book circulated in my client circle during 2018 and I was asked if I would help set up the system. At the time, I wasn’t certified, and my attempt to help my client failed. This is one of those books that kept circling around, and I finally decided to re-read the book in 2020. The difference in 2020, however, was deciding to do “The 1% Challenge.” In the book, Mike Michalowicz challenges you to put aside 1% of all income while you are reading the book.”
When Donna refers to setting aside 1% of all income, she really does mean all income. Any interest payments, dividends, checks, subscriptions, or other income streams she had built went into a savings account. This meant that any expenses that she couldn’t handle with 99% of her income had to be cut.
“After finishing the book, I decided to continue the challenge. However, month by month I increased the percentage going into my savings. Eventually, 12% of my income was going into a savings account. After a while I realized the money had piled up and I had stars in my eyes about what I could do with it all.
Instead of spending it, I gave a portion to my financial advisor to invest. The rest of it – well – what do you know… I divided it into the accounts Michalowicz talks about in the book. That very day I signed up to become certified to help clients master this cash management system.”
Profit First isn’t just a simplistic saving strategy to accumulate a cash asset. Michalowicz recommends allocating money into accounts to pay for taxes, operating expenses, technology expenses, and numerous accounts that refer to specific industries. For example, if your business rents office space then a Profit First professional like Donna may recommend making an account solely for office rent expenses month by month. The method provides us an at-a-glance understanding of our budgetary reality. Profit First isn’t just for small business owners struggling with cash flow or for overzealous CEOs who need to not spend so much. It’s also for businesses that have cash. Businesses that have cash in one account but haven’t thought strategically about how to use that cash. There isn’t any one way to use Profit First because it’s so easy to change the system to fit your purposes. Perhaps business owners should start an account that will pay them when they step away from their business. Perhaps they should start an account that will fund another business venture. Even an account to pay for a new employee.
“I encourage you to test the 1% challenge for yourself. When you are ready to set up the system, I’m happy to help.”