Incite-FUL Profit Podcast | Incite Tax
When business owners have clarity in their financial actions, they’re able to use their wealth for good. We're here to provide clear communication on steps you can take to accelerate your profit and build financial resiliency as a business owner. Profit first!
Incite-FUL Profit Podcast | Incite Tax
Implementing Profit First in Your Business
At Incite, we’re all about making business finances suck less. John Briggs, our CEO, uses the Profit First system himself and helps clients cut through the noise to do the same.
Profit First is a cash-flow system approach to paying yourself, and taking control of your businesses money without losing sleep over it.
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How do you implement Profit First into your business?
Feel free to check out our resources that go into more detail on what Profit First is. But to summarize, Profit First is a cash flow management system that harnesses our natural behaviors. It allows us to manage our cash more effectively and helps our business become more profitable, as opposed to forcing ourselves to adapt to behaviors that are unnatural for most business owners. Because those behaviors don’t come naturally, they often don’t get implemented.
In our company, when we're helping a client implement Profit First, we have four meetings with them. Over those four meetings, we go over seven different steps. I'm going to walk you through what those steps are.
The first thing is making sure that the bookkeeping is in good shape. So we start with a bookkeeping review. The reason for this is that much of the Profit First cash flow management is based on financial bookkeeping and bank account balances. If our financial accounting isn’t accurate, it’s going to be hard to identify the areas that aren’t helping the business. Having accurate and consistent books is the number one step because nothing else makes sense until that foundation is established. So, step one: get your books in order.
Next, we review the core Profit First principles. These include concepts like “smaller plates.” The idea is that over time, in the U.S., our plate sizes have gradually gotten larger—and that increase has correlated with obesity rates. Experiments show that using smaller plates leads people to consume fewer calories while still feeling satisfied. We apply the same concept to cash flow by using multiple smaller bank accounts instead of one big one.
Another principle is “eat your veggies first.” In this context, veggies represent things that benefit you as an owner—like paying yourself, taking profit distributions, and setting aside money for taxes. If you fill up on the healthy stuff first, you’re less likely to splurge on unnecessary business expenses.
We also remove temptation. In Profit First, some of your bank account balances will grow, but those are not meant for day-to-day spending. To remove the temptation to dip into those funds, the book suggests transferring them to a different bank—out of sight, out of mind.
Another principle is rhythm days. Instead of being like a bear—eating a big meal and hibernating—we want to be more like a horse and “graze” regularly. So instead of managing cash flow sporadically, we do it consistently—ideally once a week or twice a month.
After reviewing those core principles, the third step is deciding what accounts you’ll use. At a minimum, we recommend:
- An income account
- An owner’s pay account
- A profit distributions account
- A tax account
- An operating expenses account
If you're a gym owner, we also recommend having accounts for team member expenses and equipment. Beyond those, if there’s something specific you know is coming down the road, go ahead and create a new account for it. When in doubt, add an account. It’s better to pull money from your operating account and assign it to a clear purpose in a separate account.
Step four is the cash flow analysis. This is where we review your financials and your past cash flow to get a “before” picture of your financial health. We look at what percentage of income is going toward owner’s pay, profit, taxes, and overall expenses. Then we compare it to the target percentages from Mike Michalowicz’s Profit First tables—or our custom tables for gym owners. This gives us a goal and direction.
Step five is scheduling your rhythm days—the days you’ll move money from your income account to your other accounts. As mentioned earlier, we don’t want to do this more than once a week, but at least twice a month is ideal.
For example, I had a client who was a mechanic and got into trouble with sales tax. He didn’t realize that sales tax isn’t his money—it belongs to the government. He ended up using it for business expenses and couldn’t pay what he owed. We helped him stay on track by having him pay a set amount toward his sales tax every week. More than that would have been overkill, but once a week helped him stay consistent.
Step six is analyzing your expenses. Here’s the key question to ask:
Does this expense help me get clients or keep clients?
We use nine questions to analyze each expense objectively and without emotional attachment. Two comments always come up during this process:
- “I thought I canceled that.”
- “I have no idea what that is.”
If you don’t know what the expense is—or forgot you were even paying it—it’s probably not helping your business and should be cut. This process helps prevent your expenses from increasing just because your income increases. Without a system like Profit First, expenses tend to rise as fast or faster than income.
The seventh and final step is guiding clients through their first allocation day. This is the same as a rhythm day. Mike Michalowicz recommends the 10th and 25th of the month, and those are the days I use personally for my firm’s cash flow. On those days, you take money from your income account and allocate it into the other smaller plate accounts based on the target percentages from your cash flow analysis.
You also review your expenses during this time. For example, on the 10th, you’d review transactions from the 25th to the 9th. When we first analyze expenses, we usually go back six months—or sometimes a full year. But once you're on a rhythm, you only need to look at the past two weeks. Then you use the same process to evaluate expenses:
- Does it help me get or keep clients?
- Did I think I canceled this?
- Do I know what this is?
It helps you stay lean and in control as revenue grows.
So there you go—those are the seven steps we walk our clients through across four meetings. I hope this serves you well. Profit First has been a game-changer for me personally and for our firm. It gives me insight into all sorts of things. I’d say I’m an advanced user at this point since we teach others how to do it too.
For example, I have an account that acts like an internal line of credit. If I need a quick infusion of cash, I pull it from that account instead of going to a bank. I also have accounts for large annual expenses—I figured out the yearly total and set money aside a couple of times a month so when the bill comes, I’m not stressed.
You can even create an account for future hires. Start paying into it like you’re already paying a salary. If you can consistently fund it for a few months, then you know you’re ready to hire—and you’ll have a cushion to support the new hire while they ramp up.
Profit First truly opens up a world of control and clarity. We're here to help if you have any questions. And we also have downloadable resources to help you implement this yourself if you'd prefer.
Profit is a choice. Have the courage and wisdom to choose it.
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