Profit Building Game Changer
Transfer 1% into a Cash Reserve Fund
Increasing profit can be a big hill to climb for entrepreneurs. But instead of sticking to the traditional cash management formula, Sales – Expenses = Profit, consider turning the formula around, Sales – Profit = Expenses.
That’s the game-changing logic of Mike Michalowicz, author of “Profit First.” The math comes out the same, but the business approach is much different!
Simply put, Michalowicz’s business principle is to take your profit first. To do so, he advises business owners to open five different bank accounts: Income, Owners Compensation, Operating Expenses, Profit Hold, and Tax.
The Profit Hold account, also known as a cash reserve fund, immediately starts to generate profit for the entrepreneur. Here’s an example of how a cash reserve fund grows, simply by transferring 1% of each deposit into the account.
A business owner receiving a $1,000 deposit transfers $10 into a cash reserve account. The missing $10 really isn’t going to make a difference in business operations. However, by reserving this small amount, the business owner begins to form a profit-first savings habit. When the owner receives a $20,000 deposit, $200 will go into the cash reserve account.
Little by little, the savings add up. Business owners will never miss the 1%. Sure, they won’t get rich overnight, but they will grow profit over time. They’ll see the difference that 1% makes every quarter when they take 50% of the money from the cash reserve fund as profit distribution. That’s the sweet pay-off of “Profit First” thinking.
At Prosperity Bookkeeping, we take it a step further. We set aside 10% from every deposit into a cash reserve fund for "profit" savings. At quarter-end, we can use half of that account to share the profits as bonuses to reward our staff for a job well done.
I read “Profit First” in 2019, and what an eye-opener it was! I successfully implemented its principles in my business and the businesses of several clients, also. My profit-focused habits have improved over time, and I can see the difference in the profits we’re experiencing. Something almost magical happens as you watch profits grow. Over time, you prove to yourself that the system works.
If you haven’t already read “Profit First,” now’s the time! After reading the book, those of you who like numbers will be ready to dive in and get started. Others may be excited to get started but would like a little hand-holding throughout the process or an accountability partner to make sure you are on the right track. For others, the thought of reading a book makes you queasy. In any case, I am here for you! Contact me