It also has huge benefits for your mindset: by putting this system into practice, you are setting a strong intention and being purposeful about profit. One of the biggest benefits of the Profit First system is that it helps business owners stay disciplined and avoid overspending. Michalowitz advises that business owners transfer funds from the first ‘Income’ account twice per month, on the 10th and 25th.

Operational expenses (including employee payroll) - 30%.

Income - 100% of incoming cash flows into this account before being divided up amongst the following four.

In order to use the Profit First method, business owners typically set up five separate bank accounts for the following purposes: As a business owner, your costs will expand to fill your budget, so deducting profit first helps you reduce spending and boost your margins. This is based on Parkinson’s Law, the psychological principle that work expands to fill the time available. Michalowitz argues that businesses should take profit first, rather than treating it as the leftover amount. The Profit First method flips the equation so that it looks more like this: Profit is typically defined as revenue minus expenses. In this article, we’ve outlined how you can make the Profit First method work for you as a solopreneur.

Small Business Administration defines a small business as one with up to 1,500 employees, it’s safe to say that the system may require a little tweaking to work optimally for a sole trader. Solopreneurs can certainly benefit from the Profit First method too. It was designed by American author and entrepreneur Mike Michalowitz with small businesses in mind.

The Profit First method is an increasingly popular money management system which helps businesses to grow by deducting their profit first.

Profit first percentages