Profit

Profit First

I have an apology on behalf of all accountants – we have been getting it wrong for far too long and we are all sorry; profit first is the way forward.

This is WRONG:

Sales – Expenses = Profit

This is RIGHT:

Sales – Profit = Expenses

Business owners often leave themselves last. We take home whatever money is left over after all other expenditure; we are often first into work and last to leave, and as a result we are the one’s that think about our work life balance last.

Not anymore, as we share some core principles to help you turn this all around by putting yourself and profit first!

Four Core Principles

The four core principles to getting right what you previously got wrong in your business are:

  1. Use smaller plates
  2. Serve sequentially
  3. Remove temptation
  4. Enforce a rhythm

Using smaller plates

As human beings we have a habit of being able to justify more of something quite easily.

How is it that we can fill a 4-bedroom house having moved from a two-bedroom small flat? (or it that just me?)

Why do we need a large SUV when the average car journey is just 8.4 miles?

More importantly, when we try to cut down on something, it is often difficult to sustain it.

For example, it is really easy to say “I am going to start eating less” and it can be easy initially but tough to sustain.

From a financial perspective, it might be easy to make savings initially but how long can you keep it going?

The same can even apply to time.

However, we can often be resourceful when we want to be.

So consider this:

“If you want to eat less, use a smaller plate”

How long do we all make that last bit of toothpaste last when we come to the end of tube?

Apply this thinking to business:

  • Reduce your budget in areas of expenditure and measure both how much you can save and what impact this has elsewhere
  • Reduce your working hours and keep track of whether you can actually get more done in less time – if you do then stick with it

Serve sequentially

I don’t know about you, but I love a good Sunday dinner and I can promise you that two things I never leave are the roast potatoes and the Yorkshire pudding.  I can also pretty much guarantee that if I leave anything it would be the vegetables. Until, of course, I became a parent and realized I must set a better example!

For those who have kids, you will have heard them claim to be full and as a result are unable to eat certain things on their plate. More often than not, it is the vegetables. Particularly sprouts!

Consider this:

“Eat the contents of your plate in a different order and see what (and how much) is left when they are full.”

If we consider this from a business perspective and go back to the formula we shared at the start:

Sales – profit = expenses

From sales revenue that we receive in, we first take out a calculated amount of profit and then start to manage expenses. When you take this profit first approach, it is interesting to see how much more effective we are at managing expenses within a finite budget.

Remove temptation

As humans we are drawn to things we know we shouldn’t have. It is human nature.

If something “bad” is visible or easy to reach, we are far more likely to succumb to it.  I always tell my wife to not buy crisps or sweets because then I know I won’t touch them.

The same goes with time. I have been notoriously guilty in the past working beyond 5pm simply because I can. I “allow” tasks to take longer, and I “allow” myself to start more work than is actually necessary.

You can spend more on “running expenses” and work those extra hours but it will mean you have less money to take home to spend on the family. And because of those extra hours worked, you miss another bed-time and meal time with the kids.

Try focusing on the following:

  • Go through all your expenditure and entirely cut out anything that you don’t need!
  • Track how you spend your time in an average week and identify things you either don’t need to do or could spend less time on. Aim to find 5 hours in total.  Follow my “D” rules when assessing time:
    • Ditch the task
    • Delegate it to somebody else
    • Do it if it really needs to be done by a certain time
    • Dither – please don’t – you’ve cost yourself enough time and money already!

Enforce a rhythm

Feel the rhythm, feel the ride, get on up, its bobsled time!

*That will be the only reference I make to the film Cool Runnings.

It is all good and well having a routine/rhythm but what if somebody trips you up in the 100m sprint and you miss the Olympics because you didn’t take aversive action? (**definitely the last reference to Cool Runnings!).

Feel the rhythm

To truly make sustainable changes in your business you must put in place a sustainable rhythm that can withstand several bumps along the way.

Once you get things right, you need to recognize them and repeat them more often.  When you get things wrong, don’t dwell on it but instead reflect and learn from it but don’t repeat them.

Now you’ve got the four core principles to putting profit first:

  1. Use smaller plates
  2. Serve sequentially
  3. Remove temptation
  4. Enforce a rhythm

We would love to hear what changes you implement based on the ideas in this post and the difference it has made in your business and personal lives.

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