Profit First as a sole trader – Can I implement Profit First?

Profit First as a sole trader

Can I implement Profit First as a Sole Trader?

The short answer is yes, you can implement Profit First as a sole trader (and we have a number of clients that are sole traders and running Profit First).  There is really no difference between how you run Profit First as a sole trader and a Limited Company. 


As a small business owner, it's important to` be aware of all the different options available to you when it comes to managing your finances.

One option you may have heard of is Profit First.

But can sole traders implement Profit First in their businesses?

Let's take a look.


What is Profit First?

Profit First is a cash management method designed to help small businesses become profitable.

The system was created by Mike Michalowicz, who has also written books on the topic.

In short, Profit First requires businesses to set aside a percentage of their revenue into separate bank accounts for profit, taxes, and operating expenses. This way, you are always ensuring that your business has enough money to cover its expenses and still turn a profit. 

 

How Does Profit First Work for Sole Traders?

The main benefit of using Profit First as a sole trader is that it forces you to think about profitability from the beginning. Too often, sole traders get so caught up in the day-to-day running of their businesses that they don't stop to think about whether or not they're actually making any money. By setting aside money for profit first, you are reminding yourself that your ultimate goal is to make a profit—not just to break even or cover your costs.


Another benefit of using Profit First as a sole trader is that it can help you save money on taxes. When you set aside money specifically for taxes, you are less likely to spend it on other things—and that means you'll have more money available when tax time comes around. 


Are There Any Downsides to Using Profit First as a Sole Trader?

One potential downside to using Profit First as a sole trader is that it can be difficult to stick to the system. When you're used to managing your finances one way, it can be tough to change your habits and start doing things differently. That's why it's important to make sure you're fully committed to trying Profit First before you make the switch.

Another potential downside is that Profit First may not work for everyone. If your business isn't generating enough revenue yet, setting aside money for profit may not be possible—or may not make sense. You may want to wait until your business is generating more money before implementing Profit First, however, Profit First can actually help you access that additional money anyway! 


Profit First as a Sole Trader - Bank accounts

Often the worry is around having multiple business bank accounts as a sole trader, and people can want to run their banking through personal bank accounts as a sole trader. 

As a sole trader, you are still supposed to run your business using a business bank account (and not through a personal bank account).

It is against banks terms of service to run a business through a personal bank account and hence why you should be doing it through a business bank account. 

What that means is, that you can have multiple bank accounts set up in the business name (ie your sole trade name, which will usually be your own name followed by “t/a” or “trading as” and then the business name, which can be your name too).

You should be able to speak to your bank and open up multiple bank accounts for profit first, even as a sole trader 

If you are wondering about which banks are best for Profit First then you can find my blog on that here.


Implementing Profit First in your business can be a great way to become more profitable.

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About the Author

Annette Ferguson 

Owner of Annette & Co. - Chartered Accountants & Certified Profit First Professionals. Helping online service-based entrepreneurs find clarity in their numbers, increase wealth and have more money in their pockets.

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