7 Steps to Implementing Profit First in Your E-commerce Business
Profit should not be an afterthought in your e-commerce business. The Profit First methodology offers an innovative approach to ensuring that profitability is front and centre in your financial management. Here's a seven-step guide to implementing Profit First in your e-commerce business.
1. Understand the Profit First Principles
Developed by Mike Michalowicz, Profit First is a financial management method that flips the traditional accounting formula (Sales - Expenses = Profit) to
Sales - Profit = Expenses
This ensures that you take profit first before paying for expenses.
2. Set Up Your Bank Accounts
Implementing Profit First requires you to set up multiple bank accounts to manage your finances: income, profit, owner’s pay, tax, and operating expenses. This helps you allocate funds for different purposes and avoid overspending.
3. Determine Your Allocation Percentages
Decide how you will divide your income among the various accounts. A good starting point is the recommended percentages in the Profit First book, but you can adjust these based on your business's unique needs.
4. Make Your Profit Allocation
Each time you receive income, distribute it among your bank accounts according to your allocation percentages. You can set up a spreadsheet where you enter the income and it will tell you how much to allocate to each bank account to make it really simple.
5. Cut Costs Where Necessary
When you start putting profit first, you may find that you have less money for operating expenses. This can be a cue to scrutinise your expenses and cut back where possible.
6. Regularly Review Your Finances
Regularly review your accounts to ensure that your allocations are working and adjust as necessary. Remember that Profit First is not a set-it-and-forget-it method; it requires active financial management.
7. Celebrate Your Profits
Finally, don’t forget to celebrate your profits. The goal of Profit First is to ensure that your e-commerce business is serving you, the owner, so take time to enjoy the fruits of your labour.
Implementing Profit First in your e-commerce business can transform your financial management and ensure that your business is consistently profitable. It may require a shift in mindset and some diligent bookkeeping, but the rewards are well worth it.
Subscribe to the Friday Financial Freedom Finder Newsletter
Subscribe to our weekly newsletter that delivers the most actionable, tactical, and timely business and financial tips you actually need in 9 minutes or less. Get an edge over the competition and get control of your business finances, for free.