7 Steps to Implementing Profit First in Your E-commerce Business

Profit First for E-commerce Business

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.

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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.