Put Profit First

Traditionally, we've been conditioned to follow the old accounting formula: sales minus expenses equals profit. This method can lead to a precarious financial balance, where profit becomes a residual – if it exists at all. It’s time to shift our mindset and prioritize our financial well-being by adopting a transformative approach presented by Mike Michalowicz in his insightful book, "Profit First."

Introducing the Profit First Method

"Profit First" turns the traditional accounting formula on its head, insisting that we allocate our earnings to profit immediately upon receiving them, thereby ensuring we pay ourselves first. This method encourages discipline, innovation, and financial efficiency, compelling us to operate within the means of what's left after securing our profit. By doing so, it assures that profit is not something hoped for but a guaranteed outcome of our business activities. I was going to talk about Business Budgeting first, but honestly, this is the most efficient and effective way I’ve ever learned to operate from a budget. And, yes, what I’m about to share is the method I use to grow my wealth. Though I’m not an accountant, I will shout about this method loud and proud. Because it works.

The Five Bank Account Strategy

At the heart of the Profit First method is the practical step of setting up five separate bank accounts to manage your finances effectively. These accounts are:

1. Income Account: All earnings flow into this account first. It acts as a holding area for your revenue before you allocate it to the other accounts.

2. Profit Account: A percentage of your income is immediately transferred here. This is your reward as an entrepreneur and author for your hard work.

3. Owner's Compensation Account: This account is for your salary as the business owner. It ensures that you are paid consistently for your efforts.

4. Tax Account: Set aside money for taxes from each payment you receive, removing the stress and scramble of tax season.

5. Operating Expenses Account: Lastly, the remaining funds are used for business expenses. Operating with a clear budget for expenses encourages creativity and efficiency.

By adhering to this method, you ensure that every dollar earned is purposefully allocated, safeguarding your profit, your salary, and your peace of mind. It's a proactive approach to managing your finances, compelling you to make strategic decisions about expenses based on actual available funds rather than anticipated income.

Transitioning to the Profit First system means embracing a mindset where financial stability and personal compensation are not merely byproducts of success but foundational elements of your business strategy. It aligns perfectly with the entrepreneurial spirit of an author, marrying the creative joy of writing with the empowerment of financial independence and control.

I encourage you to explore the Profit First method further and consider how its principles can be adapted to fit the unique needs of your writing business. It’s not just about financial management; it’s about setting a course for a future where your writing career is not only creatively fulfilling but financially rewarding as well.

Let's redefine success on our terms, prioritizing profit and ensuring that as authors, we are not just rich in stories, but in financial health as well.

Happy banking,

Ines