Page 6 - Profit assessment Template v1

Glossary of Key Terms

Current Allocation Percentages (CAPs) – These are the current percentages you use to allocate money
to your various accounts. A Profit CAP of 5% means that twice a month, you will transfer 5% of the
balance in your Income Account to your Profit Account

Instant Assessment – The Instant Assessment is a tool that gives you a quick, clear view of the current
financial health of your business (no need for confusing Balance Sheets and Income Statements / Profit
& Loss Accounts)

OpEx – Short for “Operating Expenses”. In the Profit First system, you should be paying your bills out of
the OpEx Account

Parkinson’s Law – C.Nortcote Parkinson’s adage that work expands to fill the time available is the same
tendency your business has to use up all its available resources. This is also known as induced demand.
That’s the main reason why you need to stow away your profits before you find ways to spend it.

Primacy Effect – Our tendency to place greater emphasis on what we encounter first. So, if profits are
important to you, you’ll put profit first.

Profit First Professional (PFP) – Certified professionals who are well versed and trained in the
mechanics and practical implementation of the Profit First system.

Real Revenue – When performing the Instant Assessment, we use ‘Real Revenue’ as an alternative to
Gross Profit. In the cases where there is significant use of subcontractors and/or materials (typically
over 20% of total revenue), those costs are subtracted from income to derive the ‘true revenue’ that
the company generates. Calculations to Gross Profit in traditional accounting can vary based upon
different interpretations. The objective of Real Revenue is to simplify the calculations variable.

Target Allocation Percentages (TAPs) – The ideal percentage of revenue you should eventually aim to
allocate to Profit, Owner’s Pay, Tax and Operating Expenses. You will gradually increase your CAPs
towards your TAPs for Profit, Owner’s Pay and Tax, and gradually decrease your CAPs for OpEx.

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