Page 5 - Improved +Example+Assessment+Report (LG Accrual) {FlipBook Test v1}_Neat (Online upload)

more innovative and efficient. It therefore naturally follows that the less money we make available for a
business, the more frugal we become, but we also become more innovative (ie we think more like a
‘start up’).

By taking our Profit First, we reverse engineer the rest of the business to fit, and thus we use
Parkinson’s Law to our advantage, and it is our ally in the Profit First process.

Sequencing

Theoretically you could allocate the incoming money in any order, but we utilise the Primacy Effect to
our advantage – we always transfer money into the Profit Account first to recognise its importance, and
then we transfer into the Owner’s Pay Account – these 2 accounts reward the business owner first. We
then transfer to the Tax account, and finally to the Operating Expenses (OpEx) Account.

This process forces us to ‘reverse engineer’ the business model to ensure that we are profitable – not
having sufficient money allocated in the OpEx account to pay the bills is a prime indication that
something needs to change within the business!

Remove Temptation
The removal of temptation is a key (but often underrated) component of the Profit First system. We
have to remove the temptation to ‘borrow’ from the Profit Account (or often from any savings set aside
for future tax payments) to fund other aspects of the business.

To enable this, we set up 2 ‘hard to access’ accounts for Profit and Tax – once the money has been
allocated to these accounts, we behaviourally revert to an ‘out of sight, out of mind’ premise, which
generally stops business owners from using the Profit or Tax accounts to support their lifestyle. Our goal
is to build the Profit Hold Account ready for future distribution.

Rhythm
The reality is that most businesses are reactive to their bank balance at any given point in time, which
tends to create extreme highs and lows in a bank account which makes it difficult to plan or make

decisions, because we don’t really know or understand what is available to us.

Under the Profit First system we use rhythm to help manage our business and avoid the peaks and
troughs. Typically, the ‘10/25’ system is deployed, meaning that we allocate the incoming money to the
th
th
various accounts on the 10 and 25 of the month. This rhythm works for 50-60% of Profit First Clients.
Dependent upon the business, weekly (35-40% of clients) or monthly allocations may also be
appropriate. Most importantly, we pick a rhythm that suits the business model.

5