Have you been struggling with constantly working with expenses and bills? Have you felt hopeless at the end of the month trying to find any profits that are leftover? What is the “Profit First” method and how can you use it in your business for success and growth?
In this podcast episode, Joe Sanok speaks about using the profit-first method in private practice with Rocky Lalvani.
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Meet Rocky Lalvani
Rocky changed the accounting formula of Sales – Expenses = Profit to Sales – Profit = Expenses. This ensures Profit comes first! (PS. It’s not about money at all costs, people come before money!)Visit the Profit First website and listen to Richer Soul and The Profit Answer Man podcasts. Connect with Rocky on Facebook, Twitter, Instagram, and LinkedIn.
In This Podcast
- What is profit first?
- Don’t drive while looking in the rearview mirror
- The accounts you need to have
- One action step you can take today
What is “profit first?”
“Profit First” is a cash-flow system. At its core, it allows you to have cash in hand so that you are able to deal with the various struggles throughout the month, should they arise.
The more cash you have to be able to deal with the ups and downs of payment [delays], the easier it is for you to run your business, and that’s what this is all about; helping you build up cash in your business so that you can handle the ups and downs. (Rocky Lalvani)
Traditionally, sales minus expenses give you your profit. But at the end of the day, how much profit is left over? And how can you take control of that situation to increase your profit margin while still paying the bills? Essentially with the profit-first system, you pay yourself first before you pay anything else.
We have to shift our mindset and our thinking around profit and do this differently, so [Mike Michalowicz] changed the equation. The new equation is sales minus profit equals expenses, which means you pay yourself first. (Rocky Lalvani)
Don’t drive while looking in the rearview mirror
As Rocky discusses, traditional accounting methods have you reviewing a month and your numbers after the month has passed. Essentially, you are driving your business forward while looking in the rearview mirror. With the profit-first system, you look forward instead of back. You plan to work with what you’ve got instead of seeing what is left at the end of a month.
A lot of what [accountants] do is designed for bankers, it’s designed for Wall Street, [and] is designed for the IRS to tax you. It’s not designed for you to understand what’s happening in your business and how to be able to do what’s next [and] to take the next step and to move forward in your business. (Rocky Lalvani)
The accounts you need to have
1 – Income: All your income goes into this account. This way it is always clear for you to see how much money came into your business. If you check this over time, you begin to “feel” your money and notice the patterns of your business.
2 – Tax: Keep money aside throughout the year to be able to pay your taxes when the time comes around to do it.
3 – Operating expenses: This is how much you know you can spend. It shows you how much you need to run your business on, it is your constraint. You need to figure out how to run your business on the expenses and go up from there instead of looking at the profit only and taking out from it.
The way we do this is [that] we start with where you are and we try to get to where you need to be. It can take two or three years to get from where you are to where you need to be. (Rocky Lalvani)
On a set schedule, you take your money, allocate it to these accounts, and then go on living your life. At the end of the day, you just need to generate more cash than you spend, so increase your sales and cut costs.
One action step that you can take today
Open up a bank account and every month put 1% of your sales into it. You will not miss one dollar out of 100, so let them sit there and build a little. Let yourself see how much money you can accumulate without struggling in your business, and if you find that you can experiment a little more, then add another 1% and keep doing this.
Books mentioned in this episode:
Mike Michalowicz – Profit First: Transform Your Business from a Cash-Eating Monster into a Money-Making Machine
Sponsors Mentioned in this episode:
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Useful links mentioned in this episode:
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Meet Joe Sanok
Joe Sanok helps counselors to create thriving practices that are the envy of other counselors. He has helped counselors to grow their businesses by 50-500% and is proud of all the private practice owners who are growing their income, influence, and impact on the world. Click here to explore consulting with Joe.
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