At its core, Profit First is all about flipping the script on traditional accounting and prioritizing profit from day one. One of the key pillars of Profit First is percentage allocation—the art and science of dividing your revenue into different buckets to ensure financial health and sustainability.

Let’s break it down step by step and explore how to allocate percentages using the Profit First method:

1. Profit (5-10%): First things first, let’s talk about profit—the lifeblood of your business. With Profit First, we flip the script and prioritize profit over expenses. Allocate a percentage of your revenue (ideally 5-10%) to your profit account right off the top. This ensures that you’re paying yourself first and building a financial cushion for the future.
2. Owner’s Compensation (30-50%): Next up, let’s talk about owner’s compensation—the money you pay yourself for your hard work and dedication. Allocate a percentage of your revenue (typically 30-50%) to your owner’s compensation account. This ensures that you’re fairly compensated for your efforts and can enjoy the fruits of your labor.
3. Operating Expenses (50-60%): Now, let’s turn our attention to operating expenses—the costs associated with running your business. Allocate a percentage of your revenue (typically 50-60%) to your operating expenses account. This covers everything from rent and utilities to payroll and supplies, ensuring that you have the funds needed to keep your business running smoothly.
4. Tax (15-20%): Ah, taxes—the inevitable reality of business ownership. With Profit First, we take a proactive approach to taxes by allocating a percentage of our revenue (typically 15-20%) to our tax account. This ensures that you have the funds set aside to cover your tax obligations and avoid any nasty surprises come tax time.
5. Profit First (5-10%): Last but not least, let’s circle back to profit. In addition to allocating a percentage of your revenue to your profit account upfront, consider implementing a Profit First allocation at regular intervals (e.g., quarterly or annually). This allows you to further bolster your profit reserves and celebrate your success along the way.

By following the Profit First method and allocating percentages to your profit, owner’s compensation, operating expenses, tax, and profit first accounts, you can take control of your finances, prioritize profit, and build a financially sustainable business for the long haul.