The Profit First template provides a system to objectively allocate business revenues across key categories to maximize profitability and growth while ensuring sufficient funds for owner compensation and expenses. The process highlights areas where revenue, expenses, or profitability may need adjustment to better fit the business’s needs and goals.
• The Profit First template is based on the book by the same name and helps optimize profitability by giving an objective framework for allocating business revenues.
• The template starts with 100% of revenue and allocates it into four categories: Profit, Owner’s Pay, Taxes, and Operating Expenses.
• The template recommends allocating 50% of revenue to Owner’s Pay, 5% to Profit, 30% to Operating Expenses, and 15% to Taxes for businesses under $250k in revenue. These percentages can be adjusted based on individual business needs.
• The allocations provide an objective measure to determine if the business has enough revenue to cover expenses and owner compensation goals.
• If owner pay is too low based on financial needs, the business may need to reduce operating expenses or increase revenue and profitability.
• Conversely, if operating expenses are too low compared to the template’s recommendations, it may indicate underinvestment that is limiting growth.
• By applying the allocations consistently each month or quarter, the template provides a framework to optimize revenue and maximize profitability over time.
• Read the Profit First book for more details on the approach and how to effectively implement the template.