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Here is a snapshot of how Profit First works…
With Profit First, you take a predetermined percentage of profit from every sale FIRST, then the remainder is available for expenses.
The Profit First formula is much more in tune with our behavior and is what entrepreneurs thrive on.
Profit First isn’t going to force a change in your habits.
Instead, it leverages what you already do for greater financial success.
By first allocating money to different accounts, and then removing the temptation to “borrow” from yourself, your business will become fiscally strong and you will benefit from regular profit distributions.
Author and historian C. Northcote Parkinson theorized that our demand for a resource increases to meet the supply of it. That is why when we are given two weeks to do a project it takes two weeks, and when we are given eight weeks to do the same project it takes eight weeks.
That is why when given $1,000 to complete our work we get it done with $1,000 and when given $10,000 to complete the same work, it takes $10,000. Profit First makes Parkinson’s Law an asset. By taking profit first the money available for expenses lessens, and we are forced to find ways to get the same things done for less money.
Per Parkinson’s Law (see the details above), we consume what we see in our bank account.
Profit First encourages you to continue “bank balance accounting” by first allocating money to profit (and other accounts) so that you see the actual portion of deposits that are available for expenses and they automatically adjust your spending accordingly.