Most small business owners follow a simple formula:

Sales – Expenses = Profit

But that approach often leaves nothing left over—because expenses expand to consume whatever is available. The Profit First method flips the script. It puts profit at the top of your priorities, not the bottom. Instead of hoping there’s money left after spending, you intentionally set aside profit first, then learn to run your business with what's left. Let’s walk through how to build a Profit-First budget for your business.

What Is the Profit First Method?

Coined by author Mike Michalowicz, Profit First is a cash management system that helps you:

• Guarantee a profit with every sale
• Control spending by limiting available cash
• Reduce financial stress and increase discipline
• Build a more sustainable business

Instead of running your business by your bank balance, you allocate income into purpose-driven buckets.

The Profit First Formula (Flipped)

Old approach:

Sales – Expenses = Profit

Profit First approach:

Sales – Profit = Expenses

This subtle shift creates a powerful mindset and operational discipline.

Step-by-Step: How to Build a Profit-First Budget

  1. Set Up Separate Bank Accounts

   Start with 5 core accounts:

• Income – All incoming revenue
• Profit – Your reward as the owner
• Owner’s Pay – Your salary
• Taxes – What you’ll owe the government
• Operating Expenses (OpEx) – Everything else to run the business

  This separation makes your budget visible and enforceable.

  2. Determine Your Target Allocation Percentages (TAPs)

  Here’s a common starting point (adjust for your business size and type):

• Profit – 5%
• Owner’s Pay – 50%
• Taxes – 15%
• Operating Expenses – 30%

  Note: These are not fixed rules. Start with your current reality and move toward your ideal TAPs.

  3. Assess Your Real Numbers

   Before making changes, calculate your Current Allocation Percentages (CAPs) by reviewing your last 6–12 months:

• What % of revenue went to each category?
• Are you underpaying yourself?
• Are your OpEx bloated?

This helps you understand the gap between your current spending habits and your ideal targets.

  4. Implement the Rhythm: Allocate Twice a Month

  Every 10th and 25th of the month (or your preferred rhythm):

• Move all money from Income into the other 4 accounts
• Use your TAPs as your allocation guide
• Don’t touch the Profit or Tax accounts unless designated

  This creates consistency and discipline.

  5. Make Your Profit Real

  Every quarter:

• Take 50% of your Profit Account as a distribution
• Use it to reward yourself—it’s your business working for you
• Leave the other 50% as a cash reserve

  This ensures you regularly celebrate wins and build a buffer.

  6. Cut the Fat

  Because you’ve limited your OpEx to a percentage, you’ll have to make smart trade-offs:

• Cancel unused subscriptions
• Negotiate with vendors
• Delay non-essential spending
• Focus on ROI-driven investments

Constraint forces creativity and focus.

Mistakes to Avoid

• Skipping the setup – Using one bank account defeats the system
• Setting unrealistic targets – Start small and build over time
• Borrowing from your Profit or Tax accounts – Treat them as sacred
• Ignoring revenue swings – Adjust percentages if income drops significantly

Profit First only works if you follow the system with consistency.

The bottom-line

A Profit-First budget isn’t just about accounting—it’s about discipline, clarity, and long-term success. When you prioritize profit, you build a healthier business, reduce financial stress, and give yourself the stability to grow on your terms. Profit isn’t something that might happen. It’s something you plan for—and protect.

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Want help implementing a Profit First system tailored to your business? Connect with us and we’ll walk you through it step by step.