Why Profit First Works…Really

If you’re like most people, you have a healthy dose of procrastination in you. You have a project you need to finish, maybe something you don’t want to do, and you put off getting it done until the very last minute.

Let’s say it’s your taxes. Maybe you’re not as organized with your paperwork as you need to be and you’re putting off digging for receipts and 1099s. You know you need to get this to your accountant by April 1 if you’re going to avoid filing an extension. So in the wee hours of March 31, you’re frantically searching your files–both physical and digital–to gather what you need.

The result? Lots of stress on your part and likely an incomplete list of withholdings and potential write-offs for your accountant. Not to mention that your accountant probably isn’t excited about the last-minute submission.

This, friends, is Parkinson’s Law. Essentially we expand the work to fill the time allotted. So if you’re cleaning the house on Saturday but your visiting relatives don’t arrive until Sunday at 2 p.m., you’ll finish cleaning up right around 1:45 p.m. Sunday.

Am I right? I know I’ve been guilty of this! We can get things done–quickly–when we have just a little bit of time to do it.

Parkinson’s Law works in every aspect of life–home, work, chores, and even our finances.

Parkinson’s Law triggers different behaviors in us than how we typically operate. We’re able to put our heads down and really do the work, and we can become incredibly innovative in finding solutions to challenges when we’re limited on the time (or money) to do the thing.

When you look at how Parkinson’s Law works with your finances, you’re able to do a lot more with a smaller amount of money because you’re finding ways to make the expenses fit into the amount of money you have available. When you don’t have a lot of money to work with, you’ll find ways to be more frugal and innovative.

Now I’m not suggesting that you run your business without the intention of growing and making more money; rather, I’m suggesting that you find ways to set aside your profits and run your business on what’s leftover.

And that is Profit First.

If you remove your profit (and owner’s pay…and tax withholding) from your income right away and move it out of sight, you’ll not only have a profit (and the money you need to pay yourself and Uncle Sam), you’ll find ways to be more frugal in your business. You’ll make it work.

When we think about our money, Parkinson’s Law helps us avoid looking at our bank balance and thinking, “Oh look! I have money!” and subsequently spend it, rather than think about the mortgage bill that’s coming due or the payroll we’re running next week.

That’s not how to build a profitable business–or, frankly, live life.

With Profit First, you create bank accounts for different needs in your business–profit, owner’s pay, taxes, operating expenses–which limits the amount in each one. This helps to “trick” you into thinking that you have less and limits the human behavior of spending everything you have.

It really works!

It’s true that it takes time, but the more you work that financial muscle, the more it will work in your business. Is it time for you to get started with Profit First?

Shannon Simmons

Shannon has been consulting with small businesses for over 10 years. After 2 years in public accounting she saw a need to work for small business owners to teach them how to grow financially healthy businesses. She has built on her Master of Accountancy degree from Manchester University by becoming a Certified Profit First Professional and a Certified QuickBooks ProAdvisor. When she’s not meeting with entrepreneurs or assessing their businesses, she enjoys time with her husband and 2 children serving in their community, playing and watching sports, marveling at nature or reading a good book.

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