Pay yourself first, then expenses from "summary" of Profit First by Mike Michalowicz
The core principle of Profit First is to prioritize paying yourself first before allocating funds for expenses. This may seem counterintuitive, as traditional accounting practices advocate covering expenses first and then taking whatever is left as profit. However, by flipping this approach, you ensure that you are actually profiting from your business. When you pay yourself first, you are acknowledging the value of your hard work and dedication. It shifts your mindset from viewing profit as an afterthought to recognizing it as a fundamental aspect of running a successful business. This simple adjustment can have a profound impact on your financial well-being and overall business sustainability. By setting aside a predetermined percentage of your revenue as profit, you are creating a safety net for your business. This profit allocation acts as a buffer against unforeseen expenses or downturns in revenue, providing stability and peace of mind. It also serves as a reward for your efforts, motivating you to continue growing and improving your business. Once you have set aside your profit, you can then allocate funds for expenses based on what is left. This forces you to prioritize and make strategic decisions about where your money is best spent. By having a clear understanding of your financial priorities, you can ensure that your resources are being used effectively and efficiently. This approach also encourages you to focus on increasing revenue and reducing expenses to maximize your profit margin. By consistently paying yourself first, you are incentivized to find ways to grow your business and improve its financial health. This proactive mindset can lead to long-term success and sustainability for your business.
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