How To Use the “Profit First” Method for Entrepreneurs So They Can Manage Cash Flow and Stay Profitable From Day One

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Managing cash flow can be one of the biggest challenges for entrepreneurs.

Many businesses generate revenue but struggle to stay profitable because expenses eat up their earnings. This is not a good scenario. The last you want is a business that isn’t profitable.

The “Profit First” method flips the script, helping you prioritize profit and create financial stability from the very start.

Here’s how to implement the “Profit First” method and take control of your cash flow so you can build a sustainable, profitable business.

What Is the Profit First Method?

The Profit First method, created by entrepreneur Mike Michalowicz, is a simple framework that ensures you prioritize profit in your business.

Instead of treating profit as what’s left after expenses, this method encourages you to allocate profit first and run your business on what remains. Sound good? Let’s break it down.

The formula is straightforward: Sales - Profit = Expenses

By putting profit first, you avoid overspending and ensure your business remains financially healthy.

How to Implement the Profit First Method

Follow these steps to make the Profit First method work for your business:

1. Set Up Separate Bank Accounts

Create multiple bank accounts to allocate your revenue. At a minimum, set up the following accounts:

• Income Account: All revenue flows into this account.

• Profit Account: A portion of every dollar goes here, and it’s reserved for profit.

• Owner’s Pay Account: This account ensures you pay yourself regularly.

• Tax Account: Save for taxes so you’re prepared when they’re due.

• Operating Expenses Account: Use this for all business expenses.

These accounts make it easier to track and manage your cash flow, ensuring money is allocated where it’s needed.

2. Determine Your Allocation Percentages

Decide what percentage of your income will go to each account. These percentages can vary based on your business type and stage, but here’s a starting point:

• Profit: 5-10%

• Owner’s Pay: 50%

• Taxes: 15%

• Operating Expenses: 25-30%

Review your current finances and adjust these percentages to fit your situation. Over time, you can gradually increase your profit allocation as you streamline expenses.

3. Allocate Funds Twice a Month

Twice a month—on the 10th and 25th, for example—transfer funds from your Income Account into the other accounts based on your allocation percentages. 

This step ensures you’re consistently prioritizing profit and saving for taxes while keeping your expenses under control.

Example: If you generate $10,000 in revenue, allocate:

• $1,000 to Profit (10%)

• $5,000 to Owner’s Pay (50%)

• $1,500 to Taxes (15%)

• $2,500 to Operating Expenses (25%)

This structure ensures every dollar has a purpose.

4. Run Your Business on What’s Left

Operating your business becomes much simpler when you work within the budget set by your Operating Expenses Account. 

If funds are tight, look for ways to cut costs or increase efficiency rather than pulling from your Profit or Tax accounts.

This discipline forces you to prioritize profitability and avoid overspending.

5. Reinvest or Reward Yourself

The money in your Profit Account is for exactly that—profit. At the end of each quarter, take a portion (usually 50%) as a reward for your hard work. 

The remaining profit can be reinvested in the business for growth or saved for future opportunities.

Example of the Profit First Method in Action

Let’s say you run an online business that generates $8,000 in monthly revenue. Using a 10-50-15-25 allocation, here’s how your income might break down:

• Profit: $800

• Owner’s Pay: $4,000

• Taxes: $1,200

• Operating Expenses: $2,000

Each month, you transfer these amounts to their respective accounts. Your operating budget is now capped at $2,000, which keeps your spending aligned with your income. 

At the end of the quarter, you might reward yourself with $1,200 from your Profit Account and reinvest the remaining $1,200 back into the business.

Tips for Success with the Profit First Method

1. Start Small If you’re struggling with cash flow, begin with small percentages for your Profit and Tax accounts. Even 1-2% makes a difference over time.

2. Stick to the System Avoid dipping into your Profit or Tax accounts for operating expenses. These funds are reserved for their specific purposes.

3. Regularly Review Percentages As your revenue grows, reassess your allocation percentages. Gradually increase the Profit and Owner’s Pay percentages to improve your financial health.

4. Automate Transfers Set up automatic transfers to your accounts to stay consistent. This removes the temptation to spend all your income as it comes in.

5. Cut Unnecessary Costs If you’re struggling to cover expenses within your budget, review your spending. Cancel subscriptions, renegotiate contracts, or find cost-effective alternatives to free up funds.

How the Profit First Method Builds a Strong Business

The Profit First method creates a system of financial discipline that protects your business from cash flow issues. 

By ensuring profit, owner’s pay, and taxes are prioritized, you set yourself up for long-term stability and growth. 

Over time, this approach helps you avoid debt, reduce stress, and build a sustainable business that serves you—not the other way around.

The BMM Takeaway

The Profit First method puts you in control of your cash flow from day one.

Brandon Carter swears by this method. In fact, it’s one of the main reasons he’s rich.

By setting up dedicated accounts, allocating income strategically, and sticking to the system, you can ensure your business stays profitable while meeting your financial obligations. 

Start small, build consistency, and watch your business thrive as you prioritize profit and stability.

Profit isn’t what’s left—it’s what comes first.