Profit First: A Game-Changer for Coaching Business Owners
Hi, I'm Mike Michalowicz, the author of the book "Profit First"
As a coaching business owner, you’re passionate about helping others achieve their goals, but it’s equally important to make sure you’re taking care of your financial health.
That’s where the Profit First methodology, developed by Mike Michalowicz, comes into play. This system flips traditional accounting on its head, ensuring that your business is profitable from day one.
In this post, I’ll walk you through the core principles of Profit First, how it applies to coaching businesses, and some customizations I recommend to maximize your take-home pay.
Understanding Profit First
The Profit First methodology is simple but powerful: instead of the traditional formula of Sales - Expenses = Profit, Michalowicz advocates for Sales - Profit = Expenses. This shift in mindset means you prioritize profit first, forcing you to operate your business within the constraints of what’s left after allocating your profit.
Here’s a quick overview of how it works:
Set Up Multiple
Bank Accounts:
You’ll create several accounts, each designated for a specific purpose—Profit, Owner’s Pay, Taxes, and Operating Expenses (OPEX).
Allocate Funds Based on Percentages:
As money comes in, it’s distributed into these accounts based on predetermined percentages. This ensures that your business is always profitable and that you’re consistently paying yourself and covering taxes.
Make Profit a Habit:
By taking your profit first, you’re building a healthy, sustainable business. You’re not just covering expenses; you’re growing your wealth.
Customizing Profit First for Coaching Businesses
While Profit First is a fantastic system on its own, I’ve found that coaching businesses benefit from a few key customizations. Here’s how you can tweak the method to fit the unique needs of your coaching business:
Create a Separate Account for Coaches’ Pay
If you have multiple coaches working for you, I recommend setting up a separate account specifically for their pay. Instead of paying them a flat salary, consider compensating them based on a per-member fee. This makes it easy to predict and manage your cash flow. In my experience, setting aside around 15% of your revenue for coaches’ pay is a good benchmark.
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Set Up a Commissions Account
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If your coaches or sales team earn commissions, it’s crucial to separate these funds as well. This helps you keep track of what’s owed and prevents any confusion when payday comes around. By allocating commissions into a dedicated account, you’re better equipped to manage this aspect of your business.
Don’t Forget About Sales Tax
Sales tax can be a significant burden if not managed properly. Make it a habit to set aside sales taxes as soon as the revenue comes in. This way, you’re never caught off guard when taxes are due.
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Calculate Real Revenue
After setting aside funds for coaches’ pay, commissions, and sales tax, what you’re left with is what I like to call “Real Revenue.” This is the amount you’ll allocate across the standard Profit First accounts—Profit, Owner’s Pay, Taxes, and OPEX. This approach gives you a clearer picture of your true financial standing and ensures you’re making informed decisions.
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The Benefits of Profit First for Coaches
Implementing the Profit First methodology with these customizations offers several advantages for coaching businesses:
Predictable Cash Flow
By knowing exactly how much to set aside for each category, you can predict your cash flow more accurately and avoid financial surprises.
Increased Profitability
Prioritizing profit ensures your business remains profitable, even as it grows.
Better Financial Management
Separating funds into dedicated accounts forces you to manage your finances more effectively, ensuring you’re always on top of your business’s financial health.
Final Thoughts?
The Profit First methodology is a powerful tool for any business owner, but it’s particularly beneficial for those in the coaching industry. By customizing it to include separate accounts for coaches’ pay, commissions, and sales tax, you can take control of your finances, ensure profitability, and, most importantly, increase your take-home pay.
If you’re a coaching business owner looking to implement this system but need some guidance, I’m here to help. Whether it’s calculating the right percentages or setting up your accounts, I’ve got you covered. Remember, making every dollar count is the key to growing a thriving and sustainable business.