What’s second when profit’s first?

Quick Insight

ProfitFirst is a popular financial management system for small businesses. It has good ideas but isn't right for every business. Putting profit first means something you value more may be second. It may lead to less growth, efficiency, or value creation.

ProfitFirst is a popular financial management system for small businesses. It helps simplify accounting and encourages expense control.

Like all generic strategies, it’s not right for every business. Putting profit first means something you value more may become second.

Putting profit first may reduce your company’s growth due to underinvestment or lack of cash. The efficiency produced by keeping expenses low to prioritize profit can be taken too far. Critical investments may not be made that would drive future growth.

Many owners equate ProfitFirst to getting personal cash flow. That cash may be better reinvested in your company. Expense control is like food. Limiting it may “trim the fat” of excess spending but taken too far it prevents building the muscle to power future profits.

Efficiency is related to growth. Some owners may spend their time (because it’s “free”) on tasks better outsourced or hired for. They jump over dollars that could be earned by better use of their time to save dimes on contractors and employees. They avoid financial leverage but also miss out on leveraging others’ abilities.

Most importantly, prioritizing profit can take away from a focus on value. Profit always derives from providing value. Profit's an outcome, not the purpose. Focus on providing value and the profits will follow.

ProfitFirst has some good concepts. Decide for your business if putting profit first today prioritizes what you want most.

I wish you what you prioritize. I wish you well.

- Rob Stephens

Further Insight

CFO Perspective Resources

  • Free Download: Sustainable Growth Rate Formula Calculator - This Excel workbook calculates the sustainable growth rate formula for you. Better yet, it looks at what your sustainable growth rate formula amounts are at varying Return on Equity (ROE) rates and owner distribution rates.
  • Video: How Do You Create Value? - You get what you value when you provide value to others. Business success comes from creating value for owners, customers, and employees. I’ll explain how to discover and increase what each group values. I’ll also reveal the “Three D’s” and “Three P’s” that each group wants.
  • Course: ACE - Strategic Planning for Small Businesses - Small business strategic planning should quickly lead you from defining where you are going to deciding how to get there. Getting there takes a well-built strategy and implementation plan. Get planning and management tools with the basics of how to use them.
  • Course: Improve Your Cash Flow - This course shows you how to assess current and future cash flows. You learn techniques to increase cash flow and reduce dips in cash flow. I list critical sources of cash for businesses, along with the pros and cons of major sources.

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