Have you ever been having a chat with your Accountant (usually about 6-9 months after your year end), and they’ve told you that you’ve made a profit?
You get a little bit giddy, and a little bit excited about it.
Your small business is actually doing it! You’ll be minted in no time!
But then it dawns on you.
Your Accountant said that you’ve made a profit, but where the fuck is it? It’s definitely not in the business account, and you’re fairly certain that you’ve not been paying yourself that well. Sure, you’ve taken a base salary and then topped it up with “dividends” when you’ve had the chance, but it wasn’t anywhere close to what you were earning when you were employed.
So, you feel a bit daft, but you ask the question; “Where is it? The profit I’ve made- it’s not in my bank, so where is it?”
Your accountant explains that your year end is basically a snapshot in time, and you’ve long since spent that money. It’s basically a paper profit. It’s the culmination and legal reporting of all the transactions that have already taken place throughout the year.
“Here’s your tax bill… and my bill” they say.
Shit. You don’t have anything saved to the side to pay the company’s tax bill.
Double shit. You’ve got a Self-Assessment tax bill that you’re going to have to pay because of the dividends that you’ve taken.
The problem with traditional accounting, GAAP (Generally Accepted Accounting Principles if you’re in the US), UK GAAP (Generally Accepted Accounting Practice if you’re a small business in the UK), or IFRS (International Financial Reporting Standards) if you’re a public company in the UK and/or Europe, is that it’s all about snapshots in time. For accounting to be accurate, everything has to be based on what has already happened. We then use this data to plan for the future.
All of this is great… if you own a massive company and have the cash to spend on:
· A financial accountant
· A management accountant
· An accounts assistant
· A bookkeeper
· An administrator
That’s before we even go down the route of Purchase Ledger and Credit Control. And even if you’ve got the resources for all of the above, and put together monthly Management Accounts, and Cashflow Forecasts, and have a working budget, and a flexed budget, and an up-to-date balance sheet, you’ve still got to understand what it all is and how it gets put together before you can figure out exactly where you’re at, and exactly where you want to be.
The downside (lol) of traditional accountancy is that it is built to serve the ever evolving requirements of statute, and as the world gets smaller, accounting has to get more complex to cope with international business, even at a micro level.
Traditional accounting also works from the equation “Sales – Expenses = Profit”. This puts it into our mind that profit comes last. It’s the bit left at the end, the bottom line. If we increase our sales, our profit will go up. But if we’re running a business and want to create the lifestyle that we set out to create, then shouldn’t profit come first?
Traditional accounting is not built for human behaviour.
People typically can’t see past 90 days ahead (or behind) of themselves, and so as much as we may want to plan for the next 3 to 5 years in business, it’s all just noise. The logical thinking of “if we do X, then we’ll get Y” very rarely works. It’s quite often “we did X, but ended up back at W”, and then “we expected to get from W to Z, but we ended up at ы”.
We all log in to our bank account and check our balance daily, hoping to get some haze of insight, but what if you could log in to your bank and know where you’re at in an instant without the need for complex cashflow forecasts?
So, rather than changing our behaviour to fit a system that very few people understand (and even less understand fully), shouldn’t we change the system to fit our behaviours?
Profit shouldn’t be an annual event. Profit should be derived from each and every sale that we make.
The equation should be “Sales – Profit = Expenses”. Mathematically it’s the exact same thing, but psychologically it’s very different. Instead of taking off expenses to see what profit is left, we should take off profit to see what expenses we can afford.
We can call it “reverse engineering profit” if we want to get fancy, but we’re essentially saying that profit comes before anything else. It’s the most important part of running a business- this goes for all businesses whether you’re a charity, CIC, private entity, or a “profit for purpose” company (especially if you’re a profit for purpose). It doesn’t matter how philanthropic your intentions, without profit it all falls apart.
Profit First is a simple cash management system that enables you to be profitable* literally the day after you implement the system, and implementation can be done pretty fucking quickly.
*Profitable, not necessarily rich, let’s remember that. It isn’t a get rich quick scheme, but it is a get-profitable-now-system.
Rolling out the system is simple:
1. Assess where you’re currently at (take the Profit First Assessment),
2. Set up your bank accounts, and
3. Start allocating revenue into those accounts based on pre-determined percentages, starting with your profit account.
Ok, so maybe that’s an oversimplification as you’ve got to know what you’re assessing, how you’re assessing it, what accounts to set up, and what percentages to allocate to those accounts, so we’ve created a couple of attachments to give you a taste of the profit Assessment, and an FAQ to go along with them (just scroll to the bottom of this page).
The main benefits behind Profit First are:
1. Improved cashflow and financial clarity (you’ll know where you’re at by logging into your bank)
2. Reduced stress around finances and taxes (you’ll know if you’re on track for paying your Corp Tax).
3. Long-term sustainability.
4. Increased revenue and profitability.
Ours brains work in a bit of a mad way. It’s always on the lookout for sources of pain (it’s why so many people watch/ listen to the news). Your business doesn’t have a brain, so it can’t be on the lookout for threats, so we don’t get the sense that something’s wrong until it actually is, and by that point the threat is already hurting us. What’s worse than pain? Uncertain pain- not knowing where that pain is coming from.
Think of it this way;
1. Your VAT Return is due in a few days, you haven’t done the bookkeeping yet. You think that your sales have been higher this quarter, but you’re still paying off last quarter’s expenses. It’s gut-wrenching and it’s tiring. Can you afford it? Will you be able to set up a payment plan? How much will the plan be each month? Can I at least manage part of the VAT bill, I think I can, but I’m not sure.
2. You’ve done your VAT Return with a week to go before it needs paying. You know that you can’t afford to pay it all, but you know that you can pay some of it now and set up a payment plan. You don’t know if it will be affordable, but you at least know what you owe.
In both scenarios, you haven’t got enough to pay the VAT bill, but scenario two is less stressful as you know how much pain you’re in.
Being in flight or flight mode constantly is tiring and stressful, and stress turns into chronic stress which can have some nasty consequences. Being in a perpetual state of stress uses up more energy than being innovative because it forces your body to stay in a reactive, survival-focused state. Stress limits higher thinking because the brain prioritises survival over everything else (yes, I’m aware that you’re not going to die if you don’t pay your VAT bill, but people make decisions based on emotion and then rationalise them with logic).
Implementing Profit First provides clarity over your business. If you’ve got financial clarity (even if the magic 8 ball says “outlook not so good”), then it reduces stress in one or two areas, which in turn frees up your mental and emotional bandwidth to focus on creativity, problem-solving, and scaling.
Profit First can even be implemented if you’re already in debt. In fact, being profitable is the most important task if you’re in debt. Chasing sales will provide short-term relief, as will refinancing, but it won’t fix the underlying problem. The problem with chasing sales to cure debt is that the minute sales drop, you’re back in the same position, but with a larger amount of debt.
Implementing Profit First isn’t just about improving your finances—it’s about taking back control as a business owner. By putting profit first, you can manage your cash flow effectively, reduce stress, and create space to focus on growing and improving your business. No more living hand to mouth or being blindsided by unexpected costs. Instead, you’ll have a system designed to work with your natural habits and ensure your business supports your goals—not the other way around.
It’s not about working harder or endlessly chasing sales; it’s about working smarter, knowing exactly where your money is going, and building a business that’s not only profitable but sustainable. Profit First provides the clarity and confidence you need to create the future you’ve always dreamed of without radical change, and in a manageable and sustainable way.
Ready to take the first step? Drop me an email at gareth@evansandco.uk with the subject "Make me Profitable" (proper cringy, but go on, I dare you), or book a call using the button below.
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