One of the ideas behind Profit First is borrowed from a fitness expert who spoke about how unhealthy the whole “clean your plate club” philosophy is. In fact, in his book Mike Michalowicz asks himself, “If I reduce the ‘plate size’ of my business’s operating account, will I spend differently?” By reading his book, you find that he later answers himself with a resounding “Yes!”
The whole idea behind Profit First is to move funds onto different “plates” like the Profit Account, the Tax Account, the Owner’s Pay Account and away from the Operating Expense Account. This results in two things: 1) guaranteed profit every quarter because there is money in the Profit Account and 2) reduced availability of funds in the Operating Account. The idea here is both to inspire the owner by providing profit but also to inspire the owner to reduce costs to keep from overspending their Operating Expense money.
This means that just moving money toward profit isn’t the end of the process. The next step is to start examining costs in order to make sure that they are being controlled to match the percentage goals for Operating Expenses. Everything should be looked at and evaluated for its necessity.
Easy steps would include checking with services like credit card processing, payroll services, utilities and suppliers to make sure that you are receiving the best price for the services that you are receiving. Regular reviews of these services are advisable because there are always offers and specials being run that would reduce the costs for these services. Your Profit First Professional is the perfect partner to help you review these costs.
As the percentages of money increase in the Profit Account and decrease in the Operating Expense Account, it will become even more challenging to find ways to economize. This is where it becomes interesting and fun. This is where you get to play “Apollo 13”.
Millions were spent on the Apollo 13 project to produce a state of the art spaceship that would safely transport men to the moon and back. Unfortunately, it failed and the men were in mortal danger. In the attempt to save them, the engineer on Earth walked in with a couple of hundred dollars’ worth of equipment for the astronauts to use to build a replacement for the million plus dollar scrubber that failed. Fortunately for the astronauts the engineers were successful. The lesson for us business owners is that when we are forced to, we can find new and innovative ways to do what we do for even less cost.
Good luck and happy cost saving. Make sure to use the resources provided by your Profit First Professional to help guide you through this examination.
If we can help with any questions, please contact us at any time.