The profit first mindset: a game-changer for small business cash flow
As the CEO of Sum of All Numbers, I've worked with countless small business owners who share the same frustrating pattern: they're bringing in revenue, but somehow there's never enough money in their pockets. They're working harder than anyone else around them, yet everyone gets paid except themselves. Sound familiar?
This is exactly why I'm so passionate about the Profit First methodology. It has truly been a game-changer for the businesses I work with, and it can transform yours too.
Understanding your financial psychology first
Before diving into any cash flow system, I always tell business owners to look inward first. We need to recognize our personal relationship with money and debt because it directly impacts every business decision we make.
Some entrepreneurs aren't bothered by debt at all. They’ll make risky decisions that can get them into trouble because they're comfortable borrowing. Others are terrified of debt and will make overly conservative choices that limit growth. Neither extreme serves your business well.
The key is understanding your money personality and setting up strategies that either protect you from your weaknesses or enhance your strengths. This self-awareness becomes the foundation for everything else.
The profit first method: your business's envelope system
Think back to the old envelope budgeting system our grandparents used. When money came home, they'd put cash into different envelopes—one for groceries, one for rent, one for utilities, one for savings. Profit First works the same way for your business.
Here's how it works: the moment any money comes into your business, you immediately start siphoning it into different bank accounts or buckets:
Profit account – your reward for taking business risks
Tax account – set aside for quarterly and annual tax obligations
Owner's salary account – payment for the work you do in the business
Operating expenses account – what's left over to run your business
The magic happens when you only look at your operating expense account when making spending decisions. Instead of seeing your entire cash balance and thinking you can afford that new printer or marketing campaign, you see only what's truly available for operations.
The psychology behind smaller plates
There's fascinating psychology at work here. If you put a huge plate of food in front of someone, they'll eat more than if you give them a smaller plate with the same amount of food. The smaller plate creates satisfaction with less.
The same principle applies to business spending. When you see a smaller dollar amount in your operating account versus your entire cash balance, something happens in your brain that says, "Okay, I only have this much to work with." You become naturally more resourceful and make smarter spending decisions.
Beyond basic profit first: customizing for your stress points
While the basic four-account system works beautifully, I often take it further based on what keeps business owners awake at night. Payroll is usually the biggest stressor—the consequences of missing payroll are severe, so we might create a dedicated payroll account.
Maybe you have large annual expenses like workers' compensation audits, property taxes, or insurance payments. Setting aside money monthly for these predictable but infrequent expenses eliminates that panic when they come due.
The relief you feel from knowing these expenses are covered frees up tremendous mental energy. Instead of worrying about cash flow, you can focus on growing your business, developing your team, and building systems that allow the business to run without you.
Building a leadership team that complements your weaknesses
Speaking of building systems, cash flow management is just one piece of creating a sustainable business. The real goal is developing a leadership team that can operate without you at the center of everything.
Most of us are comfortable with people who think exactly like we do, but that's not what pushes businesses forward. We need different viewpoints, different strengths, and people who excel where we struggle.
I learned this lesson personally when I recognized that I'm great at getting projects 90% done and then moving on to the next exciting thing. That last 10%—the detailed follow-through—isn't my zone of brilliance. Instead of feeling guilty about this, I found someone who finds genuine joy in finishing that final 10%.
At first, I felt horrible, like I was just creating work for someone else to clean up after me. But through honest conversation, we realized how perfectly our strengths complement each other. I need her finishing abilities as much as she needs my vision and initiation skills.
The power of curiosity in leadership
This experience taught me something crucial about leadership: approach your team with curiosity, not assumptions. I had to train myself to move from being a "fix and judge" person to becoming genuinely curious about different perspectives.
When you operate from curiosity, especially as the person who can fire anyone at any moment, you open up the possibility for real teamwork. Your employees can share concerns, suggest improvements, and contribute ideas without fear.
This became crystal clear when my leadership team was stressed about cash flow while I remained completely comfortable with our financial position. My risk tolerance was blinding me to their very real concerns. Once we had that curious conversation—where I acknowledged their fears and explained my perspective—everything changed. They went from worried employees to empowered team members taking initiative.
Addressing the profit first criticism
I often hear criticism about Profit First from people who aren't business owners themselves. They see the business owner "taking all this money" and question whether it's fair to employees.
Here's what they miss: this isn't about enriching the owner's pockets. It's about ensuring the business has the financial foundation to provide stable employment for everyone.
When I pay myself profit, salary, and set aside taxes, I'm not just taking care of Michelle Scribner. I'm ensuring that no matter who sits in the owner's seat, this business can continue operating and providing jobs. If I decide I'm done tomorrow, the next owner can step in knowing there's a sustainable profit model in place.
Think about legacy companies like Nike or Coca-Cola. They face criticism for executive compensation and profits, but everyone forgets there was a time when those business owners went without pay, put their houses on the line, and had sleepless nights to make payroll.
My real job is to make sure my team always has jobs by building a company that can operate in perpetuity—a true legacy business.
Key takeaways for implementation
If you're ready to implement Profit First in your business, start with these steps:
Know yourself: Identify your money personality and risk tolerance. Share this awareness with your leadership team.
Start simple: Begin with the four basic accounts—profit, taxes, owner salary, and operations.
Customize based on stress points: Add specific accounts for expenses that keep you awake at night.
Communicate with your team: Help them understand how Profit First protects both the business and their job security.
Approach challenges with curiosity: When conflicts arise, ask questions instead of making assumptions.
The Profit First methodology isn't just about cash flow management. It's about creating the financial foundation that allows you to build the business and leadership team of your dreams. When money stress is removed from your list of daily concerns, you're free to focus on what really matters: growing your impact and creating lasting value.
Ready to transform your business cash flow?