What Is Profit First, and How Does It Work?
Ever look at your business bank account and wonder where all the money went? You're not alone.
Most business owners we work with come to us feeling the same way—trapped in a cycle of making money only to watch it vanish before they can pay themselves, save for taxes, or (heaven forbid) take actual profit.
That's exactly why we love the Profit First method so much. Created by Mike Michalowicz (author of "Profit First" and several other game-changing business books), it's not just another accounting system—it's a practical cash management approach that transforms how businesses handle money, creating clarity and actual profit along the way.
The Traditional Formula vs. The Profit First Formula
Traditional accounting uses this formula: Revenue - Expenses = Profit
Seems logical enough, right? You bring in money, pay your bills, and whatever's left is profit.
But here's the problem: when profit comes last, it rarely happens at all. Most businesses expand their expenses to consume whatever revenue comes in (it's human nature—we call it Parkinson's Law).
Profit First flips the equation: Revenue - Profit = Expenses
This simple switch creates a massive shift in your business finances. Instead of hoping for profit at the end, you guarantee it by taking it first.
How Profit First Actually Works in Practice
Rather than one big business checking account (what we call the "money soup" approach), Profit First uses a system of separate accounts that gives you clarity at a glance:
Income Account: All revenue lands here first
Profit Account: Your business's reward (typically 5-10% of revenue)
Owner's Pay: Your regular compensation
Tax Account: Funds set aside for tax obligations
Operating Expenses: What's left runs your business
Here's the magic: twice a month, you allocate incoming revenue by percentages to these accounts. When your Operating Expenses account gets smaller, you make smarter spending decisions naturally—without complex budgeting exercises.
Why Profit First Is Different from Other Money Management Systems
Let's be clear: Profit First isn't about fancy accounting tricks or cutting corners. It works because it's grounded in behavioral psychology and creates real clarity.
What makes it so effective:
It works with human nature, not against it: We naturally spend what we see. When the operating expense account shows less, we spend less.
It provides instant clarity: No more wondering if you can afford something—your bank balance tells the truth.
It creates boundaries: Money in separate accounts creates clear guardrails for spending.
It builds healthy habits: Regular allocations create discipline around cash flow.
The system helps our clients stop "bank balance accounting" (making decisions based on whatever happens to be in the checking account) and start making intentional choices based on what the money is actually for.
Real Benefits Our Clients See
When implemented properly, Profit First delivers tangible results. Our clients typically experience:
Regular profit distributions every quarter (sometimes for the first time ever)
Stress-free tax seasons because the money is already set aside
Consistent owner's pay that doesn't fluctuate with business ups and downs
Improved decision-making when expenses have clear boundaries
Peace of mind knowing exactly where your business stands financially
One construction client told us recently: "For the first time in 15 years, I took a real profit distribution AND had money set aside for taxes. I didn't think both were possible in the same quarter."
How Sum of All Numbers Implements Profit First
As Master Certified Profit First Professionals, we approach implementation differently than most firms. While the system itself is straightforward, making it stick requires more than just opening bank accounts.
Our implementation focuses on:
Behavior change: We work alongside you to build lasting habits, not just set up accounts
Custom allocation targets: We analyze your specific business financials to create realistic starting percentages
Progressive implementation: We help you phase in the system at a pace that works for your cash flow
Regular check-ins: Our team provides accountability to keep you on track
Strategic adjustments: We help fine-tune your allocations as your business grows
We've helped over 200 businesses implement Profit First successfully, from solo entrepreneurs to multi-million dollar companies across various industries.
Common Questions About Getting Started
"Does this mean I need to open five separate bank accounts?"
Yes—separate accounts are essential to the system's success. The physical separation creates clarity and prevents the mental accounting tricks we play on ourselves.
"What if my business isn't profitable enough to take profit first?"
This is precisely why you need Profit First. Starting with small allocation percentages and gradually increasing them helps build profitability over time. The system reveals where adjustments are needed.
"Will this work for my industry? We have irregular income/high material costs/seasonal revenue."
Absolutely. We've successfully implemented Profit First with clients in construction, real estate, professional services, retail, and many other industries. The system is flexible and designed to adapt to your unique cash flow patterns and cost structures. By customizing allocations and timing, Profit First helps businesses with irregular or seasonal income maintain profitability and control throughout the year.
Start With This: Is It Time for a Fractional CFO?
If you’re ready to start managing cash proactively — but feel unsure whether you need expert help — download our free guide:
→ Does My Company Need a Fractional CFO?
Learn what a fractional CFO does, how they can support your growth, and whether it’s the right step for your business right now.
Next Up: Profit First vs. Traditional Accounting — What’s the Real Difference?
Keep reading this series to explore how Profit First compares to conventional accounting methods — and why it’s such a game-changer for business owners.
Sum of All Numbers is a team of financial strategists who help business owners gain clarity and control through Profit First implementation, fractional CFO services, and strategic financial support. We're Master Certified Profit First Professionals who focus on creating behavior change that