The Profit First Equation
The traditional financial equation is: Sales – Expenses = Profit
Profit First by Mike Michalowicz, re-works this equation to: Sales – Profit = Expenses.
It’s a simple but powerful change.
The idea is to begin with the end in mind. Set a profit goal first, and work backwards from there.
It’s not a new idea, but it’s a good idea worth remembering, and trying out in your beer business.
Traditionally, we create a sales plan, then build up the expenses needed to hit that plan, and then (hopefully) there’s profit leftover.
We may be so caught up in the details of payroll planning and lease costs and new equipment needed we lose sight of the most important goal: making money.
The Profit First book reminds us to, well, put profit first.
Try this with your next budget: Start with a sales plan and then subtract the profit you need to have. Using this result as the maximum spend, build up the expense plan.
Next, Profit First tells you to take the profit (when the cash comes in) and lock it away so you’re not tempted to spend it.
This is an idea that recognizes and deals with one of our flaws as human beings: If we have money, we tend to spend it.
From Profit First: “When less money is available to run your business, you will find ways to get the same or better results with less. By taking your profit first, you will be forced to think smarter and innovate more.”
Are you putting profit first in your beer business? If not, give it a try. Your income statement will thank you.
P.S. Join the network of brewery financial professionals, the Beer Business Finance Association. Our members put profit first, ALWAYS.
