Aligning Business Strategy & Profit PlansMar 28, 2023
Running a successful business involves making informed decisions that support long-term goals while maintaining profitability. This requires aligning business strategy and profit plans to ensure that the business stays on track with its mission. One of the best ways to do this is by using the Profit First cashflow methodology, which is designed to help businesses prioritise profit in their financial management. This tool can be used in all businesses, no matter the size or industry!
Profit First involves setting up multiple bank accounts to allocate funds for different purposes. It it so successful because it leverages our natural behaviour, rather than trying to change it! No more working with complex spreadsheets that you just can’t adapt to! The idea is to put profit first in financial planning, which means allocating a pre-determined percentage of real revenue to profit before considering any other expenses. This methodology helps businesses manage cashflow more effectively, reduce financial stress, and increase profitability.
Here are some key features of Profit First:
- Put Profit First: This means allocating a percentage of revenue to your profit account before allocating to tax, owners pay and operating expenses. This ensures that profit is prioritised, which is crucial for long-term success.
- Use Multiple Bank Accounts: The Profit First methodology involves setting up multiple bank accounts for different purposes. This helps businesses manage cashflow more effectively and avoid overspending. Just like a new tube of toothpaste, we tend to use lots when it’s new and as the tube runs out we start using less and less. That’s what the idea of having multiple bank accounts is about. If we just have one account with a big balance we tend to want to spend it because we think he have lots. So by using lots of accounts we give our money a job to do and can clearly see what is actually available to spend.
- Regularly Review and Adjust Profit Allocations: To ensure that the business stays on track with its financial goals, it's important to regularly review and adjust profit allocations. This helps businesses make informed decisions about financial priorities and adjust to changes in revenue or expenses.
So, what are the benefits of using Profit First in your business?
- Increased Profitability: By prioritising profit, businesses are more likely to achieve their financial goals and be sustainably profitable meanwhile regularly paying themselves and always having enough!
- Improved Cashflow Management: Using multiple bank accounts to allocate funds can help businesses manage cashflow more effectively, reducing the risk of cashflow issues or overspending.
- Reduced Financial Stress: When businesses have a clear financial plan that prioritises profit and regularly paying themselves, they are less likely to experience financial stress or uncertainty.
- Greater Clarity and Focus in Financial Decision-Making: By regularly reviewing and adjusting profit allocations, businesses can make more informed decisions about financial priorities and stay focused on their long-term goals.
To align business strategy and profit plans, businesses should define clear financial goals, regularly review financial performance, and set up a system for allocating funds that prioritises profit. The Profit First cashflow methodology can help businesses achieve these goals by putting profit first and providing a clear framework for managing cashflow and prioritising financial goals.
In summary, aligning business strategy and profit plans is crucial for long-term success. By using the Profit First cashflow methodology, businesses can prioritise profit in financial planning, manage cashflow more effectively, reduce financial stress, and increase profitability. So, if you want to achieve your financial goals and stay on track with your mission, consider implementing the Profit First methodology in your business today.
Contact us if you’d like to have a chat about how we could help you on your journey to sustainable profitability and cashflow management!