Have you ever noticed that when you have a lot of something, you tend to use it up quickly? This is the essence of Parkinson's Law. It is a concept that applies to many aspects of our lives, including our finances. Many people find themselves spending all their savings in a short period, even if they had planned to save for the future.

This tendency can be especially dangerous in business. Business Owners who have plenty of resources at their disposal can become complacent and fail to innovate or become frugal with their resources. This lack of financial discipline can lead to what is known as the Survival Trap, where businesses struggle to stay afloat despite having a healthy revenue stream.

But there is a solution to this problem for businesses who get stuck in the Survival Trap: Profit First. The Profit First method aims to prioritize profitability in business and personal finances. The method involves setting up a separate bank account for profits, which is NOT used to pay for expenses, ensuring that profits are not accidentally spent.

By limiting the amount of money available for spending (and not by spending it - but rather using different bank accounts), business owners are forced to become more innovative and frugal with the resources they have available. The idea is to focus on practical solutions to cut costs and ensure the survival of the business.

The Profit First approach involves the following steps:

1. Set up a separate bank account for profits. This account is used exclusively for profit sharing and is not used for any other expenses.

2. Allocate a fixed percentage of your revenue to this account. This percentage should be determined based on your business needs and goals.

3. Use the remaining amount to pay for expenses. This includes paying for bills, salaries, taxes and any other expenses that are necessary for the day-to-day operations of the business.

4. Continuously monitor your finances and adjust your allocations as needed. This will help you stay on track and ensure that your business is profitable.

The Profit First method may seem counterintuitive at first. After all, why would you limit the amount of money available for spending? But the truth is that this approach can help entrepreneurs avoid the Survival Trap and ensure the long-term success of their businesses.

By focusing on profitability, entrepreneurs are more likely to make smart financial decisions that will help their businesses grow and thrive. So if you're an entrepreneur who wants to ensure the financial health of your business, consider implementing the Profit First method today.

If you're interested in learning more about the Profit First method and how it can help your business succeed, we invite you to book a training session with us. Our team of financial experts can guide you through the process of implementing the Profit First method and help you achieve your business goals.

Book a session to learn more about setting up Profit First in your business here!