Let’s Help Real Estate Investors Prioritize Profit

"Money is a terrible master but an excellent servant." -P.T. Barnum

You might have heard the term "profit first accounting" buzzing around business circles as of late.

The philosophy has existed for years. Mike Michalowicz, with his book Profit First, is putting a fresh spin on the concept. His theories have become a reality for many business owners.

Today, I'll cover some core principles that might spark new accounting ideas for the future.

Today's blog is a gentle reminder that sharing this information with you aims to help your business grow in profitability. Profit is the lifeblood of any organization. We've all seen the newsfeed gurus flashing all of their revenue numbers around in their sponsored posts but show me a business with PROFIT at its center, and I'll show you something worth modeling.

Profit First doesn't have to be "the only way," but these are practical principles and a valuable methodology for implementation. By adopting this approach, you can potentially transform your business's financial health and pave the way for sustainable growth.

Grab the book for a deeper dive, and let's discuss putting it into practice.

SET PRIORITIES

Life is all about prioritization, and businesses are no different. Real estate investors may take issue with this system when a deal is coming together and need cash. You will likely abuse the rules to grab money in various accounts in this system.

Where does profit fall in your list of priorities? In cash flow, you distribute revenue to various business functions, such as Earnest Money, rehabilitation materials, payroll, etc.

But the profit-first mentality says to do just that -- prioritize profit as the number one item on your list. AND THEN move on to other areas of your business that need cash flow. That is the "pay yourself first" perspective -- many utilize this tactic to propel their personal finances in a favorable direction. However, in a business sense, this concept requires a few shifts.

1. The Bank Accounts

Setting up your bank accounts is crucial for profit first to succeed. The order is as follows:

• Profit: Savings Account
• Owner's Pay: Savings Account
• Tax: Savings Account
• Operating: Transaction Account
• Revenue: Transaction Account

This is something you and your accounting team can set up in a few days, and it will help you keep all your profitable ducks in a row. The process is straightforward, and once in place, it will provide a clear structure for your financial management.

2. Instant Assessment

The Instant Assessment Table, which can be found in Figure 2 of the PDF from the author's website, is a tool for you, as the business owner, to fill out weekly. It's designed to help you allocate your revenue and ensure accuracy in your financial management, a key aspect of the profit-first methodology.

According to the now-set-up bank accounts, you and your team are responsible for recording and reporting all revenue appropriately. Because the table is based on US tax laws, percentages may fluctuate depending on changes from year to year.

3. Transfer Funds

As part of the profit-first methodology, you will transfer revenue funds to the appropriate bank account every two weeks. This regular transfer ensures that your profit is being set aside first, before any other expenses, in line with the profit-first philosophy. I can't stress accountability enough -- have someone team up with you to ensure monies go where they should.

You want the following goals to apply for each respective bank account:

• Profit: Accrue Profit
• Owner's Pay: Pay Your Wages
• Tax: Pay Your Taxes
• Operating: Day-to-Day Expenses
• Revenue: Income Deposits Only

IMPLEMENTATION

There is nothing new under the sun. However, the "profit first" mentality is a good step for your business if you have no current cash-flow management system. It's always good practice to switch things up if current methods aren't working. Maybe try it out for a month or two, and if you don't like the results, go back to what you were doing before.

I'd also love to hear of other cash management tools or philosophies your business lives by. Your experiences and insights are valuable, and sharing them can contribute to a richer understanding of financial management in the business community.

You might land on the bestseller list.

Warmly, Janet

BE THE ROAR not the echo®

I'm grateful for our chance to serve you and your business through these weekly blog posts. We are dedicated to every part of its success, especially its profit.

Feel free to forward this article to a business associate or client you know who could benefit from it.