ep 17
I always thought I had to run my business for years before it became profitable. That’s just how it works, right? You grow, grow, grow, and then maybe one day you see some profit. At least, that’s what I was told. But then I found the Profit First method, and let me tell you—it changed everything.

The Profit First method gives you a simple formula to follow so you can start making a profit from your very first sale. Yes, you read that right. Sounds amazing, right? Well, it is! In this post, I’ll walk you through what the Profit First method is, how it works, and how you can use it to build a profitable online service business from your next sale.

Why Most Businesses Struggle with Profitability

When I first started my business, I was taught the traditional way of handling money. The formula was simple:

Revenue – Expenses = Profit

So, you make money, you pay for your expenses, and whatever is left is your profit. But here’s the problem with this approach—expenses have a way of expanding to match your revenue. The more you make, the more you spend. And suddenly, despite all the growth, there’s no actual profit. I was making money, but I wasn’t keeping any of it. Sound familiar?

Then, in 2020, I came across a book called Profit First by Mike Michalowicz, and it completely changed the way I looked at business finances. Instead of treating profit as an afterthought, the Profit First method makes it a priority from day one.

What is the Profit First Method?

The Profit First method is a cash management system that flips the traditional formula on its head:

Revenue – Profit = Expenses

See what happened there? Instead of paying expenses first and hoping for profit, you take out your profit first, then use what’s left for expenses. This method forces you to be intentional about your spending and ensures you’re actually making a profit with every sale.

How the Profit First Method Works

The Profit First method involves setting up multiple bank accounts to manage your money. Michalowicz recommends five core accounts:

1. Revenue Account – All your income goes here first.
   
2. Profit Account – A percentage of your revenue is transferred here immediately.
   
3. Owner’s Pay Account – This is what you pay yourself (yes, you should be paying yourself!).
   
4. Tax Account – Set aside money for taxes so you’re not scrambling when tax season comes around.
   
5. Operating Expenses Account – Whatever is left after you’ve taken out profit, your pay, and taxes, goes here. This is what you use for business expenses.
   

By using this method, you ensure that you’re not spending more than your business can actually afford, and you’re building financial stability from day one.

Implementing the Profit First Method in Your Online Service Business

Let’s break this down into actionable steps so you can start using the Profit First method in your own business.

Step 1: Determine Your Profit Margin

Decide what percentage of your revenue you want to allocate to profit. If you’re just starting out, start small—maybe 1-5%—and gradually increase it over time. The key is to build the habit.

Step 2: Set Up Your Five Bank Accounts

Find a bank that allows you to set up multiple accounts with no extra fees. If your current bank doesn’t support this, consider switching to one that does (like Relay Bank, which supports the Profit First method).

Step 3: Allocate Your Money

Every time you make a sale, split the money into the different accounts based on your predetermined percentages. Here’s an example:

Let’s say Lisa is a life coach, and she charges $250 per session. She decides on the following allocations:

• Profit: 5% ($12.50)
  
• Owner’s Pay: 50% ($125)
  
• Taxes: 15% ($37.50)
  
• Expenses: 30% ($75)
  

As soon as Lisa receives $250 from a client, she immediately moves the respective amounts into each account. This ensures she is profitable from the very first sale.

Step 4: Only Spend from the Expense Account

This is crucial! You should only pay for business expenses from your Operating Expenses Account. Do not dip into your profit, owner’s pay, or tax accounts. If there’s not enough money in your expense account, it means you either need to cut expenses or increase your prices.

Step 5: Review and Adjust

Every quarter, review your allocations and see if you can increase your profit percentage. The goal is to continuously increase your profitability without jeopardizing your business operations.

Why This Method Works So Well

1. It Forces You to Be Profitable – By taking profit first, you ensure that your business is actually making money, not just running in circles.
   
2. You Pay Yourself – Many entrepreneurs neglect to pay themselves, but with this method, owner’s pay is a priority.
   
3. You’re Prepared for Taxes – No more last-minute panic when tax season comes around.
   
4. You Control Your Expenses – Since you only spend from your expense account, you become more mindful of unnecessary spending.
   

Is This Method Right for You?

While the Profit First method works exceptionally well for service-based businesses, it may not be a perfect fit for every business. If you already have a business with complex financials, consider working with a Profit First professional to help you implement it effectively.

Final Thoughts

God wants you to run a profitable business. Proverbs 31:18 says, “She makes sure her dealings are profitable.” When you are profitable, you’re able to provide for your family, support causes you care about, and build a business that lasts.

So, if you’re ready to start a profitable online service business, try the Profit First method. It has changed my business, and I believe it can change yours too.

If you found this helpful, share it with someone who needs it. Let’s help more entrepreneurs build profitable businesses from day one!

P.S. If you’d like more business-building tips like this, be sure to follow my podcast where I share practical strategies for launching and growing a faith-driven service business!