How Profit First solves your small business cash flow struggles

May 17, 2024
2
minutes to read
by
Ben Winford
Table of Contents

It's the end of the month, and you're staring at a mountain of invoices. Rent is due, a supplier needs to be paid, and payroll is looming. But your bank account tells a different story – a much thinner one than you anticipated.

It seems like your money vanishes before you can manage it. Expenses sneak up, invoices get delayed, and that dream of financial security feels perpetually out of reach.  

This cash flow struggle is a major pain point for many small business owners. The Profit First method offers a powerful solution, helping you plug those leaks and build a foundation of financial stability.    

How? Thriday, an all-in-one Australian financial management platform, can streamline the Profit First process and reduce your admin time.  

1. Prioritises profit  

This isn't just about semantics. With Profit First, a pre-determined percentage of every sale goes directly into your profit account. This forces you to become more mindful of spending and instil a culture of profitability from day one. It ensures that profit isn't an afterthought but a core consideration in every business decision.  

Yes, this is actually backed by behavioural psychology.  

Remember that feeling of a bottomless lolly jar as a kid? You kept grabbing handfuls because there always seemed to be more. That's how our spending habits work – the more money readily available, the easier it is to keep spending.    

This is called Parkinson's Law.  

Profit First uses a clever trick to outsmart this tendency. Imagine your business income is like that lolly jar. Here's the twist:  

Instead of diving straight in, you grab a handful (a percentage) for profit and put it aside. This is the reward jar you'll use to reward yourself.  

The lolly jar (available funds) is less full. This might initially feel uncomfortable, but it works in your favour.  

Why? Because with less readily available cash, you naturally become more mindful and more creative.  

Profit First isn't about feeling deprived but about creating a healthy financial habit.  

How does it help?  

  • Curbs overspending: Profit First discourages impulsive purchases of unnecessary things by making the plate smaller.  
  • Boosts efficiency: Knowing your limited budget encourages you to find creative ways to save money and do more with less.  
  • Profit at the Forefront: With profit prioritised from the start, your focus naturally shifts towards making smart financial decisions that contribute to your business's long-term success.  

2. Automated fund allocation  

Are you tired of manually dividing your income into different piles for expenses, taxes, and that elusive "profit" category?  

Thriday automates this for you with our Auto-Allocations features.  

Thriday automates your bookkeeping and accounting tasks.

As revenue hits your revenue account, it's immediately distributed to your Profit First accounts according to your target allocation percentages (TAPs).  

This puts your budget on autopilot, allowing you to focus on core tasks and avoid human error in every transfer.  

The benefits? It's a win-win.  

No more wasting time on tedious calculations or transfers. Thriday plus Profit First automates the heavy lifting, freeing you to focus on core tasks.    

Automated transfers ensure your money goes exactly where it's supposed to.  

Putting your budget on autopilot removes a layer of stress and allows you to breathe easier. You can focus on strategic business decisions instead of worrying about everyday bookkeeping tasks.  

We at Thriday highly recommend using TAP percentages as a starting point. TAPs are a set of predetermined percentages that you allocate to different areas of your business finances.

TAPs consider factors like your industry and revenue level. A bakery might allocate differently than a software company. Higher revenue might allow for a higher initial profit allocation. Moreover, it provides recommended percentages for profit, owner's compensation (your paycheck), taxes, and operating expenses (rent, supplies, etc.). They're a solid foundation to build on, not set in stone.  

3. Ensures fair owner compensation  

Many small business owners wear multiple hats – CEO, marketer, business analyst – you name it.  But when paying themselves, they often take whatever "leftovers" remain after covering all the bills. This can be stressful and unpredictable.    

This ensures you consistently pay yourself what you deserve, regardless of how much your business makes in a month. It allows you to plan for your future and invest in your well-being, which is crucial for the long-term success of your business.  You can't pour from an empty cup, after all!  

Thriday can automate this, ensuring you consistently pay yourself what you deserve. You may read How to Pay Yourself as a Business Owner for more tips and insights.

Gone are the days when you scrambled to manage Profit First! Thriday will supercharge your financial flow, automating the system and freeing you to focus on running your business.

Thriday customer

DISCLAIMER: Team Thrive Pty Ltd ABN 15 637 676 496 (Thriday) is an authorised representative (No.1297601) of Regional Australia Bank ABN 21 087 650 360  AFSL 241167 (Regional Australia Bank).  Regional Australia Bank is the issuer of the transaction account and debit card available through Thriday. Any information provided by Thriday is general in nature and does not take into account your personal situation. You should consider whether Thriday is appropriate for you.

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