Profit First for Tradies: A Blueprint for Financial Success

February 20, 2024
9
minutes to read
by
Michael Nuciforo
Contents

As a tradie, you've undoubtedly experienced the ups and downs of running your own business. The demands of the trades industry are rigorous, and navigating financial stability can often feel like an uphill battle. But what if I told you that a proven financial strategy could transform your tradie business into a profitable venture from day one? Enter "Profit First." In this comprehensive guide, we'll delve into the nuts and bolts of setting up Profit First as a tradie, empowering you to take control of your finances and secure a brighter future.

Why Profit First is a Game-Changer for Tradies

Tradie businesses, whether in construction, plumbing, electrical work, or any other field, frequently face cash flow challenges and the uncertainty of variable income. According to a report by Tradiepad, nearly 60% of tradie businesses in Australia encounter financial hardships. These challenges often lead to business closures within the first few years. However, Profit First offers a lifeline, not just for survival but for thriving in this competitive industry.

Profit First is rooted in the philosophy that profitability should be a non-negotiable priority from day one. It's a financial management system designed to revolutionise how you approach your tradie business, offering a structured and pragmatic approach to financial stability.

What is Profit First for Tradies

Profit First is a financial management system designed to ensure the long-term profitability of a business. It operates on a simple principle: allocate profits before expenses, rather than the traditional approach of revenue minus expenses equals profit. 

Under Profit First, business owners set aside a predetermined percentage of their income as profit from each incoming dollar. The remaining funds are then used to cover operating expenses, taxes, and other costs. This approach forces a company to prioritise profitability, encourages efficient cost management, and provides a clear picture of a company's financial health. Profit First helps businesses build and maintain a robust financial foundation by making profit a non-negotiable aspect of financial planning.

The Rules of Profit First

To harness the power of Profit First effectively, it's crucial to adhere to a set of fundamental rules: 

  • Allocate Profit First: The essence of Profit First lies in allocating a predetermined percentage of your income to profit before addressing any other financial obligations. This practice instils the discipline of setting aside profit as a non-negotiable part of your financial plan. 
  • Set Up Profit First Accounts: Create separate bank accounts for distinct financial purposes. These accounts typically include a profit account, a tax account, an owner's pay account, and an operating expenses account. This separation prevents you from dipping into essential funds for day-to-day expenses. 
  • Determine Your Target Allocation Percentages: Profit First provides guidelines to help you determine what percentage of your income should be allocated to each account. These percentages are tailored to your business's revenue and expenses, ensuring a personalised financial strategy. 
  • Regularly Review and Adjust: As your tradie business grows, you must periodically review and adjust your target allocation percentages. This ensures that your financial plan aligns with your changing needs and goals.

The Profit First Mentality

Profit First isn't merely a set of financial rules; it's a mindset shift that can reshape how you approach your tradie business. Traditionally, many tradies prioritise chasing revenue, hoping that profit will follow. Profit First, however, flips this script entirely. It encourages you to put profit at the forefront of your financial priorities from the very beginning.

As Mike Michalowicz, the author of "Profit First," wisely puts it, "Profit isn't an event; it's a habit." Embracing the Profit First mentality means making profit a habitual and ingrained part of your business culture. It's about realising that your business exists to generate profit, and you deserve to be rewarded for your hard work.

The Profit First for Tradies Toolbox

To implement Profit First effectively in your tradie business, you'll need the right tools: 

  1. Read the Book: Katie Crismale-Marshall has written an excellent book on how tradies can implement Profit First. You can purchase a copy on Katie's website.
  2. Separate Bank Accounts: The cornerstone of Profit First is the creation of distinct bank accounts for profit, taxes, owner's pay, and operating expenses. This physical separation of funds ensures clarity and accountability in your financial management.
  3. Accounting Software: Investing in robust accounting software like Thriday can be a game-changer. These tools streamline financial tracking and control, making it easier to implement Profit First.
  4. Professional Guidance: Consider seeking the expertise of an accountant or financial advisor experienced in Profit First. Their insights and advice can be invaluable in tailoring the system to your unique business needs.
  5. Discipline and Consistency: The most crucial tools for Profit First are discipline and consistency. Commit to religiously adhering to your allocated percentages and make them an integral part of your financial routine.

The Profit First Categories

Profit First categorises your income and expenses into five core accounts: 

  • Income Account: This is the central hub where all your revenue flows. From this account, you'll allocate funds to the other accounts based on your target percentages. 
  • Profit Account: Set aside a portion of your income in this account, typically between 5% to 10%. This represents the reward for your hard work and dedication. 
  • Owner's Pay Account: Your salary comes from this account, ensuring that you, as the business owner, are adequately compensated for your efforts. 
  • Tax Account: Allocate a percentage of your income to cover taxes. This proactive approach prevents last-minute financial stress during tax season. You can have an additional GST account if your business is registered for GST.
  • Operating Expenses Account: The remainder of your income flows into this account, covering your business's day-to-day costs, such as materials, labour, rent, and utilities.

How Thriday Can Streamline Profit First

Now that you've grasped the fundamental concepts of Profit First for Tradies let's explore how Thriday can streamline this process, making your journey to financial success even smoother. With Thriday, you can: 

  1. Quick Account Setup: You can set up your Profit First accounts in seconds with Thriday. Just select 'Add Account', and you'll have the option to set up your Profit First accounts in no time. Each bank account* has its own BSB and Account Number.
  2. Automate Fund Allocation: Thriday's intuitive tools allow you to set up automatic transfers to your Profit First accounts. This ensures consistent adherence to your target percentages without needing constant manual intervention.
  3. Real-Time Financial Insights: Thriday provides you with up-to-the-minute financial data, enabling you to make informed decisions promptly. You can adjust your strategy as needed with a clear view of your financial landscape. 
  4. Access Expert Guidance: Thriday boasts a network of financial experts specialising in Profit First for Tradies. These professionals can provide personalised advice and support tailored to your unique business circumstances.
Profit First Quick Account Setup

Key Takeaways

Profit First is not just a financial strategy; it's your ticket to financial stability and prosperity in the trades industry. By adopting the Profit First mentality, following its rules diligently, and leveraging Thriday's innovative tools and expert guidance, you can transform your tradie business into a profit-generating powerhouse. 

Take action immediately. Start your journey to financial success today by joining Thriday for free. As Warren Buffet wisely said, "The best investment you can make is in yourself." Invest in Profit First and watch your tradie business thrive. Your hard work deserves nothing less than financial abundance and security.

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