5 Ways Profit First is Good for Your Home Service Business

Managing money is often a challenge for small businesses, but home services businesses have some special challenges to manage:

  • Seasonal activity
  • Purchasing supplies and materials for jobs, but waiting to get paid
  • Various billing due dates for subcontractors
  • And customers don’t always pay on time

Profit First is a pay yourself first cash management system that ensures you’ve got cash to:

  • Run the business profitably
  • Pay yourself a reasonable amount based on the volume of sales of the business
  • Save money so you don’t get into trouble come tax time
  • Have an appropriate operating budget for the size of your company

Let’s take a deeper look at five ways of implementing Profit First for your home service business!

1. What you prioritize and track gets done

In the Profit First method of cash management, a business owner sets aside a certain percentage of sales as Profit each month into its own special account, so you don’t accidentally spend it on something else. By doing this first, you are guaranteeing you will have profits set aside each month.

This first step is important.

Have you ever started a workout program and found you didn’t get your workout in if you waited until the end of the day? Or had a big project that you were going to do, but didn’t start it when you got to work and then all of a sudden it was the end of the day and you hadn’t even started?

When you do things FIRST, you ensure they get done. We see this in time management, as well as money management.

2. Get paid a reasonable amount for your work

I’ve seen all kinds of business owners – the ones that work for 4 years without a paycheck and are just barely surviving. Or those that buy a new $60,000 boat to play around with on the weekends but then take out an emergency loan to make the next payroll.

Profit First helps you create a cash flow system where a percent of sales are used to pay YOU!

Whether you like it or not, YOU are the most important member of your team in your small business. You deserve to be compensated for your efforts.

3. Avoid April 15th panic

April 15th is a day many small business owners dread.

Will they owe taxes?  Will they get a refund?  They’re never quite sure if the estimated taxes they paid in will be enough or if this is the year they have the BIG tax bill.

With the Profit First method, you set a percentage of sales each month for your tax bill.

Realistically, if you are running a profitable business, you’re likely going to owe taxes.  Yes, you should be working with your accountant to do tax planning to try to minimize that as much as possible, but most businesses have to pay some taxes. And April 15th is NOT the day to start trying to figure out where that money is going to come from.

If you save a percentage of sales, you will have money set aside come tax time. If your sales grow, you’ll save more, if your sales decline, you’ll save less. BUT, you’ll be prepared.

4. Have a road map for how you should spend

Many small business owners don’t know what percentage of their revenue should go to owners pay, operating expenses, taxes, etc.

Profit First gives you a framework for a way to spend money based on the size of your business that ensure profitability. It takes some of the guesswork out of how to spend your money.

And if you know how much money you want to pay yourself, you can reverse engineer what you need to get in sales this year.

If you know how much profit you want, you can reverse engineer that too.

5. Built in Quarterly Celebration

Believe it or not, studies have shown that celebrating success actually attracts more success your way.  Also, celebration causes your body to release endorphins, and who doesn’t want a little of that?

In the Profit First model of cash management, the business owner or owners take a 50% distribution of the profit set aside each quarter.

Think of this like a dividend you might get for owning stock. For example, Sherwin Williams typically pays out dividends to their shareholders each quarter, as their reward for owning a successful business.

Profit First profit distributions have a similar purpose – they are to reward you as an OWNER for having a profitable business.

These funds are meant to be used as a celebration – some of our clients have used profit distributions for trips to Hawaii, some have used profit distributions to pay down old personal debt to get that monkey off their back, and some have used them to buy their dream car.

How you use it is up to you, but make sure it’s something that feels like a personal celebration and a real reward for your hard work of running a profitable business.


Want to know more about getting started with Profit First for your home service business? Post your questions in the comments below or contact us at Spark Accounting Solutions today!