Episode #39 – Profit Distribution for the 4th Quarter of 2023

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Welcome to the first podcast episode of 2024. Happy 2024! And for those who follow the Profit First cash management system, you know what time of the year it is! It’s profit distribution time!

So, what does this mean? It means that the money that has been transferred to the profit bank account for the last quarter is now taken as a distribution. Now there are 2 schools of thought on how to do this. Mike suggests in the book that 50% of this balance is left in the profit account to build an emergency cash reserve and then use the remaining 50% to celebrate your hard work for the last quarter.  Or you can take 100% of the balance as a distribution to enjoy. My clients are split between the 2 methods. I prefer the latter option – taking 100% as a distribution. I do this because I already have a weekly allocation that includes setting aside money to build up my rainy-day fund.

For me, I’m putting my distribution into a savings account so I can tackle a few home improvement projects this summer.

If you use the Profit First method in your business, I’d love to celebrate with you how much your distribution is this quarter and what you are going to do with your profit this quarter! If you are watching on YouTube, please let me know in the comments below.

That’s only the first part of the new calendar quarter. The last part is to adjust your current allocation percentages to the next iteration that will get you closer to your target allocation percentages. Typically, this is a 1 to 2% increase in your profit, owners comp and possibly your tax percentages with a corresponding decrease in your opex percentage.  If this is something that you need help with, please let me know and I’m happy to help!

If you are unsure about what I just spoke about, here’s the highlights of the cash management system, Profit First.  

Profit First is a book written by Mike Michalowicz. It is the old school envelope method of budgeting but updated to the 21st century and adapted from personal finances to business. 

Businesses that use the Profit First method enjoy the following benefits:

• Prioritizes profit: Profit First makes profit a top priority for businesses, which can help them avoid overextending themselves and make informed decisions about how to allocate their resources.
• Helps businesses plan for the future: By setting aside a percentage of profit first, businesses can save for expenses like taxes when their cash flow is inconsistent.
• Keeps businesses organized: Profit First involves dividing revenue across different bank accounts, including a profit account, which can help businesses create their own profit margin from day one and manage their expenses more effectively.
• Improves cash flow: By implementing Profit First, businesses can ensure that they always have the cash they need to run their business and avoid running out of cash quickly.
• Increases profitability: Many businesses have seen significant improvements in their financial health after implementing Profit First, which can help them achieve their financial goals faster and build the life they want.

If any of this sounds intriguing to you, I invite you to go back to episodes 5 - 15 of this podcast where I discussed the book chapter-by-chapter adding tips and tricks that only a Certified Profit First Professional can share.

Here is a list of the episodes with direct links to each:

• Ep #5: Introduction to Profit First
• Ep #6 Profit First Chapter 2 – The Core Principles of Profit First
• Ep #7 Profit First Chapter 3 – Setting Up Profit First For Your Business
• Ep #8 Profit First Chapter 4 – Assessing The Health Of Your Business
• Ep #9 Profit First Chapter 5 – Allocation Percentages
• Ep #10 Profit First Chapter 6 – Putting Profit First Into Motion
• Ep #11 Profit First Chapter 7 – Destroy Your Debt
• Ep #12 Profit First Chapter 8 – Find Money Within Your Business
• Ep #13 Profit First Chapter 9 – Profit First Advanced Techniques
• Ep #14 Profit First Chapter 10 – The Profit First Life
• Ep #15 Profit First Chapter 11 – How To Keep It From Falling Apart

If you have any questions about today's episode please let me know. If you're watching on YouTube, you can comment below or send me an email to [email protected] and if you know someone who might need to hear this information please share this episode with them or if you're on YouTube, you can tag them below. 

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And before I go, remember profit is something you intentionally plan for in the beginning. It is not a potential bonus at the end of the year. 

Thanks, and have a great day.

For the first episode of 2024, we will talk about taking your profit distribution for those who follow the profit first cash management system. Also, we will talk about adjusting allocation percentages for the new calendar. If you're interested in learning more about Profit First, I recommend checking out Episodes 5-15 of this podcast. 

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