When it comes to managing business finances, many entrepreneurs focus solely on budgeting. While budgeting is essential, it doesn’t always solve one major issue: running out of cash despite having a profitable business on paper. That’s where the Profit First methodology comes in.
By combining traditional budgeting with Profit First, you get the best of both worlds—a long-term financial plan with real-time cash control. It’s a smarter way to manage money, prioritize sustainability, and actually take home the profits you deserve.
In this blog, we’ll explore how Profit First complements budgeting, how to put the system into action, and how Xcel Accounting helps businesses like yours make it work seamlessly.
Understanding Traditional Budgeting
A budget is a plan. It outlines how you expect to earn and spend money over a specific period. Typical budget categories include:
- Revenue (sales, services)
- Operating expenses (rent, salaries, tools)
- Taxes
- Profit (whatever’s left over)
While budgeting gives you a roadmap, it doesn’t always provide guardrails for daily money decisions. You may overspend on operations or forget to set aside money for taxes, thinking, “I’ll catch up later.”
This is where Profit First brings powerful discipline.
What Is the Profit First Method?
Created by Mike Michalowicz, Profit First flips the standard accounting formula:
Traditional Formula:
Sales – Expenses = Profit
Profit First Formula:
Sales – Profit = Expenses
Instead of treating profit as what’s “left over,” you prioritize it first. You allocate specific percentages of each deposit to key accounts:
- Profit – Your reward for taking the risk of running a business
- Owner’s Pay – Your salary
- Tax – For government obligations
- Operating Expenses – What’s truly available to run the business
The result? You run a leaner operation and actually build a sustainable, profitable business—on purpose.
Why Combine Profit First with Budgeting?
While Profit First manages your cash flow in real time, budgeting helps you set financial goals and monitor performance.
Combining the two gives you:
- Strategic vision (budgeting) + Tactical control (Profit First)
- A big-picture financial plan + built-in discipline
- The ability to project costs while protecting your profit and pay
In short: You know where your money should go—and Profit First makes sure it does.
Step-by-Step: How to Combine Profit First with Budgeting
Step 1: Create a Realistic Budget
Start by listing:
- Monthly revenue (projected)
- Fixed and variable costs
- Desired profit
- Tax obligations
- Owner’s compensation
Tools like Xero or Excel can help you map these out.
Step 2: Determine Your Profit First Allocations
Based on your budget, establish target allocation percentages for each of the following accounts:
- Profit (e.g., 5–10%)
- Owner’s Pay (e.g., 30–50%)
- Taxes (e.g., 15%)
- Operating Expenses (whatever’s left)
These will differ by industry and maturity, so start small and adjust.
Step 3: Set Up Separate Bank Accounts
For Profit First to work, open different accounts:
- Profit
- Owner’s Pay
- Taxes
- Operating Expenses
- Income (main account where deposits go before allocation)
This physical separation makes it harder to overspend and easier to see your real financial picture.
Step 4: Allocate Funds Regularly
On a fixed schedule (e.g., bi-weekly), allocate funds from your Income account into the other four accounts based on your percentages.
Even small deposits count—it’s about building the habit.
Step 5: Monitor and Refine
Compare your actual allocations to your budget goals monthly or quarterly:
- Are you consistently short on operating expenses?
- Is the profit fund growing?
- Are you able to pay taxes easily?
Adjust your budget or Profit First percentages as needed to stay aligned.
How Xcel Accounting Helps You Succeed
At Xcel Accounting, we specialize in helping SMEs implement Profit First alongside smart budgeting practices. Here’s how we support your journey:
1. Profit First Setup
We help you determine the right account structure and target allocation percentages based on your revenue, industry, and goals.
2. Budgeting and Forecasting
We create custom budgets that align with your Profit First strategy, giving you a clear roadmap for spending and saving.
3. Cash Flow Tracking
Using tools like Xero, Dext, and Fathom, we monitor your inflows, outflows, and account balances in real time.
4. Quarterly Reviews
We conduct Profit First check-ins to ensure you’re hitting your targets, adjusting allocations, and growing sustainably.
5. Tax Compliance and Planning
Your tax account builds all year—and we make sure it’s always accurate and ready for filings.
6. Advisory for Growth
We don’t just help you survive; we help you thrive. With strategic advisory services, we guide you on pricing, scaling, and achieving financial freedom.
The Payoff: Real-World Impact
One of our clients, a boutique design firm, was profitable on paper but constantly stressed about payroll, taxes, and month-end cash shortages. By combining budgeting with Profit First:
- They created separate bank accounts and set realistic allocations.
- Operating expenses dropped by 18% in the first 3 months.
- The business owner paid herself for the first time in over a year.
- Tax season became stress-free—no scrambling for money.
That’s the power of combining planning with purposeful action.
Final Thoughts
Profit First and budgeting aren’t either-or—they’re powerful partners. One provides the plan; the other enforces the discipline. Combined, they give you clarity, control, and confidence over your business finances.
If you’re tired of feeling uncertain about your cash flow or struggling to grow sustainably, Xcel Accounting is here to help you implement a smarter system that pays you first—and builds a truly profitable business.
Let’s put your profit first. Book a free consultation with Xcel today.
FAQ
1. Can I use Profit First if I already have a budget?
Absolutely. Profit First doesn’t replace your budget—it enforces it. It helps you stick to the numbers you planned instead of spending based on emotion or urgency.
2. How often should I allocate funds using Profit First?
Most businesses do it twice a month (e.g., 10th and 25th). Choose a cadence that matches your cash inflow patterns, and be consistent.
3. What if I can’t afford to allocate money to profit right now?
Start small—even 1% of each deposit going into a profit account builds the habit. Over time, you can increase percentages as your finances improve.
4. Does Xcel Accounting help with setting up Profit First accounts?
Yes! We guide you through the setup, provide percentage benchmarks, monitor your cash flow, and help adjust the system as your business evolves.
