Take Your Profit First

Take Your Profit First

Parkinson’s Law

Have you noticed that no matter how much time you have to do something, you always “barely get done”? Or that you barely have enough money?

The principle is called Parkinson’s Law:

A task will fill the time allotted to it

Or

Your expenses will expand to fit your budget

Re-Calculating Profit

Most likely you calculate your profit like this:

Profit = Revenue – Expenses

But if expenses can grow to fit you budget, you may find that your profit is always lower than you want, and maybe even zero!

Take your profit first!

Expenses = Revenue – Profit

Tricking Your Brain

Ready to make a real profit? Time to trick your brain. Pull your profit out of your operating account right away. Put it in a savings account where you won’t sneak it out “just in case”.

When you open your operating account, you will see the amount of money in it and you will make your business work…even if it is just a little less.

At the end of each month, extract your profits from your profit account (yes, on top of your salary!).

Start Small

At first, this can seem daunting, so start small. Start with 1% of your revenue, and detour it into your profit account. EASY! You can easily survive with 1% less expenses.

Seasonal Business

Is your business seasonal? Is there any business in Alberta that isn’t?

Start an off-season account, and divert a certain percentage of your revenue to keep the lights on during the off season. I use 3% for Lybroco Rentals Inc., and in another one of my construction businesses, I use 7%. When winter hits, I have no surprises.

The Rest of The Way

The principle is that you put away money that you know you will need in the future. My accounts look like this:

Operating Account

Tax Account (5%)-For GST and Income tax

Winter Account (3%)-To survive our winter slowdown

Maintenance Account (2%)-For equipment maintenance

Payroll Account (15%)-To pay my team members, and em

Profit Account: (3%)-The reward that I get for taking the risk and starting a business

Vault: (3%)- Emergency fund. Up to a max of 3 months operating capital. (Saved me during COVID)

Funds are transferred weekly in Lybroco Rentals, and monthly in my construction company. When it’s tax season, the money is there waiting…no surprises.

Learn More

If you want to learn more about this system, feel free to give me call, or check out Mike Michalowiz’s book “Profit First”. It has made a real difference to the profitability of my business, not to mention my personal stress levels.

Best of luck with your business!

 

 

Devon Lybbert P.Eng

CEO

Lybroco Rentals Inc.

1.800.674.1018

info@LybrocoRentals.com