There are four core principles in the profit first system.
The first one is the principle of Small Plates. Since the early 1900’s the size of a dinner plate has changed from about 8 inches in diameter to now about 12 inches in diameter. Think of the amount of food on an 8 inch plate versus a 12 inch plate. If we want to eat less, it makes sense to use a smaller plate. Now translate this into a bank account. By using multiple bank accounts and dividing the money into these accounts, there is less money available in each account for a specific purpose. It’s been proven by having less available, we spend less.
The second principle is to Serve Sequentially. This means the order of things matters. If we eat the healthy good food first our appetite will be satisfied and we’ll eat less of the unhealthy food. Likewise order matters when dividing your money into these multiple bank accounts. It’s important to take your Profit First, followed by your Owner’s Compensation and your taxes. You make sure all the money is set aside for these very important accounts before allocating money to the operating expense account.
The third principle is to remove temptation. I don’t know about you but if I know there is ice cream in the house, I’m much more likely to eat it. If I don’t buy it in the first place, I’m probably not going to get in the car and drive to the market to make the purchase. I’ll do without. The same is true with the money that begins to accumulate in your Profit and Tax accounts. To remove the temptation of spending, it’s best to move it to another bank where access is limited.
The fourth and final core principle is to Establish and Enforce a Rhythm. Eating regularly and before you feel hunger pangs helps to keep an established rhythm to your food intake. If you wait until you’re starving, you’ll likely binge and eat more than anticipated or grab whatever is in sight…even the unhealthy food. Using this concept with your money means you establish a regular interval for making allocations from your income account to your other bank accounts. In a dental practice, I’ve found the weekly interval works best.
This is a super condensed introduction about all four of the Profit First Core Principles and for the next 4 weeks I’m going to break each one down into more detail. So be sure to come back each week for the full article. You can also find more details in my book, Profit First for Dentists, found on amazon, kindle, and audible.