The First Principle in Profit First: Small Plates

There are five Core Principles of Profit First for dental practices, and the first is known as the 'Small Plates' principle.

Let's cover some background information to provide context. In the early 1900s, the GAAP formula emerged. GAAP stands for Generally Accepted Accounting Principles, and the basic formula is:

Sales - Expenses = Profit

In this model, we sell our products or services, pay the bills, and keep whatever is left over at the end of the month, quarter, or year. I'm here to tell you that there's a better way to run your business. Simply flip the equation to:

Sales - Profit = Expenses 

This is the Pay Yourself First model, the Profit First way! But how does this actually work? That's where the Profit First principles come in!

To explain the 'Small Plates' principle, we need to understand Parkinson's Law. This law states that demand expands to match supply. A classic example is a tube of toothpaste. When the tube is full, we generously squeeze out plenty onto our brush without thinking twice. But when it's nearly empty, we become resourceful, squeezing and twisting to get every last drop. The smaller supply encourages us to conserve.

The 'Small Plates' principle operates on a similar idea: If the dinner plate is smaller, we'll consume less food. Translated to bank accounts, less money in the account makes us more frugal and attentive to the balance. In the Profit First model, all revenue flows into a single Income Account. Instead of paying bills directly from this account, we allocate the funds by percentage to several other accounts, or 'small plates,' each designated for a specific purpose in your business.

The five key bank accounts in this system are:

1. Income Account: The central account where all revenue flows.
2. Profit Account: To ensure your business remains profitable.
3. Tax Account: For setting aside funds to cover tax liabilities.
4. Owner's Compensation Account: Your personal salary as the business owner.
5. Operating Expenses Account: For day-to-day business expenses. 

By funding the Profit, Tax, and Owner’s Compensation accounts first, you're effectively taking your Profit First. The percentages allocated to each account are carefully calculated so that there's just enough in the Operating Expenses account to keep spending habits resourceful and efficient.

I assist dentists in achieving this freedom through the Profit First system. If you’re curious to learn more, visit www.profitfirstdentist.com and tap the 'Free Resources' tab to download the first two chapters of my book for FREE!  

USA:

-Barb Stackhouse, RDH, M.ED.

Mastery Profit First Professional

"I’m Barb Stackhouse, author of Profit First for Dentists. You might recognize me as the professional behind the Profit First approach for dental practices. I’m passionate about helping dentists implement this effective cash flow system, which is why I wrote the book. My goal is for more dentists to read it and integrate this system into their practices because it genuinely works." 

Canada:

-April Stroink, BComm, RHU, EPC, PFP

Advanced Profit First Professional

With over 25 years of financial expertise, April Stroink helps in transforming the financial health of dental practices across Canada. As an experienced Profit First coach, April is committed to helping you increase your profits, optimize your cash flow, and achieve financial peace. She believes that your business should enrich your life—enabling you to create the life and business of your dreams without compromise.