Pay yourself and protect profit on purpose

Why "what's left over" never works

The standard formula is revenue minus expenses equals profit. In practice, spending grows to match whatever money is in the account. If all the cash sits in one checking account, it looks available, so it gets spent, and profit is whatever happens to remain.

Mike Michalowicz's Profit First turns the formula around: take profit first, then run the business on what's left. The method uses separate bank accounts so money set aside for profit, owner pay and taxes isn't sitting in the account you spend from.

How the allocation works

1. All income lands in one account. Every client payment goes here first.
2. On a set schedule, split it. Twice a month is common. Move fixed percentages into separate accounts.
3. Profit: held back, not spent on operations. Some goes to the owner as a reward, some stays as a reserve.
4. Owner pay: your salary for the work you do, paid regularly.
5. Taxes: set aside so tax bills are never a surprise.
6. Operating expenses: everything else is paid from this account only.

Start with small percentages for profit and grow them each quarter. If the operating share can't cover your expenses, that's not a reason to skip the system. It's evidence that costs are too high or prices are too low.