Profit First
A cash flow system that guarantees your business is profitable from day one. No more worrying about whether you have enough cash to finish the pay cycle.
The Paradigm Shift
Created by Mike Michalowicz, Profit First is a behavioral-based cash management system that forces profitability. At Ledge we love this system so much, it not only powers our own financial planning, but we decided to become Certified Profit First Professionals, too.
Traditional accounting teaches us that profit is a leftover. We are told to take our Sales, subtract our Expenses, and whatever happens to be remaining is our Profit. Human nature, however, dictates that what is available will be spent.
By taking profit first, you force your business to operate on what remains, creating a naturally lean and profitable operation. This leverages Parkinson's Law—the idea that work expands to fill the time available. When applied to money, your expenses will always rise to consume whatever cash is available. By deliberately reducing what's available for operating expenses, you force operational efficiency and guarantee profit from day one.
The Five Foundational Accounts
The system uses multiple bank accounts to allocate money immediately as it comes in, ensuring every dollar has a specific job.
Income
All revenue flows here first. This is a temporary holding account before money is allocated.
Profit
A predetermined percentage moves here FIRST each week. This is your PROFIT. Let it accumulate until the end of the Quarter.
Owner's Pay
Your salary. Consistent, predictable compensation for the essential work you do in the business.
Tax
Set aside for quarterly estimated tax payments. No more scrambling to find cash at tax time.
Operating Expenses
What's left pays for your business operations. This is the only account bills are paid from.
Target Allocation Percentages
Your allocations scale with your Real Revenue (Total Revenue minus Materials & Subcontractors).
| Real Revenue Range | Profit % | Owner's Pay % | Tax % | Operating % |
|---|---|---|---|---|
| $0 – $250K | 5% | 50% | 15% | 30% |
| $250K – $500K | 10% | 35% | 15% | 40% |
| $500K – $1M | 15% | 20% | 15% | 50% |
| $1M – $5M | 10% | 10% | 15% | 65% |
Note: These are target percentages. Start with your current allocations and gradually adjust toward these targets each quarter (typically shifting 1-3% at a time).
Allocation Calculator
Enter your annual revenue figures to see how your cash might be allocated based on target percentages.
This shows your targets. Want to see where you actually stand?
Take the Profit First Instant Assessment to compare what you're currently allocating to Profit, Owner's Pay, and Tax against these targets — and see exactly how much needs to shift.
Get the Profit First App
Track your allocations, set up your accounts, and manage your Profit First system all in one place.
Set Up the Profit First AppLedge receives affiliate compensation when you use our links to get started with this service.
Ready to Implement Profit First?
Our team will help you set up your accounts, determine your allocations, and guide you through every step.
Book Your Free Consulting Call