Okay, why, what is the profit first principle? Well, Mike Michalowicz did an amazing book called Profit First and what the Profit First book talks about is the idea of paying yourself in your business before, from your business before you do anything else or pay anyone else.
What does that mean? Well, let’s say you’ve got a certain amount of income for a particular month. The first thing you should do is take your money. And then figure out a way to run your business based on whatever is left. And why is this principle so important? Well, you got Parkinson’s law, which talks about a task will fit in complexity to absorb the resources and time allocated to it.
And the same thing works for your overheads in your business, if you don’t pay yourself from your business, then you have more available to pay for your overheads. And what that means is your overheads will just keep on expanding to use up all of the money that you’ve set aside to cover those overheads.
So what you’re doing is, by paying yourself first for your business, you’re limiting the amount that your overheads can grow by. And you might be sitting there thinking, well, those overheads I have to have – otherwise like the business can’t function. But actually the whole book talks about the principle where if you’ve given yourself a limited amount to spend on something, then actually you will find creative ways as a business and strategic ways as a business to actually make sure you only use the resources that you have to achieve the result that you want.
So, it’s quite a good principle. There may be a lot of businesses watching this video might think it’s not applicable to their business, but I’ve seen so many businesses where I believe it is applicable that I think it’s applicable to most businesses, but the key thing is ultimately if you pay yourself first, firstly you’re going to limit the amount your overheads can expand to, but more importantly, though, you are going to have that motivation to keep growing and scaling your business because you are getting paid from it.
So, that’s a really important concept. Okay I just wanted to say thank you for watching this video. If you want to talk about this or any other principles I’ve talked about in these videos, just remember to get in touch with me and I will see you in the next video.