You didn’t start your business just to watch profits slip through your fingers. Unfortunately, managing cash flow feels like running on a treadmill for many business owners—lots of effort with no forward movement. This problem of financial stagnation is what the Profit First chart seeks to help business owners address. It is a practical, easy-to-follow chart that helps you sustainably allocate funds for profit, taxes, and expenses. Following the Profit First chart can help you save for your goals, pay yourself regularly, and grow your business with peace of mind. Let’s take a closer look at how this chart can transform your financial health.
What Is the Profit First Method?
The Profit First method is a financial management system created by Mike Michalowicz to help business owners prioritize profit—before paying expenses. Instead of using what’s left over at the end of the month, you allocate your revenue into different categories as soon as it comes in: profit, owner’s pay, tax, and operating expenses. Think of it as “budgeting backward.” The idea is simple: profit comes first, and you run the business on what’s left.
This method gives you a clear structure, helping you avoid overspending and ensuring you always have a cushion for growth and unexpected costs.
Understanding the Profit First Chart
The Profit First chart is a roadmap for allocating business revenue based on your company’s size. It breaks down how much of your income should be allocated to profit, owner’s pay, taxes, and operating expenses based on your revenue range.
Here’s a breakdown of all the items on the chart:
Real Revenue Range
The chart groups businesses by their revenue range, starting from $0–$250K and going up to $50M. As your revenue grows, so do the percentages allocated to certain categories, especially operating expenses, as larger companies typically have more complex financial needs.
Real Revenue
This represents 100% of the money your business brings in before it gets divided up. Think of it as the pot of money you’ll allocate to each category.
Profit Allocation for Financial Health
Profit Percentage
Profit allocation is the foundation of the Profit First system. As shown in the chart, smaller businesses (those earning less than $250K) set aside 5% of their revenue for profit, while larger businesses, with revenues of $10M or more, allocate up to 20%. This gradual increase makes sure that even as your business grows, profit remains a priority.
Why put profit first? It’s the key to long-term sustainability. By setting aside profit before anything else, you build a safety net that can fuel future growth, help with unexpected expenses, and ensure the business remains financially stable.
Owner’s Pay—How Much Should You Take?
Owner’s Pay Percentage
Owner’s pay starts high for small businesses, with 50% of revenue going to the owner when the business is earning less than $250K. This drops to 0% in the largest revenue bracket, as owners in bigger companies often pay themselves through dividends or profit distributions instead of taking a regular salary.
For small business owners, it’s important to remember you are the business’s most important asset, and compensating yourself well is vital to staying motivated and continuing to grow the company.
Tax Allocation—Be Prepared
Consistent Tax Percentage
Nobody likes dealing with taxes, but the Profit First system ensures you’re always prepared. The chart allocates a consistent 15% of revenue to taxes, regardless of your revenue size. This consistency helps businesses avoid nasty surprises come tax season.
By planning for taxes ahead of time, you reduce stress and ensure your business is always ready to meet its obligations without having to scramble for funds at the last minute.
Operating Expenses—Keeping the Business Running
Operating Expenses Percentage
Operating expenses cover everything it takes to keep your business running—from rent and salaries to utilities and supplies. For smaller businesses, operating expenses make up 30% of revenue, but as companies grow, this increases to 65% in larger organizations. The higher percentage for bigger businesses reflects increased costs, such as more employees, larger offices, and more complex operations.
The goal here is to keep expenses lean in the early stages of your business so you can reinvest more into growth. As your business grows, some increase in operating expenses is expected, but staying mindful of where your money is going is vital to maintaining profitability.
How the Profit First System Helps Your Business Thrive
Following the Profit First chart gives business owners a clearer picture of their finances and helps them make smarter decisions about allocating revenue. This system encourages you to set aside money for growth (profit), pay yourself fairly (owner’s pay), and prepare for inevitable tax obligations, all while keeping a close eye on expenses.
The Profit First system helps you take control of your cash flow, creating a sense of financial security and freedom. No more scrambling at the end of the month or tax season—this method ensures you’re prepared and positioned for long-term success.
Automating Profit First with Cash Goblin
Implementing the Profit First system might seem daunting, but financial management tools like Cash Goblin can help you automate the process. Instead of manually moving money into separate accounts, Cash Goblin can automatically allocate your revenue based on the percentages outlined in the Profit First chart. Automating the process ensures you consistently follow the system, save time, and minimize any risk of human error.
Automation also provides a real-time view of your financial health, making it easier to track progress and adjust your strategy as needed. By taking the manual work out of the process, you’re free to focus on growing your business rather than worrying about cash flow.
If you want to learn more about how the Profit First method of accounting can help your business, get your hands on Mike Michalowicz's book here: Profit First by Mike Michalowicz’s
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