Profit Snapshot
Find your profit potential in minutes—spot leaks, set targets, and get step-by-step actions to grow your profit, build a healthier business (and life), and gain peace of mind.
What is the Goal of the Profit Snapshot?
We’ll quickly gauge the financial health of your business using Profit First principles. The Profit Snapshot compares your numbers to our Target Allocation Percentages (TAPs), highlights gaps, and shows your profit potential—plus the first actions to take.
What Do You Need?
Before starting your Snapshot, please have the following financial statements from the last 12 months:
Step 1: Contact Information
Please provide your contact information and business details to get started with the assessment.
Step 2: Income
This is the total revenue into your business and is found on the P&L from the last 12 months.
Step 3: Materials and Subcontractors
These are physical, tangible goods used to produce a product or service, as well as outsourced expertise to produce it. This amount can be found in Cost of Sales (or Cost of Goods Sold) on the P&L from the last 12 months.
Real Revenue Calculation
Step 4: Owner's Compensation
This account is designed to support the lifestyle of the owner. We will add up all salaries, draws, and personal transactions run through the business from the last 12 months.
• Salaries and Wages: Found on your Profit & Loss Statement (or W2) - This refers to wages paid to the owner through a payroll provider
• Draws and Distributions: Located on the Balance Sheet in the Equity section - Cash withdrawn from the business to pay the owner above the base salary
• Personal Transactions: Found on the Profit & Loss Statement - Expenses paid by the business that are a perk to the owner (e.g. cell phone, internet, car payments, owner health insurance etc.)
Total Owner's Compensation Calculation
Step 5: Tax
The Tax account is designed to track money paid for the business owner's personal income taxes, as well as the taxes due on the business's profit from the last 12 months.
• Taxes Paid: Found on P&L under Expenses or on Balance Sheet as part of Draws and Distributions
Total Taxes Calculation
Step 6: Operating Expenses
Operating Expenses represent the regular responsibilities of the business. These are found primarily in the Expenses section of your Profit & Loss Statement from the last 12 months, with some additional considerations.
Cost of Goods Sold
Include any COGS items from the P&L that were not included in the Materials & Subcontractors portion of the assessment.
Liabilities
Calculate minimum debt payments and additional amounts paid using the Balance Sheet. The Statement of Cash Flows can help determine monthly payments for:
- Loans
- Credit cards
- Leases
Important Considerations
Avoid Double Accounting
Subtract any expenses already used in previous accounts (Owner's Comp, Tax, etc.).
Exclude Non-Cash Expenses
Remove Depreciation and Amortization as they represent non-cash expenses.
Operating Expenses Calculation
Your Profit Assessment Analysis
Overview
This report is a concise, actionable plan to immediately and continuously improve the financial health of your business. We have used the Profit First method to analyze your business, set financial targets, and to outline a method to achieve them.
What makes Profit First unique is that it is a behaviorally based cash management system. Instead of regularly digging into financial reports and conducting frequent financial analysis, Profit First enables you to instantly measure your financial health and take action by simply looking at your bank balance periodically.
Utilizing this report will guide you through the implementation of Profit First, make sure that you remain accountable to the quarterly profit goals, and help you adjust the profit (and other financial) goals going forward.
Connect with us to discuss your results and chart out a roadmap to reach these Profit First goals!
Financial Allocation Analysis
Focused Financial Categories
This analysis focuses on four key financial categories that determine your business's financial health. Each category is color-coded throughout the report for easy reference:
Revenue
Total income before deductions (top line) and income after materials and subcontractors (real revenue). Real revenue shows your actual earnings potential.
Profit
Money retained in your business or distributed to owners. The foundation of financial strength and sustainability.
Owner's Compensation
Salaries, draws, and personal transactions that support the owner's lifestyle and compensate for work and investment.
Tax
Money set aside for business and personal taxes. Prevents financial surprises and ensures compliance.
Operating Expenses
All regular business expenses including costs of goods sold, debt payments, and operational costs.
Calculating Real Revenue
Real Revenue represents the true income your business generates after accounting for direct costs. It's the revenue your firm manages "above" the cost of materials and subcontractors, giving you a more accurate picture of your business's actual size and cash flow potential.
Your Real Revenue
CAPs vs TAPs
Using your CAPs and TAPs, we can see how your business expenses are allocated and how they should be allocated for a fiscally healthy company experiencing similar Real Revenue to your business.
Your Financial Allocation Analysis
| Category | Actual | CAPs | TAPs |
|---|---|---|---|
| Real Revenue | 100% | 100% | |
| Profit | |||
| Owner's Comp | |||
| Tax | |||
| Operating Expenses |
Profit First Rollout
Rollout Timeline
Whether the change is big or small, we will work together to implement Profit First in your business. We recommend making the following incremental changes over the next 6 quarters to get from your Current Allocation Percentages (CAPs) to your Target Allocation Percentages (TAPs).
Your Rollout Timeline
| Subject | CAPs | Q1 | Q2 | Q3 | Q4 | Q5 | Q6 | TAPs |
|---|---|---|---|---|---|---|---|---|
| Profit Allocation Adjustment | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% |
| Profit Allocation Cumulative | 0% | 0% | 0% | 0% | 0% | 0% | ||
| Owner's Pay Allocation Adjustment | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% |
| Owner's Pay Allocation Cumulative | 0% | 0% | 0% | 0% | 0% | 0% | ||
| Tax Allocation Adjustment | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% |
| Tax Allocation Cumulative | 0% | 0% | 0% | 0% | 0% | 0% | ||
| OpEx Allocation Adjustment | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% |
| OpEx Allocation Cumulative | 0% | 0% | 0% | 0% | 0% | 0% |
Analysis & Recommendations
Total Revenue
It is common for business owners to focus aggressively on top line growth, and during our conversations you made it clear that was a primary objective of yours too. From our experience entrepreneurs want to drive top line growth to increase the bottom line (profitability), instead of just focusing on the bottom line itself. This often causes a trap of constantly increasing revenue and increasing costs in parallel.
Recommendations:Real Revenue
Your Real Revenue is the revenue your firm generates when Mats & Subs are excluded. This number is used to represent the 'true' income of a company, and the cash flow it manages 'above' Real Revenue.
Real Revenue is a term used in Profit First to show an entrepreneur that their top line revenue (Total Income) is not truly representative of the size of the business.
For example, a home builder may have $10M in annual revenue and to complete their projects require materials and subcontractors that cost $7M a year. What this means is that the company really has $3M of 'real revenue' and manages another $7M of transactions (effectively moving money from the customer directly to the purchase of materials and the cost of subcontractors).
This business needs to operate like a $3M company and not a $10M company. The term Real Revenue is used to make it very clear that the entrepreneur really has a $3M business.
In Profit First, profit is not what's left over—it's what comes first. It represents the intentional cash retained or distributed after the business has covered its core functions. Unlike net income on the P&L, this profit is real cash, set aside to reward the risk and responsibility of entrepreneurship. It acts as a safety net and fuels long-term sustainability.
This account supports the lifestyle of the business owner and recognizes the value of your time, effort, and leadership. In Profit First, the owner is seen as the most vital employee in the company. If you're not paying yourself adequately, your business model is broken—or your expenses are bloated.
The point of entrepreneurship is not just to "have a business," but to have a business that funds your life.
The Tax account exists to ensure the business—not the owner personally—covers the tax burden created by business success. In Profit First, this account builds certainty. It prevents surprises, protects cash flow, and keeps you from resenting tax season.
Taxes are a fact of business life. Preparing for them proactively is the mark of a mature and stable company.
But here's the key: tax allocation should track with your profits. If you're not generating profit or paying yourself much, your tax liability is likely minimal. As you grow profit and owner's pay, you'll need to grow your tax allocation to match.
This includes all the regular cash outflows to run your business: payroll, software, rent, marketing, debt payments, and more. According to Profit First, most businesses overspend here, believing that more expense equals more growth. But often, high OpEx just means less profit and less owner pay.
The key is this: your business should run within the boundaries of what's left after allocating for Profit, Owner's Pay, and Tax. OpEx is what's left over—not what gets funded first.
The concept and implementation of Profit First is simple. Sticking to it is the hard part. Our job is to make sure you stick with Profit First, and to help you navigate the unique challenges that inevitably present themselves.
The Profit First Formula
The GAAP (Generally Accepted Accounting Principles) formula for determining a business's profit is Sales - Expenses = Profit. It is simple, logical and clear. Unfortunately, it's a lie. The formula, while logically accurate, does not account for human behavior. In the GAAP formula profit is a leftover, a final consideration, something that is hopefully a nice surprise at the end of the year. Alas, the profit is rarely there and the business continues on its check-to-check survival.
With Profit First you flip the formula to Sales - Profit = Expenses. Logically the math is the same, but from the standpoint of the entrepreneur's behavior it is radically different. With Profit First, you take a predetermined percentage of profit from every sale first, and only the remainder is available for expenses.
Parkinson's Law
Author and historian C. Northcote Parkinson theorized that our demand for a resource increases to meet the supply of it. That is why when we are given two weeks to do a project it takes two weeks, and when we are given eight weeks to do the same project it takes eight weeks. That is why when given $1,000 to complete our work we get it done with $1,000 and when given $10,000 to complete the same work, it takes $10,000.
Profit First makes Parkinson's Law an asset. By taking profit first the money available for expenses lessens, and we are forced to find ways to get the same things done for less money.
A History of Success
Admittedly, Profit First is nothing new. It is the application of the time-tested and world's greatest financial mechanism "pay yourself first" applied to entrepreneurship. Just as wealthy people know to pay themselves first and then use the remainder for expenses, Profit First teaches us to take our profit first and then use the remainder to run the business.
The 401K retirement plan has been the greatest savings mechanism in US history, because of this powerful "pay yourself first" premise. Profit First is already proving to be the greatest profit generating mechanism in the history of business, because of this same powerful principle. So while Profit First is nothing new, it is truly unique. And it is truly effective.
Bank Balance Accounting
Most entrepreneurs don't have the time or gumption to read the different accounting statements necessary to manage the financial aspect of their business. Theoretically you should review and correlate your Income Statement, Balance Sheet and Cash Flow Statement monthly (or more frequently), but few entrepreneurs do.
Most resort to "bank balance accounting" where we check our bank balance every day and make financial decisions based upon what we see. Per Parkinson's Law, we consume what we see in our bank account. Profit First encourages the entrepreneur to continue "bank balance accounting" by first allocating money to profit (and other accounts) so that the entrepreneur sees the actual portion of deposits that are available for expenses and they automatically adjust their spending accordingly.
Don't Change Habits, Leverage Them
Many entrepreneurs try to force themselves to become better at accounting and to become more disciplined in their fiscal management by pure willpower. But just like a muscle, willpower can be drained. And in a moment of financial stress or bigger than expected expenses the entrepreneur will break their own fiscal rules and spend the money they have.
The Profit First principle does not try to change your habits (that is nearly impossible to do), Profit First works with your existing habits. By first allocating money to different accounts, and then removing the temptation to "borrow" from yourself, your business will become fiscally strong and you will benefit from regular profit distributions.
Disclaimer
Profit First Professionals and its affiliates are not liable for a success or failure of Profit First cash flow methodology. Successful implementation and adherence to the Profit First methodology is solely dependent on the owner of the business implementing Profit First.
Is your business causing you to not sleep at night from stress?
Want help implementing these changes into your business? Schedule a meeting with us to discuss your business goals and how we can help you transform your business and life!