3 min read

Why We’re a Pro-Profit First CPA firm

Picture of The Kaizen Team The Kaizen Team · January 10, 2023

profit first business & tax strategy

Most CPA firms don’t encourage the Profit First model, here’s why we do.

Profit First is a book written by Mike Michalowicz on how to properly budget your funds as a business owner. It’s also a smash hit among business owners. Why? It’s an invaluable resource that takes something that feels complex and makes it simple. At its core, your business basically uses a single “income account” to receive all deposits and divides it between four accounts: a profit account, a tax account, an owner's compensation account, and an operating expense account. In many ways, it's similar to an envelope method for your business.

So why don’t more CPA firms embrace the Profit First model? Well, it’s more work for them. At Kaizen CPAs + Advisors, we go the other way. We’ll often encourage our clients to adopt a Profit First model for their business. Why? Well, because we’ve seen it work.

The benefits of adopting a Profit First model for your business

Let’s be clear: Profit First isn’t an accounting process. It’s a budgeting process. Small business owners often aren't overseeing the financials of the business and most often don't have an in-house CFO. That’s alright, but it’s something that you’ll have to deal with if you want to have meaningful, long-term growth with your business. We back the Profit First process because it’s easily executed by small business owners, it’s a relatively simple process, and it works.

At its core, Profit First is a budgeting method that requires a pretty liberal dose of discipline. The idea is to override basic human psychology as defined in Parkinson's Law. Parkinson’s Law states that you expand the time it takes to do something based on the time you have. Now, instead of time, think about money. Basically, as a business owner, you’ll almost always justify spending the money you have in your account if it’s left in a vacuum.

How Profit First works

Instead of spending the money whenever you get it, you’ll basically use the five accounts listed above to create a percentage-based system of savings. Twice a month, you’ll take all the money that was deposited as your income amount. Based on a percentages model you’ll take those deposits and split them up into the different accounts. From there, you’ll have a more concrete idea of the profits you’re ACTUALLY making, and how they can be used to grow your business. It’s a great option for small business owners that have access to the purse strings of their business but don’t necessarily have the budgeting knowledge or discipline to make sure that they can grow the way they should.

How Kaizen works with you to create your Profit First business strategy

We work with tons of small business owners, and while it’s not necessarily a universal rule, it IS true: business owners don’t often make great CFOs. If you’re working with Kaizen and want to adopt the Profit First strategy for your business, here’s how we work with you.

Read the book. It seems obvious, right? The first step is the most simple. We’ll ask you to read Profit First and internalize the lessons from the book. While the heart of it is quite simple, reading the whole book is imperative to understanding the nuances and answer any questions you might have coming out of it.
Instant Assessment. We’ll work on an instant assessment to see what’s currently going on with your spending. We’ll also create goals for you to better understand allocating your money. We'll also target allocation percentages.
Create a plan. This is pretty simple. Once we have your allocation percentages, the plan is… to stick to it! As we said, Profit First isn’t necessarily complex, but it does require financial discipline.
Implement your plan. Twice a month, you’ll take your deposits and divide them between those four accounts. It’s that easy. We’ll work with you to make sure you understand the big picture of how that money helps your business grow.

There’s just one question: are you ready to discipline yourself enough to see it through? If you are, and you’re ready for a partner who can help you reach your growth goals, we’d love to talk to you.

We believe in Profit First so much because we’ve seen it work with our clients. In fact, on our podcast, we’ve even brought on Ron Saharyan, a Profit First expert, to give free advice to business owners on how they can implement Profit First strategies into their businesses. It’s a great, free-flowing interview that serves as the perfect introduction to the Profit First mindset. Give it a listen!

Listen to the podcast

Kaizen CPAs works with auto repair shops across the country. We know running a successful shop takes more than keeping the bays full. We help shop owners understand their numbers, stay ahead of taxes, and build stronger, more profitable businesses. Auto repair is at the heart of what we do, but we bring the same practical, hands-on approach to businesses in other industries, too.

YPD HCM is part of the Kaizen CPAs family. YPD HCM helps small businesses manage payroll, HR, and compliance with the right tools and personal, human support—from payroll and tax filings to onboarding, employee management, and more. It’s practical help for the people side of your business, from a team that’s there when you need them.

The information in this article is provided for general educational purposes and reflects conditions as of the publication date. It is not legal, tax, accounting, payroll, HR, or compliance advice. Every business is different, so talk with a qualified professional about your specific situation.