Profit First is a game changer for business owners. This cash management system helps entrepreneurs feel like they are in control of their finances, even if they don’t understand how to read their financial statements or have never gotten the hang of budgeting.
But many accountants and bookkeepers are resistant to the Profit First methodology. This resistance is largely due to some myths about the impact of Profit First on business owners and the financial professionals who serve them. Understanding the truth behind these myths and misconceptions might just change your mind about Profit First.
Myth #1: All those bank accounts create more work
The most common objection I hear about Profit First is that the multiple bank accounts create additional work for the bookkeeper. When Profit First is improperly implemented, this is absolutely true. However, when the Profit First bank accounts are used as intended, there is a minimal number of transactions – typically fewer than six per month – in three of the five foundational bank accounts. It takes less than a minute per month to reconcile the additional accounts.
Myth #2: It would be better for my clients to learn to read their financial statements
I agree, business owners should learn to read their financial statements. However, after more than 20 years of trying to teach business owners to rely on their financial statements rather than their bank accounts to make business decisions, I’ve discovered the small business owner who will actually do this with any regularity is rare.
Profit First lets your client run their business without emailing you every time they want to make a large purchase – or worse, calling you in a panic because they overdrew their bank account. Now, instead of explaining their budget to them again, you can use your financial statement review discussions with the client to guide them in long-term strategic decisions for their business. This, in turn, increases your value in the client’s eyes.
Myth #3: Profit First wasn’t written by a financial professional, so it’s not “true” accounting/bookkeeping
This one is true. Profit First wasn’t written by an accountant or a bookkeeper, and it’s not accounting – it’s a cash management system. Profit First resonates so well with business owners because it was written by a business owner who experienced the struggle of not understanding accounting and found a way for cash management to make sense to non-accountants.
And this works to the advantage of accountants and bookkeepers, too. The Profit First methodology helps us bridge the gap between our knowledge and our clients’ understanding. It serves as a translation guide between what we say and what our clients hear. With a common language in place, we can make a bigger impact for our clients.
Myth #4: Profit First undervalues bookkeeping and accounting
The Profit First methodology doesn’t rely solely on accounting, but good bookkeeping is the foundation of a successful Profit First implementation. Without solid bookkeeping in place, a business owner cannot accurately determine how much money they should be allocating for taxes, what they should be paying themselves, and how much profit they should have in order for their business to be deemed truly healthy. Profit First doesn’t undervalue bookkeeping…if anything, it underlines the value of working with a quality bookkeeper.
Profit First also increases the need for business owners to work with a forward-thinking tax advisor. As a business’s profits increase, so does its tax liability. Business owners implementing Profit First are encouraged to work with a tax advisor who will help them keep more of their hard-earned money, while ensuring they are setting aside adequate cash to pay their tax bills.
Myth #5: Business owners don’t need a professional to help them with Profit First
This is similar to saying anyone can read a book about bookkeeping and be a good bookkeeper. Or that anyone can read the tax code and prepare a complex tax return. There are nuances to the Profit First methodology that accountants and bookkeepers who attain Profit First Professionals certification leverage to help their clients’ attain ever-higher levels of profitability. This, in turn, positions the financial professional as the go-to advisor for the client…which helps the accountant or bookkeeper attain ever-higher levels of profitability, too.
As a long-time bookkeeper, I understand the resistance many of my fellow financial professionals have to the Profit First methodology. Profit First can seem to fly in the face of what we were taught about the “right” way to run our businesses and serve our clients. However, after implementing this system in dozens of businesses – and seeing how that implementation helped those businesses not only survive but actually thrive during 2020 and 2021 – it is essential to dispel the myths and misconceptions surrounding Profit First.