An important aspect of the Profit First Methodology is for the business owner on the first day after the end of a quarter,to take a Quarterly Profit Distribution.
Let me explain: By implementing Profit First on the first day of each new quarter (or the first business day after), you, will take a profit distribution. This is done by adding up the total amount of profit in the Profit Account, taking 50% of the money as a profit distribution with the other half remaining in the Profit Account, as a reserve.Welcome to the big league. Also by implementing Profit First you will take a distribution every quarter, just like large public companies do. They announce their quarterly income and then distribute a portion of the profits to their shareholders and that is exactly what you are going to do, when you implement Profit First, (see, you are all grown up now).
Quarterly is a great rhythm, by the way. It is a long enough time between distributions that you start looking forward to them, anticipating them. But it is not so frequent that they come to feel like a normal part of your personal income. Every quarter, you will take 50% of what is in the account, and leave 50% alone. For example, let’s say you have saved $5000 in your Profit Account during the first quarter of implementing Profit First. On the first day of the new quarter, you will take $2500 as a distribution to the equity owners and leave the other 50% intact.
If your company has multiple owners, the distributed profit is divided up based on the percentage owned by each equity owner. Following the above scenario, if you own 60% of the company, another partner owns 35% and an angel investor owns 5%, the distribution would be $1500 (for you, the 60% owner), $875 (for the 35% guy) and $125 (for the investor).
The key is this: The profit distribution may never go back to the company. You can’t use a fancy term like “plowback” or “profit retention.” No term you use will cover up the fact that you are stealing from Peter to pay Paul.
Your business must run on the money it generates for its operating expenses. The plowback of profits means you aren’t’ operating efficiently enough to run on the operating expenses. And
if you give the profit back, you won’t experience the very important reward of your company serving you. You will just be letting the monster loose again. So always take your profit, every quarter, and use it for your own purposes. It’s celebration time!
Celebration Time! When you take your profit distribution, the money is only to be used for one purpose: for your personal benefit. Maybe you go out for a nice dinner with your family. Maybe you get that awesome new couch you have your eye on. Maybe you go on a dream vacation.
Whatever it is, you must use your profits on you! Why? Because every quarter, with every profit you celebrate, you will fall more and more in love with your business.
The quarters, for New Zealand, for each and every year are as follows:
Quarter 1 – 1 April to 30 June
Quarter 2 – 1 July to 30 September
Quarter 3 – 1 October to 31 December
Quarter 4 – 1 January to 31 March
Not Paying a Profit Distribution?
If you aren’t paying yourself a Quarterly Profit Distribution, you can start today. Take action, contact us for a free no obligation consultation on how.
For more information on “What is Profit First” Click Here.