Profit First for tradies: pay yourself first
Most trade businesses work like this: money comes in, bills go out, and the owner takes whatever's left. Profit is what happens if there's anything at the end. For a lot of tradies, there usually isn't.
Flip the order
The idea behind Profit First, a method made popular by author Mike Michalowicz, is simple: take your profit first, then run the business on what's left. Instead of sales minus expenses equals profit, you work to sales minus profit equals expenses.
It sounds like a small change. It completely changes how you make decisions, because the business has to learn to run within its means.
Why it suits trade businesses
Trade income is lumpy. A big progress payment one month, nothing the next. When everything lands in one account, a big payment feels like a windfall and gets spent. Splitting money as it arrives stops that happening.
The basic setup
The method uses separate bank accounts, each with one job:
- Income: everything is paid in here first
- Profit: a set percentage put aside every time
- Owner's pay: a regular wage for you
- Tax: GST, PAYG and income tax, so the ATO's money is never yours to spend
- Operating expenses: what the business runs on
On a regular schedule, often twice a month, income is split across the accounts by set percentages.
Getting the percentages right
This is where most people get stuck. The right percentages depend on your trade, turnover, margins and what the business is carrying right now. Too aggressive and you'll run short on job costs. Too loose and nothing changes.
It also only works if your pricing is right. If jobs are underquoted, there's no profit to take first, no matter how many accounts you open.
Pay yourself like an employee
One of the biggest shifts is treating your own wage as a fixed cost of the business. If the business can't pay you fairly for the hours you work, that isn't a cash flow problem. It's a pricing and structure problem, and it's worth fixing.
We help tradies set this up properly, with percentages that fit their business and a pricing system that makes them achievable.
General information only, not financial, tax or legal advice. Speak to your accountant or adviser about your own situation.