Faith. Money. Families.

a guide to a better way of running your business money.

Understanding Profit First.

A business money management system created by Mike Michalowicz, plus a free tool to find your monthly percentages.

a quick note before we begin

Most business owners were never taught how money is supposed to move through a business. We were taught to earn revenue and watch it disappear into expenses. This page walks through a different approach, one that puts you back in control of your business income before a single bill gets paid.

In this guide

  1. 01What is Profit First?
  2. 02Why the standard business money formula breaks down
  3. 03The five accounts and what each one does
  4. 04Where percentages come in
  5. 05Using the free percentages tool
  6. 06Frequently asked questions

01Section One

What is Profit First?

Profit First is a business money management system built on one idea. Take care of the most important things before you spend on anything else. Instead of paying business expenses first and hoping there is profit left at the end of the year, you flip the order. Profit, taxes, and your owner pay come first. Operating expenses come last, and they have to fit inside what is left.

The system was created by Mike Michalowicz and laid out in his book Profit First. It was designed specifically for small business owners, including solopreneurs, freelancers, service providers, and anyone running their own thing.

The system works because it stops relying on willpower. You are not trying to remember to save for taxes. You are not trying to budget what is left at the end of the month. The money is already where it needs to be, before the temptation to spend it shows up.

02Section Two

Why the standard formula breaks down.

The way most business owners learned to handle money looks like this:

The traditional formula

Sales − Expenses = Profit

Bring in revenue. Pay every business expense. Whatever survives is your profit.

In theory, this is fine. In practice, it almost never works. Business expenses fill whatever space you give them. If a software subscription could be paid, it gets paid. If money is sitting in the operating account, it gets spent. There is a name for this, called Parkinson’s Law, and it explains why some businesses double their revenue and still feel broke at the end of the year. The income grew, but the expenses grew right along with it. Nothing was set aside first, so nothing was protected.

Profit First fixes this by reversing the equation:

The Profit First formula

Sales − Profit = Expenses

Bring in revenue. Set aside profit, taxes, and your owner pay. Run the business on what is left.

The math is the same. The order is what changes. And that small change is what turns “I will save when I can” into “saving already happened, automatically.”

03Section Three

The five accounts, explained.

When revenue comes in, it gets divided across five separate bank accounts. Each one has a single job. The accounts make the system real, because instead of trusting yourself to remember categories, you let the bank do the dividing for you.

Account One

Income

The holding account. All revenue lands here first. Nothing gets spent from this account. Twice a month, on the 10th and the 25th, you transfer the money out into the other four accounts based on your percentages. This account is the gatekeeper that keeps the rest of the system honest.

Account Two

Profit

A percentage that gets set aside before anything else. This is the reward for taking the risk of running a business. Every quarter, you take half of what is in this account as a profit distribution to yourself. The other half stays as a buffer for the business. This is the account that turns “I own a business” into “my business pays me back.”

Account Three

Owner’s Pay

The money that pays you for the work you do in the business. This is what shows up in your personal checking account on a regular schedule, the same way an employee would get paid. It does not get borrowed from to cover a business shortfall. Your work earns your living, and this account makes sure that actually happens.

Account Four

Tax

Money set aside the moment revenue arrives, so tax season is a non event. No scrambling, no surprise bills, no payment plans. The money was always going to belong to taxes. This account just makes sure it does not accidentally get spent on something else first.

Account Five

Operating Expenses

Whatever is left after the first four accounts get their share. This is what runs the business day to day. Software, marketing, contractors, supplies, the whole list. It has a real ceiling, because you cannot spend more than what is in the account. When this account starts feeling tight, that is the system telling you to cut expenses, not the system being broken.

04Section Four

Where percentages come in.

The five accounts only work if you know how much to send to each one. That is where percentages come in. Profit First uses what are called Target Allocation Percentages, recommended starting splits based on your annual revenue range. A business earning $100,000 a year does not allocate the same way as one earning $1 million. The percentages shift as the business grows.

The percentages also are not meant to be perfect on day one. Most business owners start with smaller numbers, sometimes as little as 1 percent to profit, and grow from there. The goal is not to hit the target percentages immediately. The goal is to build the habit of dividing the money before spending it. Once that habit is in place, the percentages can climb.

Knowing your percentages is the first step. The free tool below does that math for you.

05Section Five

Using the free percentages tool.

The tool takes your business revenue and shows you the recommended percentages and dollar amounts you should be moving into each of the five accounts every month. Three steps:

Step One

Enter your monthly revenue

Use whatever monthly business revenue figure you actually know. If your income varies month to month, use a recent average to start.

Step Two

See your monthly splits

The tool shows the percentage and dollar amount that should go into each of the five accounts every month, based on your revenue range.

Step Three

Build your accounts

Take those numbers to your bank and open the five accounts. From there, every time revenue comes in, you split it according to your percentages on the 10th and 25th of each month, and let the system do the work.

when you’re ready

Find Your Monthly Percentages.

It takes about two minutes. No email, no signup. Just your monthly revenue in, and your numbers out.

Open the Tool →

— frequently asked —

Profit First Questions Business Owners Ask.

What is Profit First?
Profit First is a business money management system created by Mike Michalowicz that flips the traditional money formula. Instead of Sales − Expenses = Profit, it uses Sales − Profit = Expenses. Revenue is divided across five separate bank accounts the moment it arrives — Income, Profit, Owner’s Pay, Tax, and Operating Expenses — so the most important things are protected before a single bill gets paid. The Faith Money Families Profit First Percentages tool helps small business owners find the right monthly splits based on their revenue.
Is Profit First only for big businesses, or does it work for solopreneurs?
Profit First works at any revenue level, including freelancers and solopreneurs earning under $50,000 a year. Mike Michalowicz designed the system specifically for small business owners, and the Target Allocation Percentages start at the $0 to $250,000 annual revenue bracket. The Faith Money Families Profit First Percentages tool calculates the right splits for your specific revenue, whether you bring in $1,000 a month or $100,000.
Do I really need five separate bank accounts?
Yes. The five accounts are what makes Profit First work. Each one has one job — Income holds incoming revenue, Profit holds your reward, Owner’s Pay funds your salary, Tax holds money owed to the government, and Operating Expenses runs the business. Most banks let you open multiple checking accounts at no extra cost. Mike Michalowicz also recommends keeping the Profit and Tax accounts at a separate bank, so they’re physically harder to dip into when the business gets tight.
What if my expenses are already higher than the recommended percentages?
This is the most common situation, and Profit First is designed for exactly this. You start with smaller percentages — sometimes as little as 1 percent to profit — and increase them gradually each quarter while reducing operating expenses by the same amount. The goal is not to hit the Target Allocation Percentages immediately, but to build the habit of allocating money before spending it. Over a year or two, your percentages climb until they match the targets, and your operating expenses shrink to fit what is left.
How do I figure out the right percentages for my business?
Profit First uses Target Allocation Percentages based on annual revenue brackets. A business earning under $250,000 a year allocates differently than one earning $1 million. The free Faith Money Families Profit First Percentages tool does the math automatically — enter your monthly revenue and it returns the recommended percentages and dollar amounts for all five accounts based on the exact bracket you fall into.

Profit First is a business money management methodology developed by Mike Michalowicz. This page is an educational summary intended to introduce the system to business owners. For the full method, his book Profit First: Transform Your Business from a Cash-Eating Monster to a Money-Making Machine is the original source.