Facebook Pixel

What Is Profit First? A Simple Breakdown for Business Owners

Profit First book on stylized desk

This is Chapter One of The CFO’s Guide to Profit First: for Business Owners – a practical, strategic guide to building real profit into your business from day one.

If you’ve ever looked at your bank account after payroll and thought, “We’re doing well, so why does it still feel like we’re behind?” – you’re not alone.

This first chapter breaks down the Profit Illusion – why the standard accounting model keeps business owners stressed, and how Profit First flips the script on the standard formula of Sales – Expenses = Profit to restore control, cash flow, and clarity.

The Profit Illusion

Every entrepreneur has a moment where they look at their bank account and ask: “Where the hell did all the money go?” It usually happens late at night, after payroll clears. The client payments came in, you invoiced on time, you’ve been grinding for weeks but the bank balance still looks thin. Stress kicks in. You wonder if you missed something. You feel like you’re doing everything right, but somehow still behind.

This is the reality for far too many business owners especially those who look successful on paper. Revenue may be up. The team may be growing. But inside? It feels like you’re sprinting uphill with a hole in your pocket.

You’re not crazy. You’re just using a broken system.

The Formula That Doesn’t Work

The traditional accounting formula is this:
Sales – Expenses = Profit.

It’s how most accountants, tax professionals, and business school professors teach it. It’s baked into your P&L. But it’s dead wrong for how real entrepreneurs operate especially if you’re running a service-based business or scaling fast.

When you treat profit as what’s left over, you’re betting that discipline will win out over inertia.

But in real businesses, discipline rarely wins against inertia.

That’s where Mike Michalowicz stepped in. In his book Profit First, he flipped the formula:
Sales – Profit = Expenses.

You take your profit first. Literally. And you build your operations around what’s left.

Why This Works: It’s Built for Behavior, Not Theory

Most entrepreneurs don’t make decisions from spreadsheets. They make decisions based on what’s in the bank. That’s not laziness it’s human psychology.

Profit First works because it embraces behavioral design. We’re wired to spend what we see. When you isolate funds into separate, purpose-driven accounts, you control the cues. If your Operating Expense account only has $4,500, you don’t impulsively spend $6,000 because it’s not available. That’s scarcity bias at work. That’s the power of constraint.

In other words, it’s easier to manage money when you can visually separate what’s yours, what’s the IRS’s, and what’s the business’s. That’s why Profit First sticks even when other financial systems fail.

A Real-World Twist: The Opportunity Account

Mike’s system outlines five foundational accounts: Income, Profit, Owner’s Pay, Tax, and Operating Expenses. But in every business we run and every client we guide we add a sixth: the Opportunity Account.

Yes, it functions as an emergency fund. But calling it that misses the full picture.

Because as business owners, we don’t just face emergencies we face opportunities. A top-tier contractor suddenly becomes available. A marketing channel starts producing leads. A competitor hints they’re open to selling. These are high-leverage moves. But without cash on hand, you’re stuck watching from the sidelines or taking on risky debt.

The Opportunity Account becomes your business’s internal line of credit. You’re not just protecting against disaster you’re positioning for growth. And you’re doing it with your own money.

In our experience helping service-based entrepreneurs and CEOs of fast-growing companies, this one account has created more clarity, flexibility, and strategic execution than any spreadsheet ever has.

Case Study: Sarah’s Coaching Business

Let’s make it real.

Sarah (name change for privacy) ran a thriving coaching business. Revenue was strong. She had a full roster of clients. But she was always behind behind on taxes, behind on savings, behind on paying herself.

We helped her implement Profit First. She opened all five foundational accounts and added the Opportunity Account. She started small:

  • 1% to Profit
  • 15% to Owner’s Pay
  • 10% to Tax
  • 3% to the Opportunity Account
  • The rest to Operating Expenses

Within six months, she’d paid off high-interest credit card debt, was taking regular draws, and had over $22,000 sitting in her Opportunity Account. When a partnership opportunity came up that would double her recurring revenue, she didn’t panic she deployed her own capital. No loan. No scrambling. Just action.

That’s not theory. That’s implementation.

Your Six Core Accounts

Here’s how the full system works in practice:

  • Income Account: All your revenue lands here first. It’s a pass-through account.
  • Profit Account: This is your reward for building the business. It comes first.
  • Owner’s Pay: This is your salary consistent and planned.
  • Tax Account: This ensures April doesn’t take you out.
  • Operating Expenses: What’s left is what the business runs on.
  • Opportunity Account: Your business’s buffer for risk, resilience, and big moves.

It’s that simple. The complexity lives in your habits, not the math.

This Book Is Your Field Guide

Mike’s book gave you the foundation. This is your field guide. We’re going to take you from the concept into the real world. You’ll see how to set it up, tailor it to your business model, and scale it with confidence.

We’ll walk through:

  • How to actually set up your accounts (and avoid the biggest mistakes)
  • What to do if your numbers don’t “fit” the standard percentages
  • How to apply Profit First if you’re an S Corp, a law firm, an agency, a SaaS company or anything in between
  • How to layer Profit First with strategic finance, forecasting, and fractional CFO support as your business grows

We’re not here to sell a dream. We’re here to help you build a business that actually works.

Your First Step

You don’t need to set up six bank accounts tomorrow. Just start with a thought experiment:

If your money was divided into these six categories today, what would those balances look like?

Which one would be empty? Which one would be too full? Could you see yourself running the business from those constraints?

That’s your first insight. It’s the start of getting clarity and taking control.

Next, we’ll walk through exactly how to set up the accounts, avoid the biggest mistakes, and take the stress out of setup.

Let’s build the system.

This was a chapter form the upcoming ebook The CFO’s Guide to Profit First: for Business Owners.