Running a restaurant or café is no small feat, and money management can often feel like a juggling act. Between managing payroll, paying suppliers, and staying on top of bills, it’s easy for profits to get lost in the shuffle. That’s where the Profit First methodology comes in—a simple yet powerful system that helps you prioritize profit and take control of your cash flow.
If you’re a café or restaurant owner looking for a better way to manage your finances, this blog will introduce you to the Profit First approach and offer a few easy tips to help you get started.
What is Profit First?
The traditional accounting formula goes like this: Sales – Expenses = Profit. Basically, profit is what’s left over after you’ve covered your expenses, but in reality, many businesses find that there’s little to no profit left at the end of the month.
Profit First flips the equation: Sales – Profit = Expenses. This method ensures that you take profit first—right off the top—so it’s no longer an afterthought. By doing this, you’ll have a clearer view of how much money you have left to cover expenses and run your business within those limits. It forces you to be more intentional with your spending, and let’s face it, who doesn’t want to be more profitable?
How to Get Started with Profit First in Your Restaurant
Implementing the Profit First system in your restaurant might seem overwhelming at first, but with a few simple steps, you can start seeing positive changes quickly. Here are some easy tips to help you get started:
1. Set Up Separate Bank Accounts
To make Profit First work, you’ll need to create several bank accounts for different purposes. Here are the key ones:
- Income Account: This is where all your sales revenue goes before being allocated.
- Profit Account: Take a percentage of your revenue and put it here first—yes, before anything else!
- Owner’s Pay: You work hard, so make sure you’re paying yourself regularly.
- Operating Expenses: The money left here is what you’ll use to cover your daily expenses, like food costs, wages, and utilities.
- GST Account: Set aside a portion of your revenue specifically for your GST obligations. This way, you’re always prepared when tax time rolls around.
- Tax Account: This account is specifically for setting aside funds to cover other taxes, such as income tax or payroll taxes. By putting money into this account regularly, you’ll ensure that all your tax obligations are covered without any surprises.
By allocating your income this way, you can see exactly where your money is going and make sure you’re setting aside enough for each area of the business.
2. Start Small and Increase Gradually
Don’t feel like you have to overhaul everything overnight. Start by allocating just 1-5% of your revenue to your Profit Account. As you get used to the system, you can gradually increase these percentages until you’re saving more for profit, taxes, and owner’s pay.
3. Reconcile Your Cash Daily
In restaurants, cash flow moves fast. One simple but effective habit is to reconcile your cash drawer and POS sales daily. This helps you keep track of what’s coming in and what’s going out, ensuring you’re not letting small discrepancies add up over time.
4. Keep an Eye on Expenses
When you limit your operating expenses based on what’s left after taking profit and paying yourself, you’ll find ways to cut unnecessary costs. Ask yourself: Do you really need that extra subscription service? Can you negotiate better deals with suppliers? The Profit First system pushes you to be more mindful of your spending.
