Updated: Dec 18, 2021
When I went to college, I learned to account like this:
Revenue - Expenses = Profits
What does this mean?
You go out and sell a bunch of stuff. That's your revenue.
Then, you deduct your expenses. You pay your employees, your bills, and all of that stuff.
Once you've gone out and sold stuff and paid everything off, there's money left over for ME! YEAY!
The only problem was....many times there was no profit left over for me. Everyone else got paid, but I didn't.
So then, the next money I would try harder - Sell more, pay everything off, and hopefully this month I can pay myself.
This went on for years...and years...sometimes paying myself, but most of the time not having enough.
Those of us that are "college-educated" in accounting are left wondering if owning a business is actually worth it. And when there's no money left over, we're thinking "man, I'd rather be the employee that gets the money first than the owner who pays himself last."
If you can relate to this, then I'm about to blow your mind.
In 2018, I read a book called Profits First. The author had a different formula for accounting. It went like this:
Revenue - Owner's Pay - Profit - Taxes = Expenses
That's odd...why are the expenses the LAST thing?
The answer is GENIUS...and it's the way God wants us to manage our money.
In the profits first method, you go out and serve the marketplace with a great product or service, and you collect revenue for that. Then, pay yourself first. Next, you save some money. Then, you pay Uncle Sam (your government taxes).
Now, whatever is leftover from that, this is what you have to pay your rent, employees, and the cost of running your business.
But wait, Alex, what if there's not enough to cover rent, pay employees, and pay all the bills?
Well...then that means YOU'RE RUNNING THE BUSINESS INCORRECTLY. You're mismanaging the business. Things you need to consider are
your prices are too low
your rent is too high
you've got unnecessary expenses
you need to let go of some employees
See, if you keep paying for all of these things first, then you'll always think YOU are the problem because there's no profit at the end.
No...you aren't the problem. Your heart is in the right place. You have a great product or service. The problem is the mismanagement of what God has entrusted you. God has given you money and resources, and you're not managing it all correctly.
That's the issue.