The Profit First Model: 6 Common Pitfalls and How to Avoid Them
🕐 Read Time 4 Minutes
If you’re a small business owner, chances are you’ve heard of the Profit First system. Developed by Mike Michalowicz, it’s a game-changer for getting your business finances in order and actually keeping more of what you earn.
Sounds great, right? But here’s the catch: many people try Profit First on their own and hit some major roadblocks. And when it doesn’t work as expected, they’re left scratching their heads, wondering if it’s the system’s fault or theirs.
Here are the top six reasons people fail at the Profit First model on their own—and suggestions for how to dodge these pitfalls like a pro.
1. Not Using Bank Accounts Properly (AKA Spreadsheet Overconfidence)
Spreadsheets are great for tracking, forecasting, and looking official in meetings. But when it comes to Profit First, spreadsheets just don’t cut it. The whole point of the framework is physically separating your money into different bank accounts, not just mentally tracking it on a fancy Excel sheet.
Why? Because when you can see your profit, taxes, and operating expenses sitting in separate accounts, you’re less likely to dip into funds that aren’t meant for today’s "business emergency" (which is usually just poor planning dressed up in drama). Trust me, spreadsheets won’t slap your hand when you “accidentally” spend the tax money on a new espresso machine for the office.
How to fix it: Open those bank accounts. Yes, it’s a pain to set up initially, but seeing those funds sitting pretty in their separate accounts is pure joy.
2. Not Setting Financial Goals (Flying Blind)
“Make more money” is not a goal. The Profit First model demands specific, measurable goals, such as the amount of profit you'll take home, the specific amount you'll pay yourself as the business owner, and the amount you'll set aside for taxes. Without these goals, Profit First is like driving without a GPS: you’re probably moving, but good luck getting anywhere meaningful.
Here’s the thing: winging it might work to decide what to order for lunch but not manage your business finances. Skipping the goal-setting step turns Profit First into just another bookkeeping chore, which means you’ll lose motivation faster than a New Year’s resolution in February.
How to fix it: Before you start allocating money, take time to set clear goals for your profit, owner’s pay, and more. These aren’t just numbers—they’re your roadmap to financial freedom.
3. Copying Your Friend’s Numbers (One Size Does NOT Fit All)
“My buddy sets aside 15% for profit, so I should too!” Nope. Just because your friend’s business is crushing it with a particular set of target allocation percentages (TAPs) doesn’t mean it’ll work for you. Copying someone else’s numbers is like borrowing their workout plan—it might look good on paper, but if you’re not starting at the same fitness level, you’re setting yourself up for failure.
Your business is unique, and so is your Profit First asset allocation. Your friend may have a low-overhead service business while you're running a product-heavy operation. Blindly copying their TAPs is a recipe for frustration.
How to fix it: Use TAPs as a guideline, not a rulebook. Start with the recommended percentages in the Profit First book, and adjust as needed to fit your business’s reality.
4. Starting Too Hard, Too Fast with TAPs (The Crash-and-Burn Approach)
Enthusiasm is great, but financial disaster is not. Jumping in at full throttle is another common misstep. Let’s say the recommended profit TAP is 15%. You decide to go all in immediately, even though your profit margin is…..well, non-existent. Newsflash: this will hurt — a lot!
Think about it. Would you run your first marathon tomorrow without any training? Although you might make it part way, it won’t end well.
How to fix it: Ease into the process. Start with smaller percentages that don’t disrupt your cash flow, then gradually increase as your business adjusts. For example, start with a modest profit TAP, such as 5%, and gradually increase it by 1% each quarter as your business adapts. Think evolution, not revolution.
5. Moving Money Between Accounts Frequently (Raiding the Cookie Jar)
One of the golden rules of Profit First is to let your money stay where it’s supposed to be. But oh no, you had an “unexpected expense” (ahem, poor planning again), and suddenly, you’re transferring money from your profit account into operating expenses. And then from taxes into profit. And before you know it, your accounts look like a chaotic game of musical chairs.
Constantly shuffling money defeats the purpose of Profit First. It’s supposed to create clarity and discipline, not act as a free-for-all piggy bank.
How to fix it: Treat each account as sacred. If you’re constantly tempted to move money around, it’s time to reevaluate your budget and spending habits.
6. Failure to Customize Accounts for Your Business (Your System, Your Rules)
Profit First is not a one-size-fits-all framework. It’s more like a choose-your-own-adventure book where your Profit First asset allocation reflects your business’s unique needs. If you’re not customizing your accounts to fit your niche and business needs, you’re missing out on the real power of the system.
For example, a lawyer might need an account for client retainers, while a tradesman might set one up for equipment replacement. Without these tailored tweaks, your system won’t fully align with your business, and you’ll be tempted to throw in the towel.
How to fix it: Think about what makes your business unique and create accounts that reflect that. Don’t be afraid to get creative. After all, this is your financial system.
The Path to Profit First Success With Financial Fitness Coaching
The Profit First model works if you work it the right way. It’s not magic, and it’s not a quick fix. However, with proper guidance, it can transform your business finances, making you more profitable and less stressed.
That’s why we created the Financial Fitness Academy—your all-in-one resource to take control of your business finances and make Profit First work for you. As a member, you’ll get access to multiple courses, including Path to Profitability, a self-paced course using the Profit First framework.
Once you’re an academy member, you’ll also have monthly calls to discuss your implementation and receive support tailored to your needs. Financial Fitness Academy also offers monthly masterclasses such as “Financial Goal Setting Like a Boss” designed to help your business thrive.
Profit First doesn’t have to be a solo adventure. Let Financial Fitness Coaching be your guide, cheerleader, and occasionally your tough-love coach when needed. So, if you’re tired of spinning your wheels trying to figure out Profit First on your own, don’t go it alone. Join our Financial Fitness Academy and learn how to make this system work for your business — and your life. Because you didn’t start your business to stress about money. You started it to thrive.