How I love this time of the quarter … end of quarter Profit Distribution time!
One of the accounts Profit First companies set up is a Profit Hold account. Depending on your allocation rhythm – weekly or bi-monthly – you will be setting aside a percentage of your real revenues for “Profit.” This is different from your Owner’s Pay allocation. There’s a subtle difference between the two which is why we like clients to have both an Owner’s Pay allocation + a Profit allocation. Sometimes clients want to just lump it together. Don’t do that. That’s no fun 😊 Here’s why.
But here’s the difference: Owner’s Pay is compensation for working “in” the business. Profit is compensation for the risk that you are taking as an entrepreneur. Owner’s Pay = working IN the business as an employee. Profit = working ON the business as a shareholder. It’s your dividend for the risk capital + opportunity cost of owning the business.
Owner’s Pay provides a steady contribution from the business so that you are paid what you are worth so you can support you + your family.
Profit though … that’s the fun stuff! At the end of every quarter, you get to empty out the Profit Hold account + spend it on whatever you like!
Now, when many business owners start implementing Profit First, they might not be in the best financial space. There may be debt. That’s ok. For those companies, we still get to celebrate. We start by taking 95% of the Profit Hold account + pay it towards the outstanding debt. That’s cause for celebration in + of itself.
But we want you to get in the habit too of truly rewarding yourself for the risks you have taken as the brave entrepreneur that you are! So, even those with debt use the last 5% of their Profit Hold account for a true reward.
When I started with my Profit First journey, that 5% paid for a mani/pedi or a blowout. It wasn’t much but it still felt great. Last year, with the debt paid off, the rewards got even more fun ... a trip to Cuba!
Whatever amount it is though, wherever you are in your Profit First journey, however tempted you are to skip the end-of-quarter Profit distribution … well, just don’t! Take the distribution + get the dopamine hit that reward gives you. Because you are worth it. Because as the amount grows over time, it is a testament to how you are building a financially healthy company.
I love hearing from my clients about how they are celebrating the end of the quarter with their Profit Distributions. It makes me so proud of the progress they have made.
Let me know how you are planning to use your Profit distribution this quarter.
Cheers to you + your financially healthy company!