The Profit-First Budgeting System

Have you ever had a record sales month and still felt broke?

It’s not a sales problem.
It’s probably not even a cash flow problem.
More than likely…it’s a budgeting problem.

Most entrepreneurs budget like this: make money, spend money, hope something’s left.

The problem?

An optimistic entrepreneur’s ability to spend will always outpace their ability to earn, because business owners like us will always find a “good” reason to spend money…

…new hires, new tools, new ad channels…they all make sense in isolation.

(They’re also what’s keeping you broke.)

And that’s why you need to implement the same Profit-First Budgeting System we use inside our $200M portfolio to ensure profit happens...every single month.

This model comes from Mike Michalowicz’s excellent book, Profit First, and the framework is simple, but powerful: Revenue – Profit = Expenses

In other words, you decide your target profit first, then allocate the remaining revenue to fund your operations. Whatever’s left after profit becomes your spending cap.

Here’s how it works…

Start by setting your desired profit margin as a percentage of revenue.

Not sure where to start?

Default to 20%…it’s an achievable target in most industries.

Want to get more strategic?

Use the “Rule of 40,” which states that your profit margin + your growth rate should equal at least 40.

For example, if you're growing 25% YoY, aim for a profit margin of at least 15% (but more is obviously better). If you’re growing at only 10%, you should be targeting at least 30% profit.

Let’s say your average monthly revenue is $250,000.

That $200,000 is your ceiling. It doesn’t matter how compelling the pitch or shiny the new tool...if it busts the cap, it’s a “No.” Bake the profit in at the top, and force every department to work within what’s left.

Next, break down the $200K into spending buckets using fixed ratios. For example:

…you get the idea.

Make sure the total (plus your profit) equals 100%. If it doesn’t, trim fat until it does. This keeps you honest and forces hard conversations early…before the cash is gone.

Why This Works (Even If You Hate Budgeting): This model doesn’t require a finance degree. You don’t need a CFO. You don’t even need a clean P&L (although it helps).

What you need is discipline at the top, not accuracy at the bottom. When profit is non-negotiable, decision-making becomes simple:

⚡ Action Step: Open a spreadsheet. Enter your average monthly revenue. Subtract 20% (or your chosen target) as profit. Allocate what’s left across your major expense categories. If the math doesn’t work, adjust spending…not your profit. Because profit doesn’t happen all on its own…you have to plan for it.

P.S. If you’re looking for a tool to help you with the budgeting and expense allocation process, this is the one we use…it’s free.

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