Mike Michalowicz Profit First Allocation

Follow the Profit First allocation routine twice monthly to distribute business revenue across dedicated accounts for profit, tax, owner compensation, and operating costs.

5 time blocks, 30 minutes in total.

Time blocks

Income Account Audit: 5 min
Check the total incoming balance in your main deposit account
Target Percentage Calculations: 10 min
Multiply total income by your fixed percentage targets for each bucket
Internal Account Transfers: 5 min
Distribute funds into Profit, Owner Comp, Tax, and OpEx accounts
Secondary Storage Isolation: 5 min
Move Profit and Tax reserves to a separate bank to avoid temptation
OpEx Disbursements: 5 min
Pay outstanding invoices and recurring vendor bills strictly from OpEx

About this routine

Author Mike Michalowicz introduced a cash management method that flips traditional accounting on its head. Instead of subtracting expenses from revenue to find profit, his Profit First allocation routine secures profit immediately upon receiving income. On designated transfer days, small business owners log into their bank accounts and distribute accumulated revenue across target allocations.

The system relies on human behavior rather than willpower. By dividing top line revenue into separate accounts for Profit, Owner Compensation, Tax, and Operating Expenses, you establish hard operational limits. Operating expenses must fit within whatever cash remains in the OpEx account after all allocations are made.

Running this 30 minute process on a visual timer helps maintain momentum and prevents overanalyzing individual line items. Performing allocations twice a month keeps financial clarity high while establishing steady rhythms for owner pay and tax reserves.

Why this routine works

Ensures immediate profitability on every dollar earned
Removes guesswork from tax reserves and owner compensation
Enforces strict spending boundaries on operating costs
Establishes a predictable twice monthly financial rhythm

FAQ

What is the Profit First allocation routine?

It is a bi weekly cash management process where business revenue is split into designated accounts for profit, owner compensation, tax, and operating expenses before paying any bills.

How often should you do Profit First allocations?

Mike Michalowicz recommends performing allocations twice per month, typically on the 10th and 25th days of the month.

How long does a Profit First allocation take?

A routine transfer session usually takes 30 minutes once account percentages and bank accounts are set up.

Sources

Profit First: Transform Your Business from a Cash Eating Monster to a Money Making Machine, by Mike Michalowicz