Businesses usually use the traditional way of separating profits from the total income. They spend the income on expenses first and get the profit later. A Profit First Calculator uses a whole new approach. It lets businesses keep the profit first so that they can manage the expenses more efficiently.
These calculators have become famous for new businesses. That is because they let them manage their expenses without compromising the profit.
This blog is going to be all about Profit First Calculator tools. We will discuss how to use it as well as its benefits. So, let’s start.
Introduction to Profit First Calculator
A Profit First Calculator is an online tool designed to help businesses allocate their income to different expenses. Its main function is to set aside a certain percentage of profit first. This helps businesses enjoy the fruit of their work before the money goes to the expenses.
![](https://www.businessjem.com/wp-content/uploads/2024/05/image-17-1024x503.png)
This tool works according to the Profit First System.
It’s a complete strategy that forces businesses to adopt a mindful spending approach. Since the profit is taken already, they have to be careful about the expenditures. If they’re not, they may run out of money.
It’s a strict and well-managed strategy. If followed the right way, it can benefit massively.
Handling a large number of costs might make it challenging to manually use this method. To help yourself with it, you can use a Profit First Calculator.
It automates all the calculations for you. This saves you time and helps you manage your income precisely.
How to Use a Profit First Calculator?
Using a Profit First Calculator is easy. That is because you just have to input the values of your profit and expenses. It does the rest of the job itself. Let’s see how to actually use it:
Step – 1:
The first step is finding the right calculator. There are a few good calculators available on the Internet. You can try the one that you like. As for us, we’re going with Royer Accounting’s Profit First Calculator (https://www.royeraccounting.ca/profit-first-calculator/).
Step – 2:
In the second step, you have to evaluate your income, profit, and expenses. These values can vary according to your business nature. Besides this, you also need to evaluate the amount of tax that you have to pay.
Step – 3:
Now, we have to input these values into the calculator. We’re going to do it all hypothetically.
Let’s say you run a business that has generated a total income of $50,000. Input this value in the “Income Received” section.
![](https://www.businessjem.com/wp-content/uploads/2024/05/image-12.png)
Again, hypothetically, the material cost you a total of $22,000. It goes in the “Materials and Subcontractors” section.
![](https://www.businessjem.com/wp-content/uploads/2024/05/image-13.png)
You can see that the calculator is indicating $28,000 of real revenue. Now, we’re going to input the profit and expense values.
![](https://www.businessjem.com/wp-content/uploads/2024/05/image-14.png)
The values we input are:
- Profit %: 10
- Owner’s pay %: 2
- Tax %: 5
- Operating expenses %: 50
- Other Account (B) %: 7
Step – 4:
Now, you can note down the calculated values. On the far-right side, you can see the amount of expenses in dollars. The tool also tells the remaining account balance as well. In this way, you can start calculating your profit and expenses using the Profit First System.
![](https://www.businessjem.com/wp-content/uploads/2024/05/image-15.png)
Benefits of Using Profit First Calculator
The benefits of using a Profit First Calculator are discussed below:
Simplified calculations:
As we have mentioned earlier, calculating these values manually is very difficult. This calculator simplifies them. You don’t have to worry about converting percentages into numbers for each expense. Just input the values and this tool will convert them for you.
Get paid first:
As a business, you can get paid first using this calculator. Once the income arrives, you can calculate what amount you get to keep as a profit. This keeps businesses, especially the small ones, motivated to work more passionately.
No compromise on expenses:
You don’t have to compromise on your expenses using this tool. That is because it allows you to have a complete overview of the remaining money. After that, you get to allocate a specific amount for each expense. This helps your business keep on running smoothly.
Things to Keep in Mind
Some important things you should keep in consideration regarding this tool are listed below:
- Be careful while allocating the expenses. This will help you make precise calculations.
- It’s not a rigid system. You can make changes to it according to your requirements.
- Try to use a famous calculator. That is because they often give precise calculations.
- If you’re a new business, try to keep less profit. Otherwise, there may not be enough money to pay all the expenses.
- If you’re having a hard time making these calculations, take the help of an accounting professional.
Read also: Signs that You Should Seek Financing for Your Small Business
Conclusion
A Profit First Calculator helps businesses enjoy their earned profit before spending the income on expenses. It works on the basis of the Profit First System. You can allocate the income to different expenses with this tool. It automates this whole process so that you don’t have to struggle do it manually.
Frequently Asked Questions (FAQs)
Yes. The Profit First System is effective if you are careful with allocating the expenses.
Yes. Most of these tools are entirely free to use.
Yes. Taking profit first can compromise your expenses. That’s why you have to be precise about all the calculations.
Indeed. You can do all these calculations manually as well. However, it can be difficult and time-consuming.