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In the first episode of season two, we answer your biggest questions from last season — “What are Profit First accounting principles?” and “How do they help law firm owners become more profitable?”
To answer those questions, RJon explains how Parkinson’s Law, the Primacy Effect, and Plate Size are foundational frameworks for Profit First methodology. Understanding these key concepts is a must for law firm owners ready to kick the ‘profit last” mentality to the curb and embrace profit first.
Parkinson’s Law: The demand for resources will always expand to match its supply. Which is why adopting Profit First accounting principles forces businesses to creatively operate within smaller operating expense budgets by allocating profit first.
The Primacy Effect: We pay more attention to what comes first and ignore the rest. As business owners traditionally put profit last, Profit First reverses the order from:
Sales/Revenue – Expenses = Profit
to
Sales/Revenue – Profit = Expenses
Thus making the act of taking profit a habit rather than an event.
Plate Size: Portion control refers to more than just a meal. Using an analogy of plate size affecting food portions, RJon explains how Profit First uses separate income accounts to control profit “portions”, limit expenses, automatically set up reserves for annual expenses like taxes, and more.
Listeners of the Profit First For Lawyers podcast are invited to attend an upcoming Profit First for Lawyers Workshop.
The free one-day events are for law firm owners who are serious about making their law firm more profitable. Join us at our next live workshop.
Key Takeaways
- Put profit as the top priority before covering expenses
- Focus on what comes first
- Use smaller “plates” or accounts to portion control your business finances
- Automate your profit first allocations
Links Mentioned
Podcast episode resources
Reserve your seat at the Profit First for Lawyers Workshop
Mike Michalowicz and the Primacy Effect (Ep. 42)
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