Profit First - Why Smart Recruiters Pay Themselves First

QUESTION: I started listening to Profit First. So far, so great. What do you find to be the percentage split between income, profit, operating expense, and owner pay? Obviously, it varies on total revenue, but I expect the ratios are similar. Historically, I have been that guy, finding it, placing it, billing it, spending it, rinsing, and repeating. I started with the mindset of three bank accounts for 13 years, an operating account, taxes, and savings, but I was not committed to the savings portion. My accountant said, pay the taxes monthly so you don’t need a separate account, the scarcity mindset.

The Role of Accountants in Financial Strategy

I love my accountant. I do not go to him for strategic moving forward business decisions because everything is expensive. They look at everything, even though they understand the concept of investment. I don’t want to say they are that close-minded. I find accountants look at everything as an expense.

Analyzing Profit Margins in Recruiting Firms

What I did when I went through this is we went through a bunch of P&Ls of different sizes – I went through some of mine when I owned my recruiting firm, our coaches, our recruiting firm owners, and they pulled up some of theirs, and we looked at what we would define as usual or good.

For a solo operator, 10% profit – hold your brain – it is not that they are 10% profitable, 15% goes into the tax account, 50% goes to the owner’s salary, and 25% toward operating expenses. Operating expenses would include research, admin, training, development, and infrastructure costs, like any rent, LinkedIn, all that would go under operating expenditures. That spectrum, for example, goes all the way down to a trillion-dollar office; the owner’s salary is 13%, and their profit is 15% because now they are off a desk and they are leveraging. They are making a lot more money and just making a smaller percentage.

Implementing Profit First in Your Recruiting Business

The main thing here is, for those who are not clients, the concept of the book Profit First, and I’d recommend it for everybody, by Michael Michalowicz. If you just type Profit First into Amazon, it is probably the first book that comes up. It’s a bestseller.

You pay your profit first. Like you said, you had a savings account. I would move that to a profit account, and $25,000 comes in as a fee; you put $2,500 into the profit account as soon as it comes in. You put 25% into your operating expense account. The profit account is what you are going to use also as your cushion if you have a terrible month. Once you get to X amount of months and have overhead covered, all excess profit can be taken out of that profit account and transferred to your self-employed pension, 401(k), new boat, etc.

P.S. Whenever you’re ready… here are 4 ways I can help you grow your recruitment business:

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