Implement Profit First

I just finished reading Profit First: Transform Your Business from a Cash-Eating Monster to a Money-Making Machine and it’s the first time I’ve read anything about cash flow management that makes intuitive sense to me. It also pairs well with Beyond Budgeting because it makes visible exactly what we have available! I have a good feeling about Profit First and think it could be what we use as we budget! Check a summary of it out: An Accountant’s review of Profit First. | by Jason Andrew | Stark Naked Numbers | Medium and/or watch the speech.

@Nandy @insiyalambe @michael

We would need to adjust for a nonprofit context as we do not have owner disbursements or government taxes. I played around with the following account breakdown but am currently seeking advice from people who do Profit First because I have no gauge of if this is “correct” or not.

#1 COMMUNITY Fund

  • 1/2 will be used for community celebration (e.g. party that’s free for our whole community)

  • 1/2 for savings to be moved into the Vault

#2 PEOPLE Fund

Anything that goes to people: Employees, Contractors, Volunteer stipends

We don’t have owners as a nonprofit but we do have people who need financial support to make organizing sustainable. We’ll need to break this account up eventually because there’s a difference between all three but not sure how to do that yet.

#3 INVESTMENT Fund (instead of Taxes since we don’t have that) (or should this be removed entirely?)

  • Vault (and after vault number is reached, then place in innovation fund)

  • Innovation (to invest in new projects)

#4 OPERATIONS Fund

DRIP Account

  • Especially useful for large grants

Questions I’ll ask a Profit First Professional

  • What accounts make sense?
  • How does this work with cash versus accrual accounting?
  • How do we handle restricted grants?
  • Why separate out people versus operational expenses?
  • How does this work with classes: admin, fundraising, program?
  • How do we keep our bookkeeper and bank reconciler sane?
  • How does this work with financial controls?

Meeting with Ben at Open Collective

Open Collective Inc (the organization) uses Open Collective in a way that’s likely similar to how we want to allocate resources transparently.

They have a collective which has connected collectives for teams like their engineering team.

Open Collective Foundation and Open Source Collective are fiscal hosts that may act very similarly to how we would act as a host.

The most helpful things I got from the conversation

  1. Hosts have two bank accounts. One for ops (own spending) and one for the projects they support.
  2. Open Collective the platform is just a reflection of your bank account. It’s a ledger. Money comes from organizations and individuals and is managed by collectives.

Notes from Moxie Bookkeeping, team Ean and Eowyn.

Next Steps
Chat with Stephen Rye Switzer! About - Rye Financial. Moxie Bookkeeping had worked with their previous organization, Third Root Collective, a coop: https://thirdroot.org/
Talk with Cynthia who’s all about career coaching for BIPOC women and non-binary folks: https://embracechange.nyc/
Check out Profit First For Minority Business Enterprises

The Plates
In the non-profit context, don’t think about replacing what Profit First recommended as categories, but rather subtracting and adding. Subtract profit and tax account. Add what else makes sense. Have this be a strategy conversation with the Board. The idea is health, stability, cash flow.

Some thoughts

  • Take care of program staff first then distribute for innovation
  • What was owners compensation, make that executive compensation because you’re doing everything. As the organization grows, that percentage will shift away from director to staff.
  • Keep separate bank accounts. Want that to be a reality. And, want people to be able to just see the bank account and make the decision, not to have to wait for a report.

I just finished reading Profit First for Minority Entrepreneurs.

This stood out to me

**When evaluating whether or not to take on a project **

  1. Can you achieve your target allocation percentages based on the bid amount?
  2. Total revenue - materials and subcontractors = tax + profit + owners compensation + operating expenses
  3. Can you achieve this target revenue and operate comfortably without being forced to use the cheapest labor or highly discounted equipment?
  4. Can you bring your product or service to market for this contract, for the price you are offering, in a way that makes you feel proud?

Makes me think what our guidance is for circles when they enter their own contracts. What’s the target allocation percentages?

Updated Profit First Funds

#0 INCOME HOLD
This replates the DRIP Account. We use this collective to document what funds needs to be moved out of Income first before it moves through the profit first allocations.

#1 COMMUNITY Fund
This continues to be the celebration fund! And perhaps a fund that is used to support partner organizations. However, I’m thinking we won’t do that 1/2 for savings to be moved to Vault because it complicates the entire process. Instead, we’ll just use the next fund.

#3 RESERVE Fund
This will be what we’ll use to build up the reserves needed to protect YPC from revenue losses and emergencies.

#4 CORE Fund
These funds are used for recurring expenses needed to keep YPC running. As in, we need this role or operation filled at all times or YPC ceases to have its basics. Examples include making YPC financially accessible to general circle co-coordinators, website hosting, etc.

#5 OPERATIONS Fund
These are collaborative funds that can be drawn on for whatever projects come up.

MOVEMENT TRAINING Fund
This is a fund set aside with grant money from The Rising Foundation which is restricted for Movement Training purposes.