Being Profit First Professionals, we deal with percentages a lot. Our allocations into the profit account, tax account, opex account, and others are all done based on percentages. Although it seems mundane, this is a very important distinction. It prevents us from allocating based on feelings.
It doesn’t matter how much you make, your profit account always gets 2%, or 5%, or whatever it may be. This applies to all of our clients. If we instead did it by income amount, we would be allocating an arbitrary amount to each account based on what we feel we need. Percentages prevent us from allocating too much or too little into each account.
Big numbers can often hypnotize us and confuse us. For example, let’s say your total income is $489,848.88 and you allocate $18,595.66 to profit. Do you understand how much you actually allocated to profit without a calculator? Me neither. Humans tend to have a hard time visualizing large numbers. However, 100% is much easier to visualize. You understand that if you allocate 2% to profit, you have 98% left for other things.
Start thinking more in percentages when it comes to your business. They are much easier for humans to understand, and you will have a better handle on your business. Without percentages, you allow yourself too much room to allow your feelings to make your allocations, and this can be a fatal mistake.