The Profit First for Contractors (PFC) Cash Management System
Take your profit first, then operate on what remains
Profit First for Contractors flips the traditional accounting formula from Sales - Expenses = Profit to Sales - Profit = Expenses. Instead of hoping profit materializes after all bills are paid, you allocate profit first from every deposit and force your business to operate on what remains. This constraint reveals inefficiencies, forces expense cuts, and guarantees profit accumulation.
The system uses five dedicated bank accounts (Income, Profit, Owner's Comp, Tax, and Total OPEX) as 'small plates' that make your cash position visible at a glance. Every deposit flows into the Income account and is then distributed to the other accounts based on predetermined Percentages of Total Revenue (PTRs). You pay bills only from the OPEX account, creating a natural constraint that prevents overspending.
The PFC adaptation for construction businesses translates Mike Michalowicz's original 'real revenue' Target Allocation Percentages (TAPs) into PTRs based on total revenue, which is simpler because contractors don't have to subtract materials and subcontractor costs from each deposit before allocating. This makes the system executable with every check that comes in.
- Profit is not an event; profit is a habit that must be built into every project and every deposit
- Use small plates: separate bank accounts create natural spending constraints through Parkinson's Law
- Serve sequentially: allocate to Profit, Owner's Comp, and Tax before paying operating expenditures
- Remove temptation: move Profit and Tax accounts to a separate bank to prevent raiding them
- Enforce a rhythm: allocate funds on the 10th and 25th of every month to create predictable cash flow management
- Set Up Five Foundational Bank AccountsOpen five checking accounts at your primary bank: Income, Profit, Owner's Comp, Tax, and Total OPEX. Nickname each account so they are instantly identifiable when you log in. Your existing primary account can be renamed to Total OPEX.Pro tipSet up a second 'no-temptation' bank at a different institution for your Profit and Tax accounts, making it harder to raid these funds.WarningDo not try to track PFC in a spreadsheet or in your head. The physical separation of money into different accounts is what makes the system work psychologically.
- Complete the Initial AssessmentUsing your P&L from the last 12 months, calculate your Real Revenue (Total Income minus Materials and Subcontractors), then determine Target Allocation Percentages (TAPs) from the Profit First tables. Translate TAPs into Percentages of Total Revenue (PTRs) by dividing the dollar targets by your total revenue.Pro tipDon't let missing data stop you. Make assumptions, mark them, and update later with better information. The initial assessment is a starting point, not the final answer.WarningIf your P&L shows a profit but you've been paying yourself through owner's draws rather than salary, your true net profit is likely negative once you account for the value of your labor.
- Set Day One Current PTRs (CPTRs)Take your historical percentages (Day Zero) and add just 1% to Profit, Owner's Comp, and Tax. Reduce Total OPEX by the cumulative 3%. These are your starting Current Percentages of Total Revenue that you will use for allocations this quarter.Pro tipStart so small it is impossible to fail. If you never had profit before, your Day Zero Profit is 0% and Day One is just 1%. Like flossing one tooth, the goal is to establish the habit.
- Make Your First AllocationTransfer available cash from your old primary account to the Income account, then distribute to all other accounts based on your CPTRs. From this point forward, deposit all revenue into the Income account and allocate on the 10th and 25th of each month.Pro tipSet calendar reminders for the 10th and 25th. Making these 'appointments with your money' creates the rhythm that turns PFC into a discipline.WarningIf there is not enough money in OPEX to pay bills, do not steal from other accounts. This is your business telling you that you cannot afford those expenditures.
- Cut 10% of Expenses in Week OnePrint your expenses for the last 12 months plus all recurring expenses. Cut costs by 10% immediately by canceling what you don't need and negotiating every remaining expense except payroll. Trim fat but keep the muscle: don't cut your bookkeeper or expert subcontractors.Pro tipFor every expense, ask 'Do we really need this?' and if yes, 'What would I do if this was not even an option?' This forces innovation.
- Quarterly Adjustment and Profit DistributionEvery quarter, increase Profit, Owner's Comp, and Tax PTRs by 1% each and reduce OPEX by 3%. Take 50% of the Profit account as a personal reward distribution and leave 50% as an emergency reserve. Pay quarterly taxes from the Tax account.Pro tipNever put profit distributions back into the business. Use them for personal enjoyment. This reward reinforces the habit and proves the business serves you, not the other way around.WarningIf you have debt, allocate 99% of profit distributions to debt elimination and keep 1% as a personal reward. The small personal reward trains your mind to find pleasure in the process.
Jayme left his corporate IT career to join his wife's interior design business. Within a year, the strain was reaching a breaking point with no money despite being extremely busy. After implementing PFC, he discovered he wasn't charging enough, was working for wrong clients, and wasn't charging for planning and design work.
Jason was tens of thousands in debt when a general contractor stopped paying his invoices. He was trapped in the craftsman cycle, taking any job to keep cash flowing. After developing a plan to recover the owed money, he implemented PFC to prevent the situation from recurring.
Despite appearing to have 30% net profits on paper, this roofing company had no cash. The owners were not accounting for owner's draws in their P&L, making their numbers misleading. After correcting the math and implementing PFC, they revamped production systems and started charging properly.
Shawn Van Dyke was listening to the audiobook of Mike Michalowicz's Profit First while on vacation in Buffalo, Wyoming, when he had an epiphany. He realized the system was exactly what he had been teaching his construction clients, but packaged better. While fly fishing that evening, wearing polarized sunglasses that let him see beneath the water's surface, he made the connection: PFC would be the polarized lens through which contractors could see beneath the financial surface of their businesses. He partnered with Michalowicz and spent 12 months becoming a certified Profit First Professional before writing this construction-specific adaptation.