Put your business budget on autopilot

Why can this tiny change have such a big impact?

The reason is behavioural psychology, but before we get into the detail on that, I want to show you this.

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At the time of writing this (23 Nov. 23), Profit First is the best-selling book in Financial Accounting on Amazon.

Because it works.

It’s transformed the lives of thousands of business owners around the world.

But, what’s most interesting is WHY it works. In the book, Mike Michalowitz talks about his story and behavioural theories like the plate-size-effect and, of course, goes into great detail about the Profit First method and how to implement it. But the part I think gets less attention is behavioural psychology. Specifically, the ‘Hook’ model that Nir Eyal has made famous from his book, you guessed it, ‘Hooked’.

Hooked is all about behavioural psychology, specifically about how to create products that get people hooked so they come back and use them again and again.

It can be used for good or evil. Social media and the impact it can have on children is an example of evil.

In your case, you’re going to take advantage for good.

You’re going to leverage this simple theory to remove stress and get more control over your cash flow to the point where making money just becomes a habit. A habit that you enjoy so much you can’t help but keep doing it.

And using Thriday and auto-allocations, you’re going to do it on autopilot.

The 'hook' model is a 4 step process embedded into this system and specifically designed to create a positive ongoing habit that can absolutely change your life.

Here’s how it works:

1. There’s an internal or external trigger - in this case, it’s money hitting your revenue account.
2. There’s an action - the action here is the distribution of money to the allocated accounts.
3. There’s a variable reward - the reward is you paying yourself. It’s variable because, as a business owner, different amounts of money will hit your account at different times. This is important because variable rewards seem to keep the brain occupied, removing its defences and providing an opportunity to plant the seeds of new habits. As discovered by B.F. Skinner in the 1950s when he observed that lab mice responded most voraciously to random rewards. The mice would press a lever, and sometimes they’d get a small treat, other times a large treat, and other times nothing at all. Unlike the mice that received the same treat every time, the mice that received variable rewards seemed to press the lever compulsively. Sounds like your average business owner, right?

It’s the 4th step that Nir talks about as the critical step to creating a true habit. You might think that the reward is the key to success here, but it’s not. It helps with the compulsion of trying to get bigger rewards, but it’s not the long game that leads to true success.

If the loop only consisted of Trigger > Action > Reward, over time, you’d actually get bored and quit.

The critical step is the investment.

4. The investment - this is the part where you’re building a commitment to continue the process. In the case of business finance and the Profit First method, it’s the investment both in setting up the system and then allowing it to grow your profit.

Seeing that profit account grow in value over time is addictive and completely changes the game.

There are 2 big objections people bring up all the time that I want to call out here.

1. How am I meant to set aside profit if my business isn’t profitable?
2. How can a system so simple be that effective?

Let’s tackle the first one.

This is where Profit First really nails it.

The old method of accounting is:

Sales - Expenses = Profit

What Profit First does is flips that:

Sales - Profit = Expenses

It sounds simple, but it might not be easy.

You may have to start by just setting aside a very small amount of profit while you work out how to improve your margins and cut some expenses, etc.

But even if you just start with 1% of revenue as profit, you’re still starting to form the habit.

See, your profit is your reward as the business owner for the effort you put in and the risk you take. Setting this aside to reward yourself should be non-negotiable. Even if it’s a small amount, you have to start somewhere.

How can a system so simple be that effective?

That’s just the beauty of it.

When you get in your car, you don’t think about the complexity of the electronics, motor, and drivetrain and how they all work together to drive you hundreds of kilometres to go on holidays, do you?  Sorry, I forgot, you’re a small business owner and don’t get to take holidays 😆.

Jokes aside, you shouldn’t have to think about the complexity of how money flows in and out of your business and how much you should save for tax, GST and operating expenses each week.

This is why we created Thriday. In the end, all of the bookkeeping and accounting is just rules, rules we can configure in the background so you don’t have to think about them...

Just by sticking to the plan, systematically rewarding yourself, and saving money on autopilot for specific business needs, you're making the tiny change that can have a huge impact.

You know that feeling when everything just feels like it’s going to plan? That’s the feeling predictable profit gives you, not just once in a while, but every time revenue hits your account.

As I said at the start, less stress, more control, now who doesn’t want that.