No one goes into business to lose money. Yet most owners were taught to think of profit as whatever is left over after expenses, debts, and payroll. Whatever comes first gets the most attention, and whatever comes last often gets nothing. Ron Saharyan believes the exact opposite: profit must always come first.
Ron, also known as “Obi Ron Kenobi,” is co-founder and managing director of Profit First Professionals, a global network of accountants, bookkeepers, and financial experts. In episode 25 of Maximum Octane, he tells Kim Hickey how Profit First University started in Mike Michalowicz’s basement, explains the core of the method, and shares why managing spending is so important.
What You Will Learn
- About what is the Profit First method
- The backstory of Profit First University’s creation
- The limiting beliefs about waiting for the right time to put a system in place to help us deal with our finances
- About Ron’s hard times during his childhood and how he got inspired by them
- The importance of learning to manage our spending
What the Profit First Method Is
Profit First, based on Mike Michalowicz’s book of the same name, changes the traditional formula. Instead of Sales minus Expenses equals Profit, it uses Sales minus Profit equals Expenses. When revenue comes in, a set percentage goes to profit first. The business then runs on what remains.
That shift changes behavior. When there is less money visible in the operating account, owners become more careful about spending and more creative about efficiency. ATI explains how this applies to repair shops in Profit First in Your Automotive Repair Shop, and ATI has partnered with Profit First Professionals to offer certified consulting to members, as announced in ATI Partners With Profit First Professionals.
Profit First is built on a principle called Parkinson’s Law, the idea that work expands to fill the time available. Applied to money, it means spending tends to expand to match available cash. When owners see a large balance in a single account, they tend to spend it. By moving profit out first, the remaining operating budget becomes smaller, which naturally encourages more careful spending and creative problem-solving.
The system also gives owners a clearer picture of their finances. Instead of checking one account and guessing whether the business is healthy, they can see exactly how much is set aside for profit, taxes, and their own pay.
How Profit First University Began
Around the 10 minute mark, Ron shares the story behind Profit First University. After a short conversation, he and Mike Michalowicz decided to build a training and certification program in Mike’s basement. That small start grew into a replicable model that has expanded to more than 30 countries. Mike tells his own side of the story in Building a Team of Owners.
The growth of Profit First Professionals reflects how much demand exists for practical financial systems among small business owners. Many owners are skilled in their trade but have little training in finance. A simple, repeatable system, supported by trained accountants and bookkeepers, fills that gap and helps owners take control of their money.
The Five Foundational Accounts
Ron and Kim discuss how much money to allocate to the five fundamental bank accounts in the Profit First system. In the standard model, those accounts are:
- Income: where all revenue lands first.
- Profit: a percentage set aside for the owner’s reward and reserves.
- Owner’s Compensation: what the owner pays themselves for their work.
- Tax: money set aside so tax bills are never a surprise.
- Operating Expenses: what the business uses to run.
The right percentages depend on the size and situation of the business, which is why working with a Profit First Professional or a knowledgeable accountant helps.
Profit First recommends allocating money from the income account to the other accounts on a regular schedule, often the 10th and 25th of each month. That rhythm makes cash flow predictable and prevents the daily temptation to move money around. Over time, owners can gradually increase the percentage going to profit and owner’s compensation as the business becomes more efficient.
The profit account is meant to reward the owner and build reserves, not to be spent on everyday operations. Many owners take a quarterly distribution from the profit account as a reward for running a healthy business, while leaving the rest as a cushion.
Stop Waiting for the Right Time
Ron addresses a common limiting belief: waiting for the right time to put a financial system in place. Many owners say they will start once things slow down, once they hit a revenue goal, or once they pay off a certain debt. Ron argues that there is never a perfect time. Starting with even a small percentage builds the habit.
Starting small reduces the fear of change. Moving even 1 percent of revenue to a profit account builds the habit and proves that the business can operate on slightly less. Each quarter, owners can increase the percentage a little. That gradual approach is much more sustainable than trying to overhaul finances all at once.
The “right time” objection often hides a fear that the business cannot survive on less. Testing that fear with a tiny allocation answers it with evidence instead of worry. If the shop runs fine after setting aside a small slice of every deposit for a quarter, the owner has proof that the next small increase is also possible. Shops that wait for a slow season to start usually find that slow seasons bring their own reasons to delay. Starting during a normal month, with a percentage small enough to feel almost meaningless, is often the most reliable way to begin.
Lessons From Hard Times
Ron shares the hardships of his childhood and how they inspired his work. His story adds a personal dimension to the conversation about money. For many people, financial habits are shaped early, and changing them takes intention.
Experiences of financial hardship often shape how people think about money for the rest of their lives. Some respond by avoiding money conversations altogether. Others become determined to build security. Understanding your own history with money can help explain financial habits in your business, and recognizing those patterns is the first step to changing them.
Taking Accountability for Spending
Around the 27 minute mark, Ron talks about learning to manage spending. He and Kim discuss the problems with debit cards, which make it easy to spend without thinking. Owners who take accountability for every dollar going out of the business are far more likely to keep profit in it.
ATI’s Cut the ‘Fluff’ in Your Expenses and Why You Need to Hang On to As Much Cash As Possible offer practical steps.
Accountability for spending starts with visibility. Reviewing every expense line each month, asking whether it is necessary, and canceling anything that does not deliver value can free up significant cash. Subscriptions, unused software, duplicate services, and outdated contracts are common sources of waste. Many owners are surprised by how much they find when they look closely.
A practical way to build accountability is to require a second look at any purchase above a set amount. That might mean the owner and service manager agree before a new tool, software subscription, or marketing contract is approved. Pairing that rule with a monthly review of the operating account helps owners spot spending creep before it becomes a habit. ATI’s Top 5 Profit Eaters of Auto Repair Shops highlights common places where money quietly leaks out of a shop.
Profit First in an Auto Repair Context
Auto repair shops have some unique financial characteristics that make Profit First especially useful. Parts costs, technician pay, equipment investments, and seasonal swings in car count can make cash flow unpredictable. Setting aside money for taxes and profit before paying expenses smooths out those swings and prevents the end-of-year tax surprises many owners experience.
Shops can also adapt the system with additional accounts, such as an equipment fund for future purchases or a payroll reserve for slower months. The goal is to give every dollar a purpose so owners know exactly where they stand. Combined with regular review of key performance indicators, Profit First gives shop owners a clear, simple way to make sure their busy shop is also a profitable one.
Common Mistakes When Starting Profit First
Owners new to Profit First sometimes make a few predictable mistakes. Some set aggressive percentages right away and then raid the profit account when cash gets tight, which undermines the habit. Others open the accounts but stop making allocations after a few months. Some forget to adjust percentages as the business changes. Starting with modest percentages, sticking to a regular allocation schedule, and reviewing the plan quarterly with a bookkeeper or Profit First Professional helps avoid these pitfalls and keeps the system working long term.
How to Start Profit First in Your Shop
- Open separate accounts for profit, owner’s pay, tax, and operating expenses.
- Start with a small profit percentage, even 1 percent, and transfer it twice a month.
- Review every recurring expense and cancel anything you do not need.
- Read Profit First and share it with your bookkeeper.
Ron returns to the show in Why Aiming for Profit Will Help You Put People First. For a cautionary tale about back office controls, listen to $180K Vanished in 6 Months.
Frequently Asked Questions
What is the Profit First method for small businesses?
Profit First is a cash management system from Mike Michalowicz’s book of the same name. Instead of treating profit as whatever is left after expenses, it sets aside a percentage of every deposit for profit before anything else is paid. Revenue lands in an income account and is then divided among separate accounts for profit, owner’s pay, taxes, and operating expenses. The business learns to run on what remains, which encourages tighter spending and makes the owner’s financial picture easier to see at a glance.
Does Profit First work for auto repair shops?
Yes, many repair shops use it. Shops have uneven cash flow because of seasonal car count, large parts invoices, and equipment purchases, so separating money for taxes and profit ahead of time helps smooth out the surprises. Some shops add extra accounts for equipment replacement or payroll reserves. The key adjustment is setting realistic starting percentages based on the shop’s current numbers, ideally with help from a bookkeeper or accountant who understands both the method and the auto repair business.
What percentage should I put into my profit account to start?
Most owners are encouraged to start small, often with a single percentage point or a few points of revenue, depending on their current margins. The goal at the beginning is to build the habit and prove the business can operate on slightly less, not to hit an ideal number right away. Each quarter, the percentage can be nudged upward as the shop finds efficiencies. A Profit First Professional or a knowledgeable accountant can help set targets that fit your shop’s size and situation.
How often should I transfer money between Profit First accounts?
The method commonly recommends allocating on a fixed rhythm, such as the 10th and 25th of each month. Moving money on a schedule, rather than every day, reduces the temptation to shuffle funds around and creates a predictable picture of cash flow. It also gives owners two regular checkpoints each month to see how the business is doing. Whatever schedule you choose, consistency matters more than the specific dates.
What should I do if I need to use money in the profit account?
Treat it as a warning sign rather than a routine move. If the operating account cannot cover expenses, that usually means spending is too high or the allocation percentages are too aggressive for now. Review recent expenses, cut what is not essential, and consider lowering the profit percentage slightly while keeping the habit going. Raiding the profit account regularly undermines the whole system, so many owners make it harder to access, for example by keeping it at a separate bank.
Resources and Links From This Episode
- Profit First University website
- Book: Mike Michalowicz, Profit First: Transform Your Business from a Cash-Eating Monster to a Money-Making Machine
