How to make more profit in your business

Louw Barnardt is co-founder of Outsourced CFO and a SAICA Top-35-Under-35 chartered accountant. He’s also a member of the global Entrepreneurs’ Organization (EO) network. During his meeting with 80 business owners at EO Accelerator Cape Town, many expressed their struggle to manage their cash flow.

Louw shares an approach to managing your cash flow resources in a clever, well-planned way that can ultimately help you get ahead and turn more profit into cash. “The profit-first methodology is really about making sure founders and business owners get something out of the many, many hours of intense work they pour into their businesses,” says Louw. “It can be a great incentive for business growth. It reminds business owners of the value of their business and motivates them to double down on their efforts to make it a success.”

Effective strategies on how to make more profit in your business

Decide on a feasible profit margin

Maybe on day one, that’s 1%. For the sake of this example, let’s say it’s 10%. That means you need to be making 10% profit after tax in order to be at a point where you’re happy with your return on investment.

Set that money aside quarterly

As money comes in, put 10% of it (after tax) into a separate bank account. You might do this every two weeks or however frequently it works for you, over the period of one quarter.

Disburse your business profits

By the end of the quarter, those biweekly payments into your separate bank account will have built up. If you have no debt and no investments you want to make in the business, you can pay that amount straight out as dividends to business owners.

Carve away at business debt

If you have debt, put a decent amount of money aside towards paying it off before paying dividends.

Build resilience with profit savings

If your business has no rainy-day fund, start building one before paying dividends. You want to aim to save three to six months’ worth of business expenses, to use in case of an emergency, like a Covid situation, or just to get you through when times are really tough. Being resilient and debt-free means all dividends can flow directly to the owners of your business.

Frequently Asked Questions

1. What is the profit-first methodology?

The profit-first methodology is a cash flow management approach that ensures business owners set aside a predetermined percentage of their revenue as profit before covering other expenses. This strategy helps founders get tangible returns from their hard work and serves as an incentive for continued business growth. Learn more about business growth strategies at Genfin.

2. How do I decide on a feasible profit margin for my business?

Start with a realistic percentage based on your current business performance—this could be as low as 1% when you’re just starting out, or around 10% once your business is more established. The key is choosing a margin that’s achievable and sustainable for your specific industry and business model. For personalized guidance, explore Genfin’s business loan options to support your growth.

3. How often should I set aside profit in a separate account?

You should transfer your designated profit percentage (e.g., 10% after tax) into a separate bank account on a regular schedule—typically every two weeks or monthly throughout the quarter. This consistent approach builds up your profit reserve systematically. Genfin offers flexible business loans that can help stabilise your cash flow during this process.

4. When can I pay out dividends to business owners?

Dividends can be paid out at the end of each quarter once you’ve accumulated your profit reserves. However, prioritise paying off business debt and building an emergency fund (3-6 months of expenses) before distributing dividends. Once your business is debt-free and resilient, all profits can flow directly to owners. Genfin’s business financing solutions can help you manage debt more effectively.

5. Should I pay off debt before taking profit from my business?

Yes, it’s recommended to allocate a significant portion of your profit reserves toward paying off business debt before paying dividends. Becoming debt-free increases your business resilience and allows future profits to flow directly to owners without financial obligations. Consider Genfin’s loan options for debt consolidation strategies.

6. What is a business rainy-day fund and why do I need one?

A rainy-day fund (or emergency fund) is a cash reserve equal to three to six months of business expenses. This fund protects your business during unexpected crises like economic downturns, pandemics, or sudden revenue drops. Building this fund before paying dividends ensures long-term business stability. Genfin can help you build financial resilience.

7. How much should I save in my business emergency fund?

Aim to save between three to six months’ worth of your total business operating expenses. This amount provides adequate cushioning during tough times and allows you to continue operations without taking on additional debt or making drastic cuts.

8. Can the profit-first method work for small businesses?

Absolutely! The profit-first methodology is particularly beneficial for small and medium-sized businesses (SMEs). It creates financial discipline, ensures owners are rewarded for their efforts, and builds a sustainable foundation for growth. Genfin specialises in providing tailored financial solutions to support South African SMEs.

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