Profit First Instant Assessment: Percentages and Target Gaps

To fill out the Profit First Instant Assessment form, you pull twelve months of financial data, calculate your Real Revenue, sort your spending into four categories, convert each one to a percentage of Real Revenue, and compare those percentages to the targets printed on the form for your revenue bracket. The worksheet itself takes about fifteen minutes once your numbers are ready. Gathering the numbers is the real work.

You can download the PDF free from Mike Michalowicz’s website at mikemichalowicz.com/free-resources, or find a copy in the appendix of Profit First (Penguin, 2017).¹

Pull Twelve Months of Financial Data

Open your Profit and Loss statement and your business bank records for the most recent twelve months. A full year matters. Seasonal swings and one-time expenses distort anything shorter.

The first figure to write down is Top Line Revenue: every dollar that entered your business bank account during those twelve months, before any deductions.

Convert Top Line Revenue to Real Revenue

From Top Line Revenue, subtract two things: payments to subcontractors and the cost of raw materials used in production. What remains is your Real Revenue, the money your business actually controls.²

This distinction changes which benchmarks apply to you. A company collecting $800,000 a year but paying $500,000 to subcontractors has a Real Revenue of $300,000, and it should be measured against the targets for a $300,000 business, not an $800,000 one. Get this number wrong and every percentage that follows compares you to the wrong yardstick.

Sort Your Spending Into Four Categories

Every remaining dollar you spent over the twelve months goes into one of four buckets:

Profit — money set aside as a return on your investment in the business, not reinvested and not spent on growth.
Owner’s compensation — the salary you paid yourself for the work you do inside the company, kept separate from profit.
Tax — money reserved for income tax, self-employment tax, and other tax obligations.
Operating expenses — everything else: rent, employee payroll, software, utilities, insurance, marketing, and the rest.

If you’ve never separated profit from owner’s pay before, you’re not alone. Most owners lump both together as “what’s left over.” Splitting them is the point of the exercise.

Calculate Your Current Allocation Percentages

With four dollar totals and Real Revenue in hand, the math is simple. Divide each category’s total by Real Revenue and multiply by 100. The form has fields for each result, so you’re filling blanks rather than building a spreadsheet.

Take a business with $300,000 in Real Revenue that spent $180,000 on operating expenses, paid the owner $75,000, set aside $30,000 for taxes, and kept $15,000 as profit:

Profit: $15,000 ÷ $300,000 = 5%
Owner’s pay: $75,000 ÷ $300,000 = 25%
Tax: $30,000 ÷ $300,000 = 10%
Operating expenses: $180,000 ÷ $300,000 = 60%

These are your Current Allocation Percentages, or CAPs. Enter them in the left column of the form. Expect the operating expense number to be higher than you guessed and the profit number to be near zero, or actually zero. That gap between assumption and reality is what the form is built to expose.

Compare Against the Target Percentages for Your Revenue Bracket

The right column of the form lists Target Allocation Percentages, or TAPs. These are the benchmarks for a financially healthy business at your revenue level, and they shift as Real Revenue grows because the ratio between owner involvement and operating overhead changes with scale. A solo consultant earning $200,000 should be paying themselves far more of each dollar than a $5 million company running a full staff.

Find the row for your Real Revenue and copy those numbers into the right column:²

$0–$250K Real Revenue: 5% profit, 50% owner’s pay, 15% tax, 30% operating expenses
$250K–$500K: 10% profit, 35% owner’s pay, 15% tax, 40% operating expenses
$500K–$1M: 15% profit, 20% owner’s pay, 15% tax, 50% operating expenses
$1M–$5M: 10–15% profit, 10–15% owner’s pay, 15% tax, 55–65% operating expenses
$5M–$10M: 15–20% profit, 5–10% owner’s pay, 15% tax, 55–65% operating expenses
$10M+: 20%+ profit, 0–5% owner’s pay, 15% tax, 60–65% operating expenses

Tax stays flat at 15% across every bracket. The largest shift is in owner’s pay, which falls from 50% at the smallest scale to near zero at $10M+, where the owner is typically a shareholder rather than a daily operator. Profit rises as the business grows.

Read the Gap Between Current and Target

Subtract each TAP from the corresponding CAP. A negative number means you’re under-allocating to that category. A positive number means you’re over-allocating. Using the $300,000 Real Revenue example against the $250K–$500K row:

Profit: 5% − 10% = −5% (underfunded)
Owner’s pay: 25% − 35% = −10% (underfunded)
Tax: 10% − 15% = −5% (underfunded)
Operating expenses: 60% − 40% = +20% (overfunded)

The +20% on operating expenses is where the money for the other three categories has to come from. Nothing else on the form matters more than reading that direction correctly.

Plan the Shift in Small Quarterly Steps

The targets are aspirational, not Day One numbers. Most businesses need four to eight quarters to close the gap between their CAPs and TAPs. The recommended pace is shifting 1–2 percentage points per quarter.²

In the example, the first quarter might move operating expenses from 60% to 58% and split those two points between profit and tax. Next quarter, another two points shift. The slow pace gives you time to renegotiate contracts, cut unused subscriptions, and adjust spending habits without triggering a cash crisis. Jumping straight to the targets usually means cutting operating costs so hard the business can’t function.

What the Assessment Doesn’t Do

The Instant Assessment tells you where your money currently goes and where it should go. It doesn’t move the money for you. Actually acting on the result involves opening separate bank accounts for each category, running distributions on a fixed schedule, and taking quarterly profit distributions — all of which are handled outside the worksheet. The form is the diagnosis. The account structure and the recurring transfers are the treatment, and they belong to the wider Profit First system rather than to the assessment itself.

One boundary worth naming: the tax percentage on your form covers your personal estimated taxes as the owner. Payroll tax obligations, if you have employees, run on separate IRS-set deadlines and go through payroll rather than through this allocation. Don’t assume the 15% tax bucket on the worksheet handles both.

1
Mike Michalowicz. Free Resources
2
Otterz. Profit First Allocation Percentages: What to Set, When to Adjust, and How to Actually Make It Work