Profit First for freelancers: how to set aside your profit and your taxes first, every time you get paid

What is Profit First?

Mike Michalowicz is an entrepreneur who founded and sold two multimillion-dollar businesses by his 35th birthday. Profit First is his book on business money: the current English edition came out in 2017 from Portfolio, a Penguin Random House imprint; the Spanish edition was published in 2018 as La ganancia es primero, under the Conecta imprint, and in Brazil Alta Books published it as Lucro primeiro.

The core idea is a formula turned around. Conventional accounting says sales minus expenses equals profit, but businesses are run by people, and in practice profit ends up being whatever is left over, which is almost never anything. Michalowicz proposes sales minus profit equals expenses: like using smaller plates to eat less, if you take profit first, the business learns to run on what remains.

On the book's page, the author sums it up this way: every time a deposit from sales comes in, take a predetermined percentage of it as profit. For him, profit isn't an event; it's a habit.

Sources for this part:Penguin Random House, Penguin Random House, Alta Books (Brasil), Mike Michalowicz, sitio oficial, La ganancia es primero (Profit First)

What are the Profit First accounts?

The system rests on five basic accounts. Income, where everything you're paid lands and where nothing stays. Profit, to reward the business and its owner. Owner's compensation, which is your pay. Taxes, so the money you'll owe is ready. And operating expenses, which covers what your work needs to run.

Twice a month, on the 10th and the 25th for example, you split whatever reached Income among the other accounts, each with its own percentage. Then you work only with what's in operating expenses: if the money isn't there, that expense doesn't happen.

Everything you're paid goes into Income first, no exceptions. And for the allocation days, the author stresses that consistency matters more than the exact date.

Sources for this part:Mike Michalowicz, sitio oficial

How do you apply Profit First as a freelancer?

If you work for yourself, the five accounts can be simple: the account clients pay into, a separate one for taxes, another for your profit, your personal account, which works as your salary, and one for the costs of your work, like tools, internet or transport.

Start small. The author stresses that you don't need to hit the book's percentages right away: if setting aside 10% for profit feels impossible, start with 1%. The habit comes first; the percentages can grow later.

An example with round numbers: if a client pays you 1,000 and you decide to set aside 1% for profit (10) and 15% for taxes (150), your pay and your work costs come out of the remaining 840. That 15% is only an example: your real percentage depends on your country, your tax status and how much you earn.

If your income changes from month to month, Finanzas para Todos, the program run by the Bank of Spain and Spain's securities regulator, suggests working out a monthly average to build your budget, and that includes what you earn as a freelancer.

Sources for this part:Mike Michalowicz, sitio oficial, Finanzas para Todos, Banco de España y CNMV (España), La ganancia es primero (Profit First)

How much should you set aside for taxes? It depends on your country

The tax account isn't filled at random: what you owe and when depends on your country and your tax status. Here are some examples of how the dates work today. In Mexico, the SAT says individuals with business, professional or rental income file their provisional or final payments by the 17th of the month after the one they cover. In Brazil, the individual microentrepreneur (MEI) pays social security and ICMS or ISS contributions every month through the DAS, due by the 20th.

In the UK, self-employed people who file through Self Assessment may have to make payments on account: two payments, due by 31 January and 31 July, each usually half of the previous year's tax. The UK government also points out that once you start trading, you must keep records to work out your profit or loss.

In any country, keeping your tax money separate means the payment date isn't a surprise. To know what percentage to set aside, check with your tax authority or an accountant.

Sources for this part:Servicio de Administración Tributaria (SAT, México), Portal gov.br, Empresas e Negócios (Brasil), GOV.UK, HM Revenue & Customs (Reino Unido), GOV.UK (Reino Unido)

Who is it for, and when is it harder?

It suits anyone who works for themselves or runs a small business and mixes work money with personal money, anyone who reaches tax time without the cash, and anyone who gets paid in deposits that don't always arrive on the same day.

It's harder when margins are very thin. The author says it himself: Profit First doesn't create money problems, it reveals them. If setting aside profit and taxes leaves too little to operate, the signal is to review your prices and costs, not to drop the system. And keep in mind that in some countries opening several accounts costs money: you can start with fewer accounts and keep the rest separate in your records.

Sources for this part:Mike Michalowicz, sitio oficial, La ganancia es primero (Profit First)

How to do it in Oslo

In Oslo you can set up your Profit First accounts under Money. In “Accounts”, with “Add account”, create the account your clients pay into and the one for your work costs. In “Goals”, with “New goal”, create one for your taxes, with “How much do you need?” and “By when?” based on your country's payment date, and another for your profit. Money in your goals doesn't count toward what you have available on Today.

Every time a client pays you, tap the + button in the middle of the bar, choose “Income” and, under “Where it came from”, pick “Sales” or “Side work”. Then open each goal and tap “Log savings” with the share you decided on. To move money between two accounts, use “Transfer”, which counts as neither spending nor income. Oslo only records it: you move the money yourself in your bank.

If you'd rather have an account without a target amount, turn on “This money is not to spend” when you create it: you still see it under Money, but it stays out of what you have available. So you don't forget the tax date, create an obligation under More, in “Your money”, “Obligations”, with “How often” and “Remind me”. On the free plan you get up to three accounts, besides cash and the emergency fund, three goals and three obligations. If you need more, the Personal plan has no limits.