There are two big themes in our CFO work: 

The first is that we work with businesses that are making a real social impact. For me, this means that the businesses strive to make every action of the business aligned with the values of the company. 

The second is that financial success in the form of a profitable business is a requirement for creating and sustaining social impact.

Many entrepreneurs assume that social impact means donating cash or product to a charity as the main (or only) expression of their social mission.  With that framing, picking the right charity is the only connection between your profit reserve and social impact. And while charitable contributions are one way to support social change, it is certainly not the only way or even the best way for most companies to make an impact. 

At its core, social impact simply means creating positive benefits in the economy, environment and communities your business touches. Giving away a percentage of your profit is certainly a “good” option. However, it is MUCH more powerful to embed the social impact into every economic or financial choice you make with your company. 

Who you hire, how you pay them, what business you source your products from and where you bank are all economic choices that can help drive wealth and power in ways that make change. 

All of these choices require that owners consider both the financial and social impact of these choices and plan accordingly.  

So here’s the question: How can Profit First be used to build your social impact?  

Profit First is a tool to help business owners make intentional decisions about how to spend the money coming into their business. A signature of the Profit First method is for each business to have a savings account where owners put a predictable (and over time growing) portion of all cash as a profit reserve. 

The Profit First method requires that business owners take a draw from the Profit Reserve on a quarterly basis to reward themselves as owner. This can be as little as 1% of the profit reserve; but should feel like a meaningful reward for you personally. 

There are no other requirements on the use of the rest of your Profit Reserve account. 

However I do have a few tips on how to use Profit First to drive social impact.

Three ways you can use Profit First to boost the Social Impact of your Business

Ethical Sourcing: Prioritizing the impact of your purchases to improve sustainability, support social justice,

Whatever your business is, you have to make purchases in order to operate. And you have a choice in where and from who you make these purchases. 

When you choose sources that are better for the world, you are creating a social impact. It may cost you more, but you are choosing to use that money for good. I recommend that you make an explicit policy of buying from local businesses, from Black and Brown owned companies and from companies that provide eco-friendly and sustainable products. Then review your current vendors with an eye towards shifting purchases over time to vendors that fit your commitments. With each purchase you’ll be building your own ecosystem of like-minded businesses and multiplying the effect that each of these connected businesses can have.

Here are three ways you can use Profit First to improve the social impact of your purchasing power:

• Use Profit Reserves to invest in products that will make your business more eco-friendly (switch to recyclable or biodegradable packaging, use organic ingredients, upgrade to more energy efficient equipment)

• Use Profit Reserves to buy carbon credits or renewable energy for your business energy needs (or install solar panels or another renewable energy source.)  

• Use Profit Reserves to buy from local businesses in bulk; increasing their cash reserves and, possibly, getting a better price for your own business.

There are probably dozens of other opportunities to create impact through purchasing decisions – I’d love to hear your examples, so please share your ideas with a comment or a tweet to @cfoonspeeddial.

Employment Equity: Pay Team Members Equitably and at the High End of the Pay Range

One way to create a tangible impact in your community is to recruit a diverse team, pay your employees well and provide solid benefits. 

By paying your team well, you provide financial security to them and their families, plus allowing them to pay it forward and create more impact as well. To cement your company’s place as a high road employer, make sure you know the competitive range of salaries for positions in your industry and then budget salaries towards the high end of the range for each role.

If you hire at the mid-range of the salary and then tie increases to performance goals, the company will benefit from highly skilled and motivated team members, and they’ll benefit from your pay-scale and benefits.

It may take some time to move from where you are now to the high range of a pay scale. This is where Profit First can help. Each time you successfully increase the Profit Reserve, you are demonstrating that the company can “afford” to add a new hire or reallocate that cash back into payroll and benefits for your existing team. 

It may take several quarters to find the sweet spot, so build your plan accordingly. Transparency around the process and your goals will build trust in the company and the process.

If you want help creating a plan to improve pay with a social justice lens, schedule a 30 minute call and we’ll get started.

Profit Sharing: Time to Share the Wealth with Workers

It should not be a surprise that I’m a big fan of worker-owned cooperatives.  But even if you’re not ready to sell your company to your workers, you can incorporate progressive structures like transparent management practices and profit-sharing in your current business structure.  

Creating a profit-sharing plan is probably the most direct way to make a social impact with your Profit Reserve account. This helps to democratize the wealth coming out of the business for your team.

Simply set a target in advance for how much of your profit account will go to employees; and create transparent guidelines for how those funds will be distributed. The distribution can be structured in many different ways. In a worker-owned business, profit dividends are distributed according to hours worked in the business. Other businesses use a bonus pool tied to specific business goals to calculate how much of the pool goes to which workers.

Our client Brooklyn SolarWorks is the perfect example of this. They’ve always done bonuses for their team, but with their rapid growth, they were concerned about how to manage the size of the bonus pool while also incentivizing each part of the company.

With Profit First, we are taking a set percentage of every customer payment and putting it directly into the bonus pool, ensuring there is a predictable amount of cash (tied to performance) available for worker bonuses. 

Whatever method you choose, I recommend that you make it transparent so that everyone in the company can understand how the profit distributions work and how specific roles are tied to either overall profitability or the specific business goals used to calculate the bonus. The goal of a profit share or bonus poll should be to tie the individual’s financial benefit to the company’s financial gain. If it's structured well, this should bring your team closer together and improve the focus on your top business goals. However, if the bonus structure is perceived as benefiting only the highest paid or company “favorites” it could also inflame a sense of injustice.  To avoid this, I recommend moving slowly as you implement; it's easier to test your ideas with smaller amounts that grow over time, than it would be to reverse course on your profit sharing later.

That’s the Why... Here’s the How

I know, I know. Wanting to create social impact in the world and specifically in your community is all well and good, but no matter what route you are choosing to make this impact, you have to have the profits to start and sustain it.

This is where adopting Profit First for your business comes in.

If you want to dive deeper into Profit First and why I’m such a huge proponent of putting it into practice in your business, be sure to check out this blog post now. 

Getting Support for Implementing Profit First for Social Impact in Your Business

We use Profit First as a tool for every business we work with.  So if you’re curious about how to use Profit First and make a social impact we are here for you.  

One good place to start is our 6-month group coaching program, CFO Advisor, which gives business owners like you the skills and systems you need to create more profit and more social impact with your company.

The program is for small business owners who...

• Already have a growing company but want to be more profitable. 

• Are ready to boost their skills and confidence in dealing with numbers and decision-making.

• Love to DIY things in their business. 

• Are tired of losing time building spreadsheets and budgets that don’t work.

• Crave financial reports that give real information and help them understand what’s really going on in their company.

• Are energized by learning from and collaborating with other business owners.

• Are seeking to make a social impact with their business. 

If that sounds like you, you may be ready to join CFO Advisor. 

Find out with a free 30-minute meeting with one of our CFOs.  

The focus of the conversation will be on your business, the challenges that are top of mind for you, and the actions you could be taking. We’ll also help you determine if CFO Advisor is the best next step for you!