The great thing about using the Profit First method, is once you start it’s easy to continue. Even if you got interrupted in the process, or somehow got off course, you can always pick up right where you left off. Because Profit First isn’t consumed with complicated accounting jargon and instead focuses on the business owner’s money habits and attitudes, the concepts remain easy and always available to implement. While everybody has setbacks, the Profit First methods do require follow through if one is to fully benefit, however.
Following up with our blog Become profitable in the simplest way (starting simply with profit first) we discussed how to easily begin managing money that addresses cash flow issues by opening two separate bank accounts—one bank account for saving money to pay taxes and the other to build profit. Now that you’ve gotten a feel for separating your profits and money for taxes, forge ahead by opening three more bank accounts for deeper money management!
The next 3 bank accounts for Profit First enthusiasts will be:
Owner’s Pay — savings account
Owner’s Pay is for the owner’s salary or regular recurring distributions. To keep this balanced system growing in a healthy way, continue to keep these funds separate from the rest.
Operating — transaction account
Any monies spent on the business should only come from this account. It might be challenging at first because essentially, what you are doing is limiting the bucket from which you spend. When you limit the amount of money in this account, that is designated for operating expenses only, you begin to make different decisions about your spending. This is Parkinson’s Law at work, which basically states that we spend what we have.
Income— transaction account
Be sure you don’t confuse this account with the Owner’s Pay account. This is where all money will initially get deposited into, then transferred out to all of the others… Think of this account as a holding tank to disperse the rest of your funds with.
After you’ve set up the 5 important business accounts, you will already be much farther along in the money management process which is a part of every business. What will complement this cash flow management method, even more, is to keep the accounting software organized and up-to-date. Cash flow management (the Profit First method) does not replace good bookkeeping and accounting, it works in conjunction with your accounting so your finances make more sense.
For Profit First coaching, please contact us. AccountSolve has Profit First Certified Mastery and is ready to consult with you about your Profit First needs.