As a landscaper, keeping track of your finances can be overwhelming. However, implementing the Profit First method for your landscaping bookkeeping can simplify the process. In this article, we’ll break down the bookkeeping process step by step and guide you on how to determine the right allocations for each account.
Revenue
The income account is where all your revenue will pass through. However, unlike a traditional checking account, your money won’t stay here, and you won’t make payments out of it. Your income account acts as a holding place for your money until you distribute it to the other bank accounts through allocation transfers..
Profit
This account is a good place to start small. Depending on your current cash flow, you may transfer only 1% of your income to this account initially. If cash flow is good and you typically take distributions on a consistent basis, then start with 2% or 3%. Don’t worry about starting small – you will eventually develop a target percentage or dollar amount that you want your allocations to reach.
Owner’s Pay
Determining how much to transfer to the owner’s pay account is dependent on individual circumstances. If your cash flow is good and you’re already able to pay yourself consistently, it should be easy to determine how much to transfer to this account weekly. If your cash flow is strained, it’s wise to start small and revisit this allocation after using Profit First for a month or more.
Owner’s Tax
To calculate your tax allocations, find out how much you owed to the IRS in the previous year, or what you pay in quarterly estimated payments. After this, determine what percentage of revenue that is. For example, if you paid $20k to the IRS last year and your annual revenue is $500k, then your tax percentage would be 4%.
Operating Expenses
This account is meant to be used for the expenses you incur that keep your landscaping business up and running, from equipment maintenance to employee payroll. It’s normal for a large percentage of your income to go into this account, and you have plenty of time to work towards decreasing the money in this account to become more profitable.
Implementing the Profit First method for your lawn care bookkeeping can set you up for a world of financial success. Although it may seem overwhelming at first, once you determine your allocations, you simply transfer the correct amounts every week, and you’re all set. If you need help determining allocations or need guidance on your landscaping bookkeeping, consider consulting with Profit First professionals such as AccountSolve. Schedule a call today to get clarity and start making financial progress!
Click here for our complete guide to bookkeeping and profitability for landscapers.
