The great thing about using the Profit First system is that 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 everyone has setbacks, the Profit First methods do require follow-through if one is to fully benefit.
Following up with our blog Start Becoming Profitable Today, we discussed how to easily begin managing money that addresses cash flow issues by opening two new bank accounts—one to save money to pay taxes and the other to build profit.
Now that you’ve got those new bank accounts open, and have gotten a feel for separating out money for your profit and money for taxes, forge ahead by opening three more bank accounts for deeper money management!
The next 3 bank accounts for you to continue your Profit First journey will be:
Owner’s Pay — savings account
Owner’s Pay is for the owner’s salary or regular shareholder distributions. To keep this balanced system growing in a healthy way, continue to keep these funds separate from the rest.
Operating Expenses — checking 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, which 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— checking account
Be sure you don’t confuse this account with the Owner’s Pay account. This is where all money will initially get deposited and then transferred out to all of the others. Think of this account as a holding tank from which to disperse the rest of your funds.
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 a profitable 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, via the Profit First system, does not replace good bookkeeping and accounting. It works in conjunction with your accounting so that your finances are managed for the highest success.