Are you old enough to remember people using envelopes for money they wanted to set aside — one envelope with dollars allocated for groceries, another with funds for a trip to the movie theater?
If you don’t remember this quaint way of earmarking money for special, separate purposes, that’s OK. I remember and still use this principle today, personally and professionally.
Benefits of Separate Bank Accounts
I regularly set aside money for personal expenses, such as for my house payment, for dining out (not doing a lot of that these days, though) and other recurring and periodic expenses.
The beauty of doing this is that I fully acknowledge I have these obligations, fund them each month and know exactly what’s available when it’s time to pay each of my bills.
You can do something similar with your business expenses, too. It’s one of the core principles of Profit First, a simple structure to more effectively manage your company’s cash flow. (By the way, I’m a Profit First coach — and perhaps you knew that already!)
Profit First helps business owners get more clarity and control over how they earn and spend money.
Separate Bank Accounts and Target Allocations
The Profit First approach champions five bank accounts — Profit, Owner’s Pay, Operating Expenses and Taxes, along with a primary Income account. (If you’re envisioning five envelopes labeled with these account names, you are my people!)
Each month — and I recommend doing this twice a month, BTW — you move a certain percentage of your company’s income into these bank accounts. (In Profit First lingo, we call these amounts “target allocations percentages.”)
With multiple bank accounts, you see more clearly how much money is available for your business’ assorted expenses — meeting payroll (and a regular paycheck for you), buying office furniture, paying IRS and state taxes and money earmarked for profit. And you remove the temptation to spend money that’s needed for other business expenses. It’s “out of sight, out of mind” in action.
When you give every dollar a home like this, it’s a powerful step toward better cash flow management and a more profitable business.
The Profit First approach champions five bank accounts — Profit, Owner’s Pay/Payroll, Operating Expenses and Taxes, along with a primary Income account.
Watch My Target Allocations Webinar
When a small business owner chooses me as their Profit First coach, I help them determine how to calculate the target allocations to regularly fund the separate bank accounts.
I love sharing the Profit First philosophy with anyone I meet and want to spread the word far and wide beyond just the people I coach and our bookkeeping clients. That’s why I recently hosted this webinar, which you’re welcome to watch on replay:
I’ll be doing more of these webinars — both for my company and for other organizations, If you’d like to stay in the loop on the free programs I offer, join our VIP list; follow us on Facebook or Eventbrite; or join our Facebook community, Profit First for Creatives. And if you’re a super-fan, do all four things.
First things first could mean getting your business’ books in order.
First Things First (Before Profit First)
Depending on where you are right now with your business, jumping right into five bank accounts and figuring out how to designate a percentage of income for profit may seem formidable.
I can help you prioritize what’s next — and first things first could mean getting your business’ books in order. We do this all the time here at Moxie Bookkeeping and aren’t intimidated when someone says, “My books are a complete mess.”
Let us know how we can help you tackle first things first. And if you’d like to know more about Profit First, you can download the first two chapters here for free.