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We’re thrilled to announce that KC Virtual Bookkeeping is now Profit First Certified! This means we’re one of less than 400 Profit First professionals in the country–and we can’t wait to help our clients with both bookkeeping and profit strategy going forward.
So, what’s the Profit First buzz all about? More than anything else, being Profit First is a mindset shift. We’re talking about flipping the script on traditional financial thinking. Instead of waiting until the end to see what’s left for profit, we’re putting profit front and center, right where it belongs.
Being Profit First gives your business the structure and strategy it needs to not just survive, but thrive. It helps you allocate your hard-earned cash with intention and purpose. It’s not just about making money; it’s about making money work for you.
Let’s talk about what Profit First looks like in your business, and how we can use these strategies to promote business growth.
Getting Started with Profit First Bookkeeping: Setting Up Accounts
Putting Profit First into practice begins with a simple yet powerful step–changing the traditional accounting equation from Sales – Expenses = Profit to a formula that prioritizes profits: Sales – Profit = Expenses.
At first glance, it might sound crazy to put profits before expenses. Of course there are going to be costs of running your business…but the truth is, there are probably expenses you can cut right now, without it impacting your ability to provide a top-notch service. And when you find ways to lower your costs, that money can become profit instead.
How do we do this? It starts with opening multiple bank accounts. This might sound a bit unconventional, but trust us, this is the secret to transforming the way you manage your money.
Rather than having one catch-all account where all your revenue sits, we’re going to divide it up into different buckets. Think of these buckets as designated parking spots for your money, each with a specific purpose. How many accounts you have depends on your business, but start with a few main accounts:
- An Income Account, which you probably have already–this is where every cent that comes in goes initially, before you transfer that cash into its proper account.
- A Profit Account, where you stash away a percentage of your income, ensuring that your hard work actually translates into profit.
- A Tax Account where you can allocate a portion of your income to cover your tax obligations for the year.
Now, you’re probably going to need other accounts, including one for Owner’s Compensation, from which you pay yourself, and an Operating Expenses Account, which is your main hub for all things business-related–think rent, software subscriptions, or employee pay.
How to Allocate Money in Your Business
It might seem like a lot of banking gymnastics, but having dedicated accounts for each differentiated purpose ensures that your operational costs are covered without dipping into the crucial areas like profit or your hard-earned salary. As your business grows, you’ll be able to divert a larger percentage of your income to that Profit Account. And let’s be honest, that’s exactly why you started a business in the first place!
Understanding your business’s financial landscape is not about fancy spreadsheets or complicated jargon; it’s about having a conversation with your numbers that makes sense for you. Getting into the habit of separating your financial accounts and responsibly managing your money is 100% what sets you up for long-term success.
At this point, all you need are baby steps. Once your accounts are set up, allot money from your Income Account to the other accounts on a consistent basis. We recommended allocating 5% to profit, 50% to owner’s comp, 15% to taxes, and 30% to operating expenses. Pick two days a month to shift your money into its proper account–ideally on the 10th and 25th, just to stay consistent.
These percentages may or may not work for you depending on your stage of business–reach out if you need help coming up with a plan for your unique situation. Still, the main goal here is to remove the temptation of spending money when you don’t need it, eradicate your debt strategically, and empower yourself (and your future self!) by building a stable, sustainable business income.
Holding Yourself Financially Accountable
If you’re reading this and thinking that a lot needs to change in your business before you can make this system work, you’re not alone.
BUT. There is a reason why the Profit First system is so successful, and that’s because it has helped tons of businesses grow and become profitable simply by approaching business finances in a different way. Putting profit first informs your other business decisions, and makes it more important to prioritize increasing income and reducing expenses.
It’s never easy to shift your mindset, but it is worth it. Once you know what you want your business to look like, it’s possible to start making those changes, slowly but surely. That’s why our financial coaching takes place over the course of a whole year–so you have time to make small adjustments, get in the habit of making smart money choices, and assess how we can take a few more steps toward profitable growth.
If you need a partner and profit strategist to help hold you accountable and give you insight into your business finances, reach out and let us know. Our coaching program is here to guide you toward achieving your biggest business goals–and we can’t wait to help you get there!
For more insight into Profit First bookkeeping and how it can help your business, be sure to check out our podcast as well.
