For most small business owners, managing their accounts is a constant juggle. All income is usually deposited into a business bank account, with the hope of drawing a salary from that account, to avoid mixing personal and business expenses. Unfortunately, this system can easily become a mess when expenses arise, and the money needed to pay for them has already been spent on personal luxuries.

The temptation to splurge after a successful month is also a constant challenge, and it becomes easy to forget about the need to save for a rainy day. Even when small business owners try to save by setting aside money into a separate savings account, they still have to contend with the constant back and forth of shifting funds between the two accounts to keep things afloat.

Overall, the traditional small business accounting method can be exhausting and unsustainable, which is why it’s essential to explore better ways to manage your business finances.

As you read through the book, Mike has you do some exercises to calculate how your business is doing and what your allocations should be.

There are a few variations on how many accounts you’ll need depending on whether you need to pay staff or how much debt you have. Getting out of debt quickly is a priority.

So everyone’s Profit First setup can look slightly different but there’s one main goal of this system:

Sales – Profit = Expenses

Most people take the expenses out of their sales income and then whatever is left is their profit. Profit First has you do this the other way around to ensure that your business is always profitable BEFORE it spends more money.

Because if your business doesn’t make a profit, it defeats the purpose of having a business in the first place.

The Profit First system (see the book) is all about making sure funds are allocated to where they need to go BEFORE the expenses come in, but before you pay expenses or sign up for new ones, you’ve taken a profit.

A typical breakdown of accounts is as follows:

Income account – this is where all your incoming money goes and you disperse the percentages from here when you do your allocations

Operating expenses – This is the account that you pay your expenses from

Owner’s pay – this is the account that you then pay yourself from

Tax – setting aside money for tax – very important (separate bank recommended so you don’t touch it)

Profit – Different to owner’s pay, this is the profit of the business. You can withdraw this quarterly as a bonus to celebrate and use as play money! (separate bank recommended so you don’t touch it)

Materials & Subcontractors – In this account set aside money to replenish stock when you sell stock.

(Have you ever sold the stock and spent all the money before ordering replacement stock, only to be left short? Cause same.)Also recommended is an emergency fund – save up enough money to be able to run your business for 3 months if income suddenly stopped.

When you’ve done your profit first assessment, you’ll know which percentage of your income you’ll need to disperse into each account.

How often? It’s up to you – I chose once a week and now have, “finance Fridays.”Some people do it twice a month and some people do it daily. Find the rhythm that works for you.

You can set this all up yourself based on the book, or you can get a Profit First accountant to help you. I was lucky enough to find Phil from Panic Atax to help me put this system into place. He’s the best accountant I have ever had and working with Phil has made me feel better about managing my money than ever!

If you’re in Australia, check out Phil at Panic Atax and tell him I sent you!“But it’s MY MONEY”

This was the first objection that I found difficult when I implemented the profit-first system. I loved seeing a bulk amount of money grow in one account and knowing it’s mine, I earned that.

Thinking of all the things I could use it for…Except it wasn’t ever truly all mine. Phil explained it to me:

Some already belong to the tax man. Some will be owed to suppliers. Some need to go to subscriptions I pay for – all necessary to run the business.

It only took a couple of weeks for me to feel better about this and really get it. Whether it’s all in one account or not, not all of it is mine. Some have to go to expenses and tax whether I like it or not. I may as well be prepared for that.

And thank goodness I was prepared. The profit-first system came at a crucial time for my business where I was growing a lot. Without the profit-first system, I would have been met with a large and nasty tax bill that I would have been totally unprepared for. Ugly crying would have happened!

Now, when a bill comes in, I know which account I’m paying it out of and I know the money is there already, set aside just for that purpose.

By paying myself first, I know exactly how much money I can freely enjoy and not have to worry about the rest. It’s taken care of. Ready to go.

When tax time comes, I have plenty set aside to cover it, and to lessen the pain of handing that money over, I get a bonus from my profit account. It was a bit scary at first, but like most scary things, it’s worth it.

Get the book here and get ready to put your profit first!