Updated: Jan 24, 2021
Just to start, this isn't a sponsored post - this is just a strategy that I encourage my clients with smaller businesses and leaner budgets to use.
So, Profit First is a bookkeeping method that essentially allows you to prioritize your own pay, rather than paying yourself whatever is left over at the end of the month. If you haven’t heard of Profit First, there’s a whole book about this method, and it’s written for business owners, not necessarily bookkeepers like me. So, if you’re feeling extra interested, definitely go check out the book, or the audio book – it’s by Mike Michalowicz.
But to keep this short and simple, Mike's whole method is allocating predetermined percentages of your revenue in your main business checking account, into other sub-accounts. You’ll have an account for taxes (so you’re making sure you’re setting aside money for taxes right away), there’s an account for owners pay, an account for profit, and an account for operating expenses. So, for every dollar that you bring in, you put x% into taxes first, then x% into profit, x% into owner’s pay, and then everything else gets dumped into operating expenses.
The strategy is, to pay yourself first, and run your business with the money that you have left over, rather than running your business potentially over-spending, and trying to pay yourself if there’s anything left over.
This accounting method won’t work if you’re a public company, making millions. But for smaller businesses, it’s such a great way to take back control of your finances, especially if you’re super stressed that your business that you’ve created isn’t compensating you the way you’d hoped that it would, this method can really help you achieve some financial freedom.