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Wouldn’t it be great to know that your taxes are covered, you’re getting paid, and you are now seeing a profit? Without that financial stress, you could focus on what you are good at: growing your business. To remove that stress, a simple switch in priorities and thinking is all it takes.
It sounds simple, but it’s surprising how many businesses are not set up to put profit first. When, in fact, putting profit first leads to business success. But still many business owners focus on paying the bills first each month.
Paying bills first has been the way of doing business taught to many of us over the years. Much like the car was a better way than horse and buggy, putting profit first has been proven to be a better way to build real profit for businesses. Give it a try: use the three steps below and start to prioritize and build real profit today.
The first step is to create five (yes, 5) new bank accounts. When money comes into your main income account, don’t spend it! Move that money into the other accounts based using predetermined percentages.
If this system sounds a bit familiar, perhaps you recall the old envelope savings trick for personal savings. That system worked so well it is making a comeback. Putting your profit first is a very similar philosophy, except the labelled envelopes are replaced with bank accounts.
It is important that when setting up your accounts, you ensure each of the 5 accounts supports the intended purpose.
The Income account is the primary account to which your revenues will flow. Once the money is in this account, you allocate it to one of the other accounts.
The profit account holds–you guessed it–your profit. Profit that is not just on paper but real in-the-bank cash.
Get rid of that old habit of taking care of yourself last. You are your greatest resource. This account ensures you get paid, you just need to determine how much.
We may not like it, but one of the only things guaranteed in life is taxes. This account covers your future tax liabilities and ensures you don’t end up paying more for being late because you are short on cash.
Just like it sounds, this account is for running the day-to-day operations of your business. This account will help guide your decision-making. Now you can easily answer questions like, can you afford the upgrade or new initiative this month or next?
Maybe this statement gives you heart palpitations but hear us out. If you’re like most small-business owners, paying the bills is a top priority — even before anything else gets done. But there is another way, one you probably already know.
Do you remember how little money you had in trade school, college or university? If you are like us, you look back on those days and wonder how you made it work. Comparing that to how you struggle to make ends meet now with so much more money makes you wonder how you lived on so little (and had fun doing it).
The truth is simple. When it came to our priorities back in school, we were innovative, efficient and frugal. Maybe our priority was a night out, not a new initiative or equipment upgrade, but we made it work every time. We were innovative… “Maybe I can mow a lawn after class”. We were efficient… “I don’t need the new book. I will buy used”. We were frugal… “I can eat Mr. Noodles this week”. The bills got paid, but they were not at the top of the list.
By not paying your bills first, you create an environment of innovation, efficiency, and frugality, which in turn will help build your business—with profit!
Falling prey to temptation happens; we are all guilty of it. As four of your new bank accounts grow and build a healthy balance, your operating account will go up and down with the flow of your business. With these ups and downs, you may be tempted to leverage the money in your other accounts to support a new initiative or upgrade… don’t do it!
If you think this scenario is unavoidable for you, set up another profit and/or tax account (we know another account, sorry). Don’t set this account up at your current bank. Choose a different, perhaps inconvenient bank. You can decide on the amount that gets moved to this inconvenient account. This will make temptation inconvenient and ensure your profit remains.
Do whatever you have to and avoid temptation.
Do you want to start putting your profit first? We are here to help. Book your no obligation Alignment Assessment today.