Get Your Butt to the Bank (Part 2) – Ep 2 Blog Post
[Adapted from Episode 2 of the Profit First Nation podcast]
This is Part 2 of 2 in the “Get Your Butt to the Bank” series. If you missed Part 1, make sure you read Get Your Butt to the Bank – Part 1 for an outline of the very first step you must take in order to implement Profit First.
Okay, so now that you’ve taken the first step toward permanent profitability and opened your first five foundational accounts (Income, Profit, Owner’s Compensation, Tax, and Operating Expenses), it’s time to talk about STEP 2.
STEP 2: Move 1% from INCOME to PROFIT
After you’ve gotten your PROFIT ACCOUNT set up, the second step you’ll take in your financial journey is to take 1% from your INCOME ACCOUNT and move it to your PROFIT ACCOUNT first. (Y’all see what we did there?) And that’s the entire second step – its beauty is in its simplicity.
This is admittedly a small change, but it is one that will help you to build a healthy new financial habit. You no doubt have the capability to run your business on 99% of your current income, so you’ll begin to allocate at least 1% of that income to your newly created PROFIT ACCOUNT every allocation period. Then, voila! Your business is profitable.
The idea is that you’ll steadily increase that 1% over the next six to eight quarters until you reach your Target Allocation Percentage. That leads us nicely to STEP 3.
STEP 3: Haul Your Ass to an Inconvenient Bank
So you’ve opened five of your foundational accounts. You’ve also begun to allocate some of your income to profit (cha-ching!). Don’t lose that momentum! During the third step of the process, you’ll need to haul your ass to an inconvenient bank to open your final two foundational accounts – your PROFIT HOLD and TAX HOLD ACCOUNTS.
Now, what the hell even is an “inconvenient bank?” We’re glad you asked. An inconvenient bank is one that will make it a pain in the ass for you withdraw funds. You don’t want checks for this bank, nor do you want to be able to transfer funds out of your accounts at this bank.
And for those of you who are already dreading the time you’ll have to spend opening these accounts, we have some great news: many banks will allow you to open brand-new accounts online or over the phone. So if you need to take care of STEP 3 from the office or from home, no sweat – just peruse our list of Profit First-friendly banks in your area and get your new PROFIT HOLD and TAX HOLD ACCOUNTS set up in minutes!
We do need to offer a word of warning against trying anything “Profit First-ish.” In our experience, there is no “ish” that works, and those waters are murky and dangerous. Profit First author Mike Michalowicz advises against any attempt to implement Profit First with a few spreadsheets rather than actual bank accounts. Why? Because Profit First was conceived as a behavioral-based cash management system.
When business owners attempt to virtually partition the funds from a single bank account (using something like a spreadsheet or their accounting software), they have really only changed the “look” of their cash management methods. And because they are still employing essentially the exact same accounting system as before, they will eventually fall back into the same behavioral patterns which prevent their businesses from becoming permanently profitable.
On the flip side, if you decide to go all in on the Profit First system you will immediately see what money is available and for what purpose every time you log into your bank account. Before you even touch your money you know what its intended use is, and that will allow you to control your spending accordingly.
So it’s time to get going, fellow entrepreneurs! These first few steps take only a few minutes each, and we guarantee that that small time investment will set you firmly on the path to permanent profitability now. Don’t let anything stand in your way!
Visit our website and click Step #1 for resources and support to get you on the path to permanent profitability!