I get a lot of email asking specific questions about Profit First. When readers start implementing the Profit First methodology, it can be both liberating, and daunting at the same time.

I developed a FAQ page, along with tons of other resources for my books. In case you missed it, I thought I’d answer one of the most common questions I get asked about accounts.

Question: Which Profit First accounts should be checking accounts and which ones should be savings accounts?

Answer: It’s important to understand the difference between a checking account and a savings account. As a general rule, savings accounts yield interest, but are limited in the number of withdrawals (usually 6) during the statement period (usually a month).

A checking account typically offers an unlimited number of withdrawals and checks, but does not yield interest.

Option 1: Since Profit First encourages the 10/25 rule (allocate funds and pay bills on the 10th and 25th) for most businesses, all accounts except for the Operating Expense (OpEx) account can be savings accounts. Note that a savings account can’t write checks, so Owner’s Pay,Tax, Profit and other accounts won’t be able to issue checks.

Option 2: Following the 10/25 rule, the Income account will accumulate all deposits until they’re allocated to the Profit, Owner’s Pay, Tax, OpEx and other accounts on the 10th and 25th, at which time those funds will be used for those specific account’s purpose. Therefore incoming funds sit in the Income account for approximately 28 days a month. Understanding this, the Income account can be setup as a savings account (to accumulate interest)and all the other accounts can be checking accounts. This will allow the most flexibility for withdrawals and writing checks, while accumulating the most interest.

Stick with it! I know Profit First will serve you.

I am wishing you tremendous success

-Mike

PS – For more FAQs – check out our Free Resources page.

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