Summer is coming to a close, and for some, it means a big ramp-up into the old routine and the hustle and bustle that goes along with it.

But wait!

Take a moment to look at how you’re jumping back into things. Is the old normal good enough?

The best thing you can do for yourself and your business is to get organized. 

I know, say it ain’t so. But when you clean out your closet, man, does that feel good or what? You know where everything is. Heck, it’s even color-coordinated at first.

Since I’m no closet organizer, I thought I’d share some expertise that I do have. Here are some strategies I use to organize my cash flow. 

No surprise here but I like to review my accounts on the regular, and you better believe I implement Profit First. If you’re not familiar with the system, this blog is for you (and, if you do use Profit First, you may want to revisit it).

The  Profit First methodology involves a unique approach to financial management that aims to prioritize profitability in your business from the start. The key idea is to allocate your revenue into different buckets or accounts to ensure that you always have enough for essential expenses, taxes, and profit, rather than focusing solely on expenses as many traditional accounting systems do. Here’s a quick start guide to support you in  implementing the Profit First system:

• Read and understand the book: Before you start implementing the system, you may want to, you know, read Profit First. I promise I make some of it fun!  This will give you a thorough understanding of the concepts and strategies behind the system. Additionally, you can get the downloadable resources for Profit First here to make things a little easier.
• Set up your accounts: One of the fundamental principles of Profit First is to have separate bank accounts for different financial purposes. Typically, you should have the following accounts:
  • Income account: This is where all your revenue goes.
  • Profit account: Allocate a percentage of your income (e.g., 5% to 10%) to this account, which is your profit.
  • Owner’s compensation account: Allocate a percentage for your own salary or compensation here.
  • Tax Account: Set aside a portion of your income to cover taxes.
  • Operating Expenses Account: The remaining money after allocating for profit, owner’s compensation, and taxes goes here to cover your business expenses.
• Determine those allocation percentages: Determine the allocation percentages based on your business’s financial situation. These percentages may need to be adjusted over time as your business grows or experiences changes.
• Implement a rhythm: Set up a regular rhythm for managing your finances. Many businesses choose to allocate funds on a bi-weekly or monthly basis. You can automate transfers to the various accounts to ensure consistency.
• Cut expenses: If your current expenses exceed what’s available in your operating expenses account, it’s time to reevaluate your spending and find areas to cut back.
• Review and adjust: Continuously monitor your cash flow, review your allocations, and adjust them as needed. If your profit margins increase, consider increasing the percentage allocated to profit.
• Track and analyze: Continuously track and analyze your financial data to make informed decisions about your business’s growth and profitability.
• Consider Relay: Relay has officially partnered with Profit First. They’re an awesome banking platform created specifically for you to set up your accounts worry-free.
• Consult a Profit First Professional: If you find the process challenging or need assistance, consider working with an accountant or financial advisor who is familiar with the Profit First system. They can provide guidance and help you fine-tune your cash flow management.
• Stick to the system: Consistency is key to the success of the Profit First system. Commit to sticking to the allocations and financial rhythms you’ve set up.

I know that if you have yet to implement the Profit First system that can feel a bit daunting, but, I will help you gain better control over your cash flow, prioritize profitability, and ensure that you’re setting aside money for taxes and your own compensation. It may take some time to adjust to this new approach, but with discipline and dedication, it can lead to more financial stability and long-term success for your business.

I love to see my fellow entrepreneurs succeed. When you have questions, use this resource link, or email support@mikemichalowicz.com so you can leave no stone unturned – and help you sustain your business and profitability!

As always, I am wishing you tremendous health and wealth.

-Mike

To see my TEDx keynote about Profit First, and me without a beard, click here.

For your free resources, click here.

To check out Relay, the official bank platform for Profit First, click here.