What is the difference between the basic and advanced method of Profit First? And, why would you choose one instead of the other? The reason why you want to institute the Profit First system in your business in the first place is to get control of your finances. The way you do this is by setting up a system where it is easy and intuitive to see where the money is and where it is going. This system needs to be set up to work best for your business. And the process of setting up Profit First accounts needs to be something that you can handle. Thus, the short answer to the question about basic or advanced Profit First is that you should use the approach that works the best for you in getting a firm grip on your finances.
The first and essential step in the Profit First method is to establish more than one bank account. The bare minimum is to keep your current checking account and add a savings account as your Profit account. Money goes into this account on the tenth and twenty-fifth of each month and is not touched for any other purpose. This is the bare bones approach to Profit First. We suggest that if you feel a bit overwhelmed by the idea of setting up multiple accounts that you still set up three (instead of one) extra accounts. To take advantage of the principles of Profit First you need to begin by setting up the bank accounts.
The Profit First Professionals at Exigo Business Solutions recommend that with a basic approach to Profit First you should have four accounts.
• Operating account: your current checking account
• Profit Account
• Owner’s Pay
• Tax Account
Your checking account will be the operating account. Money comes into that account and using the 10/25 rule, money is allocated to the other accounts and to pay bills every tenth and twenty-fifth. The bedrock principle of this system is that money always goes into profit, owner’s pay, and taxes and that other expenses are adjusted as needed.
You may be thinking that your business has more “moving parts” than are indicated by the two, three, or four accounts in the basic system. And, you are probably right. An advanced Profit First system has at least five accounts.
• Operating expenses: checking account
• Profit: savings account
• Income: savings account
• Owner’s Pay: savings account
• Tax: Savings account
Other accounts such as a drip account for income distributions over time or an employee payroll account may be necessary as well. When setting up your Profit First system and deciding on the basic or the advanced approach, talk to the experts who do this and teach this method all of the time. Contact us at Exigo Business Solutions and learn the best approach that fits your business requirements.
If you still have questions or are interested in implementing Profit First in your business, visit our website, ExigoBusiness.com, or contact us at (816) 394-6818.
Click here to watch the YouTube video of the difference between the basic and advanced methods of Profit First.