In the Profit First method, funds are commonly allocated to the various bank accounts on the tenth and twenty-fifth of each month. Is there a problem with choosing days other than the tenth and the twenty-fifth to allocate fund? First of all, let’s look at why Profit First recommends the 10/25 rule and how that works.
In theory, you could allocate money to the various Profit First accounts every day or each time that money comes in. But, this approach is really inefficient and essentially a waste of time and money. The tenth and twenty-fifth, as allocation days, work out to be substantially more efficient than doing the job every couple of days.
You could also do the job just once a month. But, there are a couple of drawbacks to that approach. One is that when you allocate twice a month you see the ebb and flow of money into and out of your various bank accounts. This “cash wave” helps you get a clear view of how your business is doing, where it is most successful, and where problems might be arising. Doing the job just once a month could make you miss something important.
And, most bills are due on the first or the fifteen. When you allocate and pay bills on the tenth and twenty-fifth, you get your bills paid on time, keep your vendors happy, and avoid any penalties for late payments.
If you are thinking of choosing a couple of days in the month, different from the tenth and twenty-fifth, make sure that they will work for getting the bills paid on time and that they are sufficiently separated (by two weeks) so that you can still see the ebb and flow of the cash wave as money flows through the accounts. If there is a good reason, like the availability of a part-time bookkeeper, to do allocations on other days of the month this will be OK. Just make sure that the bills get paid on time!
What Is Wrong with Doing the Job When Time Allows?
Beware to taking this important job and doing it randomly. You will lose sight of the cash wave that moves through your bank accounts and lose the insights that it offers. When a job is done in a disorganized fashion the results are often disorganized as well. You may be really strapped for time and be doing this job when time allows, but you need to really try to do it on set days, ideally the tenth and twenty-fifth.
If that is the case, pick a day of the week and allocate on that day all of the time. You will still get a sense of the cash wave and remain organized. But, try to avoid letting the days slip!
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 about choosing days other than the 10th and 25th to allocate funds.