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Profit, Owner's Compensation, & Tax Allocation

August 15, 2018

Profit, Owner's Compensation, & Tax Allocation Accounts and why you need all three.

Today's question about the use of the Profit First cash management system: Since the Profit, Owner's Comp, and Tax accounts are all for the benefit of me, the owner of the business, can't they just be one account instead of three?

The answer is no. While the money allocated to these accounts does
benefit the owner(s), the use of the money in each account is distinct. Owner’s
Comp is for the owner’s salary or regular recurring distribution. The Profit
account is used as a quarterly bonus (and can also function as a rainy day fund
or be used for a “Death to Debt” quarterly distribution.) The Tax account
is used to pay the owner’s taxes and any corporate taxes on profits. So
while the money does all benefit the owner, the accounts need to be kept
separate so you can instantly tell just by looking at your bank
balance what money is allocated for which purpose.

Want to learn more about how Profit First will maximize your profits? Click Here to get the first 2 Chapters of the book Profit First for FREE. Provide your name and email at the same link and get the first 5 chapters for FREE!

Understand what Profit First is but need help implementing it? Schedule a FREE session with one of our Profit First Professionals to uncover your profit today!

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Profit First Strategies helps business owners experience profit.

Profit First Strategies

Profit First is a system that helps you produce profits in your business the first month and always. Using this approach to running a small business you can make profit a habit and not a remote possibility. The Profit First approach starts by rewriting the usual bookkeeping formula so that profit is taken and put in the bank with every bookkeeping cycle. The system follows through by instilling discipline in your budgeting and cash flow management. Read our articles to learn the basics of Profit First and Profit First Strategies that you can use this approach to make you business more successful and your business life more efficient and easier.
Profit First helps you experience profit.

Ronald B. Allen
CEO, Profit First Professional, Fix This Next Founding Advisor
Principle of an accounting firm that’s committed to educating business owners on their financial health, providing a trans-formative strategy and helping them experience their profit!