If you use subcontractors and materials in your business, you already know that your total income may be misleading and that you need to make a calculation for real revenue to get a clear picture of the size and scope of your business. The difference between total income and real revenue is the cost of materials and subcontractors. But, for allocations to your multiple accounts, you will be managing deposits from total income. So, how does that work?
When your business has materials and subcontractors, you will need two new bank accounts. The first is for materials and subcontractors.The second is for total income.
All money that comes in will go to the total income account. Then, costs of materials and subcontractors will be moved to the materials and subcontractors account. All remaining money will be moved to the real income account.
The real income account will be used to allocate Profit First percentages to your profit, tax, owner’s pay, and all other accounts as always.
And, be sure to name these accounts correctly to avoid any confusion.
Profit First is a proactive method of doing business. Some may mistakenly believe that all the primary value is setting aside a little profit on the tenth and twenty-fifth each month. That is wrong! Profit First enforces a profit each month in order to force discipline in your business. The use of multiple accounts helps make the workings of your business clearer. And,when you deal with Profit First Professionals like the folks at Exigo Business Solutions, you will learn to use the best small business software, QuickBooks, and generate customized reports that give you actionable information for improving your business.
When you break out all materials and subcontractor expenses and move the money to its own separate account, you will always have a clear idea about how much money that is and how it relates to the profit you make from related work. When you have bookkeeping reports from QuickBooks with actionable information, you will be able to make changes in whom you hire, where you buy materials, when and how you purchase materials, and other factors that affect your bottom line.
Profit First is set up to be a transparent means of doing business. You can see how the business is doing by simply glancing at bank account balances. But, it is also an efficient way to do business. For example,when you allocate money to your various accounts on the tenth and twenty-fifth, that twice-monthly process is much more efficient and cost-effective than doing the job daily or on a random basis. And, efficiency is cost-effective and that leads to more profits.
Managing deposit from total revenue when you use subcontractors and materials is made easy simply buy opening two more bank accounts. And the results of separating out these expenses will lead to more long term profits.
If you still have questions or are interested in implementing Profit First in your business schedule a meeting with a Certified Profit First Professional today!