My Experience with The Profit First Method So Far
Welcome to The Determined Mom Show. I am your host, Amanda Tento. I want to talk to you today about my journey into the Profit First Accounting System.
So I learned about Profit First on a podcast I think it was even a couple of years ago and then finally last year as my business is growing and I’m getting a little bit more business owner mindset instead of like entrepreneur mindset.
I decided that I wanted to change my accounting system because I’m not doing my accounting the way that I should. So last year, all my transactions reconciled everything in the last two weeks before the taxes were due in 2020.
So in 2021, I did the same thing and I spent the last two weeks of April, just cramming in everything and just trying to get everything done for the entire year of 2020 in a super short amount of time. I had to ignore my family for several days and got grumpy and didn’t do anything but focus on my taxes, it was horrible.
So I promised myself and I said, self, you are not going to do this again. Next year, you’re going to get a bookkeeper. You’re going to follow very effective accounting methods and you are going to do it.
I had a company hire a bookkeeper for me and they are amazing. They interviewed a million bookkeepers. They vetted them and narrowed it down to two one was certified in Xero and Profit First, which was going to be my choice and it was also a woman and I love that as well.
I hired Lori and she’s been amazing. We got started on my bookkeeping and my Profit First Method in July of 2021. So it’s only been about a month and the difference in my business already is just night and day, just knowing that I have the right things in the right places.
I don’t ever have to worry about it and things are automatic and just happening without my having to worry about them and it’s been life-changing and it’s allowed me to relax so much with my family and with my business and have that peace of mind.
So when I share with you what I did and what the Profit First Method does last week on the show, I talked to Kristin, who is a certified Profit First financial planner and we talked about three tips for transforming your business with the Profit First Method and I figured since we talked about that, that this would be a really good time to share with you how it’s working in my business and also share my allocations.
So basically you take all of your income that comes in and you put it into an income account. So every bit of money that your business makes those into the same account. Then on whatever two days you delegate every month, you are going to disperse all of your funds by percentage into the proper accounts.
This allows you to have an account that is solely profit, have an account for taxes, and have an account for operating expenses where all of your bills come from having an account for contractors. If you have any contractors and you get to make up your accounts too, which is cool. Then also you have an account for your owner’s pay, depending on how your business is structured.
At the beginning of the year, when I intended to start this, I opened accounts with Relay Financial. So it’s an online bank and you can open all these different accounts that you can see at a glance.
So you can see exactly what you have in every single account at a glance on the same screen and I love this because it makes it so much easier to get an idea of what’s coming in, what’s coming out at any moment, and then also it tells you your total balance overall for your business.
So I just love this because I’m a visual person and it makes it so much easier. I’m going to give you my allocations of the Profit First percentages. I have my contractor pay currently at 19%. So he tells you that you should have a current allocation percentage and then a target allocation percentage.
My goal is to keep this percentage, not lower this percentage but keep the amount of money that I put in there every month, the same. So that would mean that I would have to grow my income to do that. So that is my goal is to be able to put that down to 16%, my taxes I have at 3%, and my target allocation percentage is 5% and I want to do that more.
So that way it’s kind of like a savings account, more than anything. Then we have a profit account, which is awesome. So right now my profit is at 5% and my target allocation percentage is 10%. So I would like to get up to 10% of every single dollar that comes into my business goes into the profit account and I will be completely honest.
I am shocked by the amount of money that’s already in these accounts because I didn’t think that there would be that much to be honest, just because of anything that’s in there, I’m just going to spend it but knowing that there is a kind of a cap and a percentage and this is what goes in here and then this is the money that I have to spend is liberating.
So very shocked by how much money is in there already in the first month and I’m very encouraged because I can’t wait until the end of September, which is going to be my first quarterly transfer into my savings account.
So very excited about that as well. The operating expenses currently have at 17% and my target for that would be 13%. Now my goal for this is to be able to eliminate a lot of the software that I have and a lot of the subscriptions and things like that and try to get this down to as low as possible.
So I am very excited about the Profit First Method and about how easy it is after you get it set up and after if you have a bookkeeper after you have them all set up to kind of keep things going, I mean, it’s worth its weight in gold for me to be able to keep track of things and see where everything is and I truly highly recommend it.
So if you did not listen to last week’s episode with Kristen, definitely go back and we are going to talk about this Profit First Method. I hope that you have an amazing week and I will talk to you soon.
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