I’m so excited to be chatting about money with you guys on the podcast this week! We’re talking about managing money – both in my business and how it translates into my personal life. Right now, the reality is that the business is our only source of income for the household. We thought it would be interesting to chat about that, and how we budget to provide for our family. 

Profit First

I started using the Profit First method of managing my money in July 2021 (or so). So, we’re coming up on two years of using this system. This is the reason we felt that Michael could quit his job and go full-time to help me with the business. I truly think every business owner should read the Profit First book, because I would have been making and taking home more money earlier on. Profit First is all about well, putting your profit first. I’d say it’s profit and your owner’s compensation. But, you basically have 5 business banking accounts – which I know sounds like a lot. I actually really love it. As someone who likes to see that I have (or don’t have) money to spend, these accounts make that possible. You’ll have five accounts – income, profit, owner’s compensation, taxes, and operating expenses.  

Everything you make goes into the income account – from PayPal, stripe, your services or product sales. Every two weeks, you distribute what’s in the income account to the other categories based on specific percentages. Then from there, you can do what you need – pay taxes, pay your bills, and pay yourself. Profit becomes extra money each quarter. You can pay yourself half and save half for business – but whatever you want to do is fine. I personally keep it as an extra backup savings. I’m pretty conservative because I’m aiming to have 6 months of expenses saved up, since this is the only source of income. I also like to have six months of my owner’s compensation saved – we do that in a personal bank account. It helps to protect us and make sure if something happened, we could still provide for 6 months. 

Using Profit First

Like I said, we’re going on two years of using this system for the business. When you set up the system for yourself, one of the first things you’ll have to do is take a hard look at your expenses. It helped me really cut back on things we didn’t need to be spending money on. I’ve also become smarter about investing in the business. Finally, it’s helped ensure that I’m truly paying myself enough. I don’t think enough entrepreneurs are good at paying themselves enough money. I recommend starting where you can with the percentages then moving to a place you want to be over time – paying yourself more, saving more – whatever it is you want and need. 

I’ve made a Google spreadsheet with my percentages and it’s nice because I can put the amount in from my income account then it tells me exactly how much to transfer! So, let’s see… I have 5% of revenue goes into profit, 45% to owner’s compensation, 18% to taxes, and 32% to Operating Expenses. When I first started out, my OpEx account was definitely a super high percentage – and that’s very common. A lot of business owners overspend so I love that it’s a chance to reflect on what you’re doing in your business. 

Being able to see all of these numbers clearly – and regularly – allowed us to have Michael quit his job. Obviously, we did lose some of our budget buffer without his income but it’s worth it to have him home with us. 

If money is something you’re scared of with your business, then you need to read Profit First. It will definitely show you how much you’re spending on your business. I really encourage you to look at it. I was someone who thought I should just spend money from the business because it was a tax write off, but the reality is that it impacted my income and owner’s compensation.  

The Nitty Gritty 

Every two weeks, there’s an automatic transfer that happens going from my income to our personal checking account. I also take bonuses like we discussed when there’s a surplus if it’s what I want to do. Every two weeks, I’m spending time reviewing these numbers. Now, my monthly bookkeeping – like logging transactions and such is done by my bookkeeper Madison. She’s amazing and I’ve been working with her for over two years now. She and her team are responsible for keeping those up to date, reconciling the accounts, and making sure there’s no questions. I file our estimated taxes every quarter on the IRS website myself. I’ve mentioned this before, too, but we also have our accountant do our taxes. I’ve almost never done them! It’s one thing I knew form the start I wanted to outsource. 

So, there’s my experience using Profit First to run our finances! This has been such a game changer for me financially and so much of it is on autopilot these days. When the money comes into our personal accounts, we also have different categories it’s split into. This is something we’ve always done and I think it just helps us to manage the income we have. 

If you think Profit First would help you, make sure to check it out! It’s truly a must read in my opinion! 

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