Your Black Friday Deal Probably Needs a Drip Account

Did your business promote a Black Friday deal this year? If so, now’s the time to set up a Drip account within your Profit First system—before you spend the revenue that you made.

What’s a Drip account?

It’s an account you create to help you manage the cash flow when you receive a lump sum payment instead of installments for a service or offering that you’ll be providing to your clients over a long period of time.

Maybe you’re selling a discounted annual gym membership to customers who pay upfront for the year in full. They’ll be using your facilities and your resources over the course of 12 months and your expenses to service them will be accruing over that same period of time. So it doesn’t make sense to treat their full payment as money in your pocket now.

Instead, stretch their payment out over 12 months even though you’ve received it all at once. The sensible thing to do is to place the revenue in a Drip account, then take a proportional amount of the money and “drip it out” each month. So you’re matching revenue with expenses on the same timeline.

If you don’t allocate this money correctly, then it’s just money without a plan, and you’re in danger of spending it. We see this a lot: businesses in year-round “Black Friday mode,” trying to sell annual memberships, or offering other long-term, one-time payment deals, because they’re always needing a large influx of funds—to pay for services they sold months ago but don’t have the resources to cover now.

As one of the biggest spending days of the year, Black Friday is a classic time to offer special membership or subscription deals. But your business should use a Drip account for any similar payment structure regardless of the time of year. Retainer fees, sales of packages and bundles, pre-payments—these all might warrant the use of a Drip account. 

Here’s an example of how to use your Drip account for annual membership fees paid in full up front.

  • Put each lump sum payment into the Drip account.
  • Automatically transfer 1/12 of the amount to your Income account every month as if you just received the revenue (in two payments on the 10th and 25th as per the suggested Profit First schedule would be great).
  • Proceed as you normally would to allocate the funds by percentages—into OPEX, Owner’s Pay, Profit, Tax, Payroll, and any other advanced accounts you’ve created within your Profit First system (the Drip account is considered an advanced account as well!).

Of course, if the membership deal is six months instead of 12, or if it’s an unlimited package deal for three months, then you’d prorate the funds accordingly. You might need to create multiple Drip accounts if you have multiple levels of deals on offer. You can also book a call with a professional to help you determine how much to drip each month.

Trust the Drip account system. 

Don’t be tempted to move more than 1/12 of the Drip account funds into Income every month. Can you see how you will end up overinflating your Profit First accounts? OPEX will definitely be too high, and you will mistakenly think that you can spend more on expenses—which could topple your whole Profit First system.

With Owner’s Pay, this inflation can be especially dangerous. If you’re an owner who withdraws the full amount from your Owner’s Pay each pay period, you’ll be paying yourself prematurely for services not yet rendered. (And you know we advocate for building a buffer in Owner’s Pay. Determine a living wage for yourself and withdraw that every month, leaving the extra for when tough times hit. True, Owner’s Pay will grow as your revenue increases, but you should be making calculated decisions to increase your Owner’s Pay allocation percentage using accurate earned income figures from previous periods.)

Similarly, you might think the Drip account should only be for setting aside some OPEX monies, and you can do what you want with the rest. Which would be…? Putting it in Owner’s Pay? Or Profit? You can see how you run into the same problem.

Black Friday shouldn’t put you in the red.

When you do offer long-term, prepaid deals, you need to price them appropriately to cover your expenses that will accrue over time. You’ll probably need to pay yourself or a team member to work with the client, so factor in payroll expenses. Don’t forget rent, utilities, insurance, and anything else that falls under OPEX.

You may think of offering deep discounts for existing services to get people to sign up. But consider how you can add value to your product offering instead of discounting the price. Throw in a free month of a nutrition app with the purchase of a gym membership, or add a free massage for buying a bundle of ten at full price. We’ve encouraged you to get creative to incentivize your clients in an earlier post.

We caution you against relying too heavily on “paid in fulls” to sustain income. Monthly recurring revenue models are much easier to manage in terms of cash flow. As you head into the new year, what are some ways your business can create excitement around a monthly subscription rather than waiting for the next Black Friday to roll around?

3 Ways to Minimize Tax Season Stress

Tax season is around the corner. Getting everything together and filed can be really stressful, especially for business owners; but it doesn’t have to be. You simply need to know what you need and have it ready by the start of the filing season.

Primarily, you’ll need to:

  1. Know your numbers
  2. Know your mileage
  3. Know your home office expenses

Know Your Numbers

Your “numbers” are your annual net profit, to be exact. Hopefully, you are able to produce a Profit and Loss statement for the year because you’ve kept really good track of your books or had a bookkeeper working with you.

The Profit and Loss statement (P&L) will tell you (or your tax preparer) how much the business made in revenue, how much was spent in business expense, and the difference (profit or loss); all of which is needed to prepare the business portion of your tax return. An accurately-completed balance sheet is also helpful, but the P&L is critical.

Know Your Mileage 

If you use your vehicle 100% for business, tracking vehicle expenses are easy. But if you use it for both business and personal reasons, you’ll want to track the number of miles you drove for business and separate that from the personal miles. Your tax preparer will need this number to give you credit for the business use of your vehicle (56 cents/mile for 2021). If you didn’t keep good track of your business miles, use your calendar to track old appointments and meetings, and get the total for those miles driven throughout the year. You’ll also want to report the parking and toll fees you incurred during the year. 

Know Your Home Office Expenses

You may get a deduction for the business use of your home, but you’ll need to be able to provide some information to take advantage of it. Typically, these items should not show up on your P&L, but you can still use them to reduce your taxes. In order to claim the home office deduction, you’ll need:

  • The total square footage of your entire home
  • Square footage of your home office space
  • Annual total for mortgage interest/property tax or rent
  • Annual totals for all utilities
  • Totals for certain repairs and improvements

Typically, you’ll be able to get a deduction for these expenses based on how much space your home office takes up (i.e. you’ll be able to deduct 8% of the total annualized expenses if your home office takes up 8% of your home).

To learn more about the home office deduction, you can get more information on the IRS website or ask your tax preparer.

Having all of these numbers ready in advance will save you a lot of stress, time, and potentially some money. So start early! And while you’re at it, start setting up some systems for next year so you’re gathering this information year-round. If you need support with this, be sure to contact us!

Money and Mindset for the Holidays


I know this is no surprise to you, but the holidays come around every year. Just like your birthday and your anniversary. You have plenty of time to plan ahead for saving up to buy gifts and for taking time off. But every year, it seems like it sneaks up on you. Right?

It doesn’t have to be that way and the last two months of the year do not have to be the most stressful of the year. All it takes is a little bit of planning for Parkinson’s Law.

First, let’s take care of this year’s holiday season; it’s right around the corner. How can you be ready for those last few weeks of the year–both financially and with tasks and projects?

And since we all know that what’s going on in your personal life bleeds over to business and vice versa, we’re going to talk about both.

Start Where You Are

Most people put the holidays and vacations on credit cards. Let’s break that cycle. If you haven’t been saving for holiday purchases, start now. (Better late than never!) You may not have a lot to set aside, but something is better than nothing. And you can find creative ways to gift your friends and family with what you have–instead of what you can put on plastic.

At the same time, we usually spend more money on groceries and eating out in November and December so it might be smart to watch your spending in other areas to make up for that.

Also remember that you don’t have to buy gifts for everyone, and you don’t have to spend money to show appreciation. Sometimes just some quality time together is gift enough. Some families draw names so they don’t have to buy gifts for everyone. Others get gifts just for the kids, since the adults can just buy themselves what they want. Here are some other ways to make the most of the money you have.

In your business, find unique ways to show your appreciation without impacting the bottom line. That might look like some paid leave for employees during your slower months. (If you have a subscription-based business plan, your revenue will stay the same so there’s no hit to your bottom line.)

And as for the work you need to get done before taking off for the holidays, remember Parkinson’s Law. And fight it! 

First, make a list of priorities and know what you can delegate to others or let go of completely. Then set a schedule for yourself to get the work done. Actually plug it into your calendar so you don’t overbook yourself and you actually have time to get the tasks done.

You may also want to find an accountability partner who can hold you to your schedule. That could be a biz bestie or a team member who is tasked with checking up on you. (It works!)

Plan for Next Year

Once we’re past this holiday season, January 1 is not too soon to plan for the next one. In fact, we recommend this! You can Profit First your personal finances so you have money set aside when it comes time to shop, set a holiday budget, and do some creative things to cut your expenses so you can increase your holiday budget.

In your business, create a business that allows you and your team to take time away so everyone can enjoy the holidays. This looks different for different businesses, but some ideas include:

  • Build out a subscription model. Clients pay a monthly fee for your services, whether they use them or not. You won’t see a dip in your revenue when things slow down over the holiday months. And fewer clients to see means you won’t have to work as much!
  • Create tools clients can use at home. If you’re in the fitness industry, this could look like at-home workouts. If you’re a wellness practitioner, this might be mindset work and meditations. Think about how you can serve your clients without being face-to-face with them? That way you’re still providing value even if you’re technically not working.
  • Do a Profit First assessment on your allocations. If you want to have a certain amount set aside to make up for a slower season, you might want to adjust your allocations so the money is there when you need it. And we recommend having three to six months of expenses set aside…just in case.
  • Don’t feel like you need to buy for your team. It’s so hard to buy for people we only know professionally. Sometimes the best gift for your team is a year-end bonus using your profit distributions. After all, December 31 is profit distribution day anyway!

In the end, it’s important to have your mind and your pocketbook prepared for what’s coming up. We can’t prepare for everything, but we can prepare for the things that come every year–taxes and the holidays.

Use your Profit First accounts to your advantage and never feel like you’re scraping together funds for “emergencies” (because you forgot to save for the holidays).

Choosing The Right Business Coach

Working with a coach is a great idea when you’re looking to improve some area of your skillset. Sure, you can google the subject, read a book, or watch a dozen YouTube videos, but nothing can replace real-time human instruction and guidance from an experienced professional who has walked the walk. 

If you’re looking for a coach to help you improve your business or your finances, you will find no shortage of people out there to choose from. The same goes for life coaching or mindset coaching. Technology has made it possible for us to connect with anyone, anytime, anywhere in service-based relationships—but with coaching, I think you really need to have a personality connection more than anything.

Trust and Straight Talk

Your coach needs to be someone that quickly earns your trust because they’re going to hold a lot of information about you and your business. You should feel comfortable revealing all your money baggage to this person. Sometimes when we’re tiptoeing through a financial minefield, we don’t tell anyone (we’re embarrassed, fearful, or insecure). Ask yourself if this potential coach is someone you could tell the whole truth to, and if you’d heed their advice in navigating a safe way out. 

After all, you’re hiring a coach because you’re looking to improve something about your business or financial situation. (If you weren’t, you’d be knowledgeable and confident enough in your abilities to handle it yourself. And I’ll tell you, as a coach…even coaches need coaches!) So you need someone who won’t just fill your sky with sunshine and rainbows because that won’t improve anything. She should be straight with you about where change needs to happen.

I do this with my clients, and I’m humbled by what they share with us in return. Sometimes, I suspect I know more about my clients’ money situations than their own spouses do. That’s a measure of not only how difficult it is to talk about money with the people in our lives, but how important trust is to the client-coach relationship.

We’ve mentioned here before that your coach, as with all members of your business money team, should have a teacher’s mindset. That’s because most business owners aren’t looking for someone to do all the work for them—rather, they want to learn how to do it better themselves. Does that sound like you?

Experience and Expertise

Of course, your coach should have excellent experience and qualifications. (If you want to implement Profit First, look for a certified professional.) In an ideal world, I think money coaches should have to share their own financial data with potential clients to prove they know their stuff. I’ll continue to dream. But while we wait for that to happen, it’s reasonable to ask for details of their experience, including numbers. If you’re vetting a coach who says she ran a business for five years, I’d ask her things like: How big was the business? How profitable? Was it similar to my business? What challenges did you face?

Because ideally, you want a coach who’s been where you are—and is several steps ahead of you. She’s experienced the typical obstacles to successful business ownership (or good financial health), so she knows how to get past the next four or five hurdles that now lay in front of YOU. She’s in a knowledgeable position to help you strategize crossing the finish line.

Speaking of knowledge, I know a lot about some things (like money—I know A LOT about money.) But I don’t know a lot about everything. Rare is the expert in multiple areas. (Be wary of the heart surgeon who says he can also operate on your brain.) I happen to work with a few coaches and consultants to up my game in business and in life, and I don’t confuse my mindset coach with my marketing specialist. 

That said, I am a thorough business coach myself. Even though we don’t bill ourselves as experts in these areas, we will address your marketing, your systems, and your team—because those things all show up in your money, which I’m looking at like a hawk. By reviewing your income statements and Profit First accounts, I can very often tell you what aspect of your business needs addressing, even (and especially) if you haven’t realized it yourself. It all shows up in your money.

Values and Lifestyle

Relatability is important for some people when choosing a coach. I have an entrepreneur client in her mid-40s who feels that Millennials won’t make great coaches for her because they haven’t had the same life experiences she’s had and won’t understand where she’s headed.

Perhaps what my client is really getting at is the importance of having a shared value system with anyone you’re working closely with. If this is important to you, have a look at how they’re showing up on social media. 

The coach who’s on her laptop on a beach in Bali? One business owner might say, “That’s the life I want exactly! I need to hire that coach immediately.” While another might think, “Hmm, does this coach embrace a career helping struggling business owners like me, or I am just a means to an exit plan?” Consider whether you’d be aligned with this person on, say, ideas about what to do with your profits.

I like to feel out whether someone is the “hustle and grind” type because I don’t put in 16-hour days. Any coach I work with should value life and work harmony as much as I do.

But maybe you love the hustle. There’s no right answer. It depends on what you’re looking for and where you want to go in your business. Don’t hesitate to have an extended conversion and ask real and hypothetical questions related to your business, your spending and saving habits, and your lifestyle. The right coach should emerge as simpatico with you.

Creating Money Systems Beyond Profit First

More systems in your business = less stress and more efficiency.

You’ve already got a solid system for cash flow management if you’re using Profit First. And setting target allocation percentages for each of your accounts is part of a system to help you achieve your broader financial goals. What other systems should you create and maintain to keep your money working for you?

Schedule it.

For starters, systems operate on schedules to be successful. Have you heard of #MoneyMonday or #FinanceFriday? This is a trend you should get on board with. It’s about blocking time every week to manage your money—or even to educate yourself on topics related to wealth and financial health.

We can’t recommend enough that you schedule a regular money date with yourself every week. If dealing with your finances causes stress and confusion, postponing it will only add to that stress and confusion. Build a habit of working with your money on a regular basis to make it automatic and easier.

Schedule enough time to complete your basic bookkeeping, plus add time for the extras as needed. I block off one hour every Friday, except for the days I do payroll—then I block off three hours. 

Create a Bookkeeping System.

Bookkeeping is an essential business activity that tracks and records how and where you take in and spend money. It’s more than just the organization of your financial data—although this is crucial for tax purposes. This data also guides you in making smart decisions to maintain, grow, and course-correct your business. 

Here’s one way you can think of it. Your Profit First OPEX account sets a limit on what you can spend, while your solid bookkeeping system can illuminate what you’re spending too much on.

If you’re doing your own bookkeeping, we’ve already suggested you use software rather than trying to create and manage multiple Excel spreadsheets. It’ll make your life much easier.

On a weekly basis, bookkeeping should include entering business transactions and capturing receipts. It’s much more manageable to snap pics and properly categorize the four or five expense receipts you have from this week rather than waiting to document a pile of 300 receipts in January. How can you even remember what it is that you bought at Costco for $134.97 last February? (We covered some basic dos and don’ts for maintaining receipts in a previous article.) 

On a monthly basis, you need to reconcile your accounts. We like to do this on the first Monday or Friday of the month, for the month prior. (Don’t forget to schedule extra time in this weekly money date to do the monthly stuff.)

You should also review your profit and loss statement—your overall summary of revenue and expenses—every month at the very least, whether or not you use Profit First. With the monthly P&L statement, think about what you were expecting to happen with your money versus what actually happened. Did you have a spending plan or a budget and did you stick to it? Where do you need to make adjustments for next month?

Run any key reports that are relevant to what you’re trying to accomplish or evolve in your business at any given time. For example, if you’ve recently embarked on a marketing push, you’d probably want to run a monthly report on the effectiveness of your marketing spend (are you gaining new clients at a rate to justify the expense?).

Your financial coach can be super helpful in identifying which reports to create and how to interpret them, depending on your business goals. 

Create a system to review your client pricing strategy.

Business owners should regularly assess this key factor of incoming revenue.

Pricing strategy in fitness and wellness businesses is often based on purchasing an hour of time or bundles of hours (packages). When clients want to increase their participation, that often translates to buying more bundles or buying a different package altogether. You should have a system to evaluate what products and packages are contributing to client retention and growth. Reports, report.

Review your pricing strategy annually at the very least. But, if you decide not to adjust your pricing this year, then consider revisiting the idea every quarter of the coming year, until you’re ready to make an adjustment. (Two years is a long time to wait between pricing adjustments.)

If your business uses a different pricing structure, you should analyze your time/money ratio per client every month. The first couple of months you’re working with a new client is expected to be more time-intensive, but there are always those who continue to be high maintenance beyond this getting-to-know-you period. You can track your team’s hours with that client and evaluate the trend after three months or so. Then have an internal conversation about whether you need to make a pricing adjustment to reflect your effort.

Don’t forget your quarterly Profit First reassessments.

You need to examine your Profit First system every quarter at least, so be sure to schedule this on your calendar as well. Everything is interrelated.

By the way, all of the above is pretty much what you should be doing with your personal finances too. Take a #FinanceFriday to look at how your investments are performing. Your weekly money date is a great time to research things related to retirement strategy and diversifying your portfolio. The stuff you probably would never get around to if you didn’t schedule it.

Set Yourself Up for Financial Success in 2022 with Profit First

It seems like it was just yesterday that we couldn’t wait to put 2020 behind us. And then it was hard to know what to expect from 2021. 

But things are generally looking up for the fitness and wellness industry. As consumers come out of isolation, they’re having a newfound appreciation for the in-person activities and services we provide. And they’re adjusting to a new normal and forming new habits. Now more than ever, physical and mental health is a life priority for so many people. 

So while business owners had to do a fair amount of winging it these past 18 months, next year looks to be more predictable—and hopefully, more profitable. Have you started to plan for financial success in 2022 yet? Profit First is key to this (but you knew we were going to say that).

If you’re already using Profit First, this final quarter of the year is the time to set annual goals and quarterly target allocations for 2022. Trust us, goal setting leads to growth and profit gains. Skip ahead to read our advice on how to do this—it’s a combination of big picture thinking and number crunching, and we’re always here to help.

If you’re a Profit First newbie (or just need a refresher), start here.

If you haven’t implemented Profit First yet, now’s the perfect time to set up your system so that it’s in place and ready to go at the start of the new year. This is exciting! You’re about to pump some new life into your financial success and health.

Begin by downloading our Profit First Overview. This includes super simple steps—and a formula using your current business numbers—to get started right away with this cash management system. 

The gist of Profit First is in its name. With this system, you will take out a profit from your revenue as it comes in, first. You’ll also set aside portions of your revenue for an owner’s salary, and for taxes (which, let us remind you, become unavoidably due). You will use what’s left—and only what’s left—for your operating expenses. 


With Profit First, you move money into separate bank accounts earmarked for Profit, Owner’s Pay, Taxes, and Operating Expenses (OPEX) so that you cannot be tempted to “borrow” from them. You do this on a regular schedule, usually twice a month.

How much of your incoming revenue should you allocate to each bank account? Profit First works with allocation percentages—so when your revenue goes up or down, all of your accounts will adjust in proportion, as they should. See page 8 of the overview to calculate your suggested target allocation percentages for each account (and what that translates to in real dollars) based on your actual business numbers. The target allocations are just that—targets to aim for, to get your business running optimally. 

This is an excellent place to start, but this is also the place where some business owners get stuck—say, when they’re comparing target allocation percentages with their current figures. Maybe you’re currently spending 50% of your revenue on expenses, but your Profit First instant assessment suggests you allocate just 30% to OPEX. As it is now, you never have enough to pay the tax bill when it’s due, let alone give yourself a profit—so you know you need a better system. But it’s a gradual process to make this shift. You may not be able to make such a drastic cut to your expense budget overnight. 

That’s okay. As Profit First creator Mike Michalowicz says, “The key to successful Profit First implementation lies in stringing together a series of many small steps in a repeating pattern.” This is where a Profit First professional can really help. We’ll do the calculations and show you how you can move from your current allocations to your target allocations, incrementally. Small steps.

And that’s why we suggest setting up Profit First now in preparation to start using it in 2022. Because it does take a few months to get into the habits that make the system successful. So give yourself a quarter to get going. And you’ll refine and adjust the target percentages quarterly moving forward, to get you closer to the ideal setup for your unique business.

If you’re experienced with Profit First, it’s time for annual goal setting and refinement.

Every year I set a new financial goal for my business. You should too. For example, it could be to increase my revenue by 50% in 2022. Once I’ve set a big picture goal like that, then I’ll apply it to my Profit First system already in place. I’ll calculate how much additional revenue I need to be taking in every quarter to reach my goal. And as my revenue shifts, I might need to reassess my target allocation percentages, per Profit First. What do I want my target allocation percentages to be for every quarter in 2022, to achieve the business growth I’m looking for by year’s end?

Then it’s a matter of knowing the data that’s unique to my business, so I can figure out how I’m going to actually get there. What’s my average revenue per client? How many new clients will I need to add at that rate to achieve my goal? 

But it’s not just the incoming revenue. I also must consider what I might need to spend from OPEX in order to acquire those new clients. How much marketing do I need to do to get new business leads, and what will that cost? Will this process divert labor from my team that I need to account for? 

If you intend to plan for business growth and not just wish for it, you should get familiar with the ins and outs of your business at this level. Make 2022 the year you can answer all of these questions.

As you can probably see, planning for financial success requires a bit of reverse engineering. You set a goal, you do the calculations, you identify the steps, and you take action. It’s often a process of trial and error. Profit First is great because you can build your goals into the system of target allocations and continually customize it for your business. It’s a constant refinement.

So what’s your goal for next year? With some thought and planning (and Profit First), 2022 can be your most successful year yet.

What You Need to Do NOW to Prepare for Tax Season

While income tax filings have an annual deadline, the management of your taxes is ongoing, especially as business owners. 

The key to managing your taxes is Proactive Tax Planning. This can mean many things to business owners, depending on the size and complexity of your business. But for the sake of keeping things simple and pragmatic, we’ll refer to proactive tax planning as a periodic review of your financials and projected tax liability DURING the tax year. This allows you to forecast your potential tax liability and position yourself to maximize any credits or deductions you may qualify for. This is the best way to make sure you’re paying the least amount in tax that you’re legally obligated to pay. But what does this look like in practice?

What you SHOULD have been doing (from January to September) to prepare for tax season

It is currently the beginning of the 4th quarter in 2021 (early October). If you were actively managing your taxes throughout the year (with the help of a tax pro, of course), you will have done these things:

  • Know your tax liability for the previous year—This number is the basis for what you may need to pay as quarterly estimated taxes. 
  • Pay your quarterly estimated taxes—If profitable, you should have been paying quarterly estimated taxes.
  • Review your financials on a monthly basis—You should know if you are more or less profitable as you were this time last year. This will give you a strong clue if you should increase or decrease your quarterly estimated tax payments. 
  • Review your financials on a quarterly basis with your tax pro/advisor—They will help forecast your tax liability, identify any tax savings opportunities, and help you make your estimated tax payments. 
  • A-la-carte consultations—Between quarterly consultations, you should have reached out to your tax pro before making any major decisions that will have a large tax consequence, like real estate or large asset purchases.

What you should do for the rest of the year (from October to December) to prepare for tax season

One of the biggest benefits that we have as business owners is the ability to control how much our businesses are taxed. How? By controlling how profitable we are. But we can only exercise that power by having up-to-date financials (a profit and loss statement and balance sheet). 

You can’t know what your tax liability will be until you close out your books after December 31. This is why they call it ESTIMATED taxes. However, by having accurate financial statements, we can make very accurate projections of what you may owe. And by knowing how profitable you are as we near the end of the year, you have the ability to increase or decrease business spending, which ultimately gives you great control over what you’ll be taxed on. 

There’s one popular, yet horrible strategy that I want to warn you against. There are accountants and “advisors” who will encourage business owners to sped off all of their profit in order to save on taxes. This is equivalent to spending $10 to save $3. It’s not illegal, but it’s just a bad strategy if you’re looking to build wealth. Instead, you want to focus on increasing PROFIT while budgeting for and minimizing your tax liability.

So, here are the things you’ll want to do for the remainder of the year:
  • Have all of your financial statements cleaned up and updated ASAP if you haven’t done this already. You cannot plan for taxes effectively without accurate financial statements.
  • Compare January through September 2021 to January through September 2020. Are you more or less profitable than the year before? This will give you a large clue if you should anticipate a larger or small tax bill.
  • Consult a tax pro. Have them do tax projections and forecasts based on your year-to-date Profit and Loss Statement, and based on what you think your net profit will be at the end of the year. Have them identify any potential tax savings opportunities.
  • Pay your quarterly estimated taxes if you haven’t done so yet. It’s important to pay 2021’s taxes with 2021’s dollars.  
  • Plan to meet with your tax pro before the year ends and keep a really close eye on your net profit as you approach December 31. 
  • Catch up on your quarterly estimated taxes if you haven’t done so yet or start planning for it. You should have very accurate estimates if you consulted a good tax pro. If not, use last year’s tax liability as your basis. 

Profit First has a wonderful system to help keep sufficient tax reserves. It’s simple, painless, and can help make sure you have enough for taxes and helps you prepare for tax season, no matter how little or how much you make. Sign up now for an assessment and let’s get you started!

Having A Plan For That “Extra” Money in Your Profit First Accounts

When a client tells me they’re finding “extra” money in their Profit First accounts, I get excited for them, but also a little concerned.

Excited because more money in their accounts usually means their revenue has increased. Business is probably going well.

Concerned because—well, remember when we explained Parkinson’s Law? The demand for something expands to match its supply. It’s a phenomenon of human behavior that proves itself time and time again. As it applies to money, here’s what happens: The more money you have, the more money you will spend. 

So, for example, when you have “extra” money in your OPEX account after you pay the bills, your natural tendency is to think that’s money that can—or even should—be spent. You may drum up reasons for ongoing expense spending without thinking through if it’s feasible in the long term.

You’ll spend it, and then you’ll form habits of spending. 

Money Without a Plan

When you accumulate more funds than you’d anticipated having thus far in your Profit First accounts, please don’t think of that money as disposable cash. It’s really just Money Without a Plan, which is a bad thing. You should always have a plan for what to do when your revenue shifts. 

The beauty of Profit First is that you can build and tweak your plans through your allocation percentages. You already know you should review them on a quarterly basis, which is fine for the most part, but sometimes revenue has grown so much that you need to make an intermediate adjustment. Here’s what to do whenever your business has more money in its accounts than you planned for. (It might be time to make some new plans.)

Got extra money in the OPEX account?

The most dangerous place to have extra money is in OPEX. There are many options and ways to spend money on things that fall under operating expenses—it can be tempting. 

But remember that Profit First is based on circumventing Parkinson’s Law. Your OPEX allocation should be set up to just cover your current operating expenses so there’s no extra money hanging out in there. 

You can give yourself a little buffer though. What’s the minimum OPEX balance for your comfort level? It might be $100 or $500 or $1000, or one month of expenses. Consider that figure your “zero.” At the end of the month when all the bills are paid, if you have substantially more than your zero in OPEX, then you need a plan for that “extra” money.

What would best serve your business? It might be time to adjust your Profit First allocations to reduce the percentage going into OPEX and to drive them closer to your target percentages for the Owner’s Pay or Tax accounts. 

Or, maybe it’s time to create an advanced account or two within your system. Reallocate some OPEX funds into its own separate bucket for an Annual Expense account, or a Marketing account… It all depends on your business needs. 

Extra money in OPEX almost always means that overall revenue has increased. But it can also mean you’ve cut your operating expenses. Usually that’s part of a plan too, so your allocations should be adjusted accordingly. 

Got extra money in the Tax account?

Let this money accumulate until you’ve paid the taxes for the current period. Repeat: don’t do anything with this money until you’ve paid your taxes! 

Once that’s done, you can transfer the extra funds to your Profit account and withdraw them as a profit distribution when the time comes. Or you could add the funds to an advanced account you’re working to build up.

If you’re finding extra money in the Tax account even though your revenue hasn’t substantially increased (or nothing else has dramatically changed), this could indicate that you may have been a little off in calculating your Profit First targets the last go around. The percentage allocated for taxes should result in the right amount of reserves you’ll actually need, because it’s based on your total revenue. 

If it’s not making sense to you, seek the guidance of your Profit First coach or tax professional before adjusting your target allocations. 

Got extra money in Owner’s Pay?

Good. This is one time when you need a little “extra” in there, or else freaking out may ensue. The pandemic has taught us that it’s so important to still be able to pay yourself when revenue dries up in turbulent times. 

As with OPEX, you can decide on a comfort buffer. For some owners, it’s one month’s pay. But we recommend saving a cushion of three months. It really depends on your personal financial needs. Talk to your Profit First coach for guidance on the buffer and how long to keep it in your account—it’ll be different for every owner based on your overall financial health. 

If you’ve accumulated more than three months in Owner’s Pay, think about increasing your monthly pay disbursement, or adjust your allocations to put more money in Profit and use it to work toward building a rainy day fund or retirement plan. Realize that anything in Profit is still owner’s pay, but sometimes it’s how you label the funds that can determine how wisely you spend them.

Got extra money in the Profit account?

No one has ever complained that having extra money in their Profit account was a problem—go figure. But let’s say you’ve taken your regular profit distributions, you’ve paid off all your debt, you’re jetlagged from enough vacations… and you’ve still got extra profit that you don’t know what to do with. This is the moment to put your profits to work for you, by venturing into investments and retirement planning, if you haven’t already.

However, this is assuming you’ve already got three to six months of revenue sitting in a VAULT account. This is the ultimate disaster preparedness plan for your business, and if you’ve got more Profit than you know what to do with, then you’re surely in good enough shape to be amassing a VAULT.

Now that you have some ideas about what to do with that “extra” money, we’re feeling relieved.

Don’t hesitate to ask us for help in designing a plan at any stage of your business journey. This is exactly what we do.

Who is on Your Business Money Team?

There can be a lot of confusion around who should be on your business money team and their roles (including your role as the business owner). But without a solid team, you may feel confused about your finances–which is never a good feeling.

No matter how long you’ve been in business, it’s time to pull together your team now or revisit the individuals who are supporting you.

Your “Accountant’s” Role

The term “accountant” is broad and is mostly misused by business professionals. For this article, we’ll limit it to the role of tracking your business’s finances and producing accurate financial statements with them. Think P&Ls, balance sheets, reconciliations, and all of that good stuff. 

At a basic level, a bookkeeper will focus more strictly on recording your financial transactions. An “accountant,” however, can give you insight into your financials to help you make strategic decisions. Newer or smaller businesses may suffice with a bookkeeper initially but may have to hire an accountant as the business grows and becomes more complex.

Oftentimes, it’s not the best use of the owner’s time to keep the books. However, you still must understand how to read your financial statements and conduct your financial affairs in such a way that it’s easy for your accountant to track everything (i.e. no commingling of funds between personal and business accounts). Also, if you don’t understand your financial statements and don’t review them regularly, you may put yourself at risk of being stolen from. You want to find an accountant with the heart of a teacher, who will help you understand your financial statements.

Your Tax Pro’s Role

Business owners often think that all accountants prepare taxes. This is not true. Tax and accounting (bookkeeping) are two processes. The accounting needs to be complete before the taxes can be prepared. When seeking out a tax pro, find someone with the heart of a teacher (see a recurring theme there?) who will explain to you how to minimize your taxes and stay in compliance with the IRS and state. If you really want to save on taxes, you’ll meet with your tax pro on a quarterly basis, but definitely at the end of third quarter as you near year-end. Proactive tax planning is the best way to keep taxes low and to ensure there aren’t any surprises come tax time.

You can make your tax pro’s job easier by having accurate and complete P&Ls and balance sheets. Your accountant actually does the heavy lifting in this regard. Be sure to ask your tax pro about any tax savings opportunities or recent changes in tax law that might affect you (a great tax pro will tell you before you ask). Last, make sure you pay your quarterly estimated taxes to the IRS and the state.

NOTE: If your tax pro encourages you to spend off your profit to reduce taxes, seek a different tax pro.

Your Cash Flow Management Coach

We can’t talk about money teams and neglect to mention Profit First Professionals! While accounting tells you where your money came from and when (via financial reports), cash flow management directs where your money goes. We use the Profit First cash flow management system to help business owners become permanently profitable, pay themselves regularly, reserve for taxes, and know exactly how much they need to budget for their business’s expenses. A Profit First Professional can help you design a system that works for your business and your goals.

Contact a Profit First Professional Firm (that’s us!) to do an assessment of your finances and build out a customized cash flow strategy for you. If you contact us, we’ll give you step-by-step instructions.

Last Thoughts

Accounting, taxes, and cash flow management are different disciplines, although closely related. There are some professionals who can do all three, but it’s probably best if you separate some of it out to protect yourself and your money. But all the members of your business money team should be in some type of communication with each other. Just make sure that they are familiar with your business, your industry, or goals, and have the heart of a teacher.

How Profit First Can Help You Talk About Money

As a bookkeeper, I’m always taking the pulse of a business to help assess and improve its financial health—ultimately, so that the humans behind it can have all they want out of life. I talk about money a lot because it’s—no pun intended—the currency I deal in. But it never fails to surprise me how uncomfortable most people are to discuss money, be it their desire for it, their lack of it, or their fear of losing it. Why are we so afraid to talk about it honestly and openly?

Money itself isn’t good or bad. Money is just a thing we use to transfer energy back and forth between people. It’s a medium of exchange to get what we need to live—and then, hopefully, to experience our best lives.

It drives me crazy that money is such a taboo subject, but I get it. I see people ashamed that they’re not providing enough for their family, or that they’re in too much debt, or that they can’t afford what other people can afford. There’s also the hesitation to be proud of financial successes. You’re seen as bragging if you’re doing well.

The truth is, we usually don’t know the whole story behind everyone else’s finances, and we get everything out of whack when we set up comparisons. It’s not apples to apples, because the other guy may be dealing with oranges.

If you can talk about it, you can change it

One of the things I love about Profit First is that in encouraging us to pay ourselves first for our hard work, it essentially encourages us to believe that we deserve that money. It puts money at the forefront of the conversation of why we’re in business in the first place. Sure, you have a great service, product, or skill that you want to offer to the world, but let’s face it, you’re also here to make a profit.

Here’s my two cents on how to talk about money with the people closest to the backend of your business, with the goal of eliminating secrets, banishing anxiety, and making smart decisions that will help you to sustain and grow your business.

Talking about money with your bookkeeper

Your personal financial health and your business financial health are intertwined. Be honest with us about both. We can’t help you with your money if we don’t know what’s going on with your money. Are you in a jam with your finances at home? Are you not making a living wage? Maybe we can make a suggestion on the business end of things that will help to lead you out the hole you might be digging.

Bookkeepers are experts at reviewing your financial data, so we don’t give money advice without having facts to back it up. In other words, we got receipts. Even if your bookkeeper isn’t privy to your personal bank statements, it’ll likely all get fleshed out for her when she reviews your business statements and

And we all have our dirty little money secrets. The things we like to splurge on that no one else thinks worth a dime. Or the occasions we got ripped off and felt we should have known better. As bookkeepers, we’ve seen it all—maybe we’ve even been there ourselves—so nothing is too taboo to share. Tell us so we can help.

Talking about money with your team

What’s appropriate to share with your employees and contractors? This one may surprise you.

I’m a fan of having an open-book policy with your staff and sharing how things are going with your business. I share my P&L figures with my team on a regular basis—they know my allocation percentages. Employees are your boots on the ground. The more they know, the more likely they are to be invested in increasing revenue for your business. Their success is tied to your success, especially when you’re doling out bonuses based on your profits at the end of the year. Isn’t it great when your employees point out how you can eliminate an expense because they’re no longer needing the service you’ve been paying for?

Most business owners don’t want their team to know how much they’re making. But what I’ve seen is that most of the time, your team thinks you’re making more money than you actually are. Sharing your business finances with them can dispel the myth that you’re swimming in cash, and that it would be easy for them to leave and become your competitor—one of the biggest fears that business owners have.

I’ve started to gently encourage my team members to open up a bit about their personal finances, if I have their permission to do so. I can see that it affects their work when they’re struggling at home—we all have money anxiety at some point. If you have staff meetings, you’re probably already providing some kind of business education to them on a regular basis, so consider adding financial literacy webinars and other tools and learning to the mix.

Talking about money with your business partner

Profit First is beautiful for business partnerships because it puts percentages in place from the starting block that both (or all) partners agree to ahead of time. Sure, there will be issues from time to time, but they’re much easier to mitigate when you’re working from an established framework.

It’s also important to know your money personality. Is one of you a spender and the other a hoarder? For example, you could have differing views on what constitutes a necessary operating expense, but at least with Profit First in place, you share a basic understanding of how money will be handled in the business.

Talking about money with your life partner

It’s common for business owners to discuss major decisions about their business (such as big-ticket purchases) with their life partner, even if that partner doesn’t have a legal interest in the business. They’re vested in its success because they’re vested in you.

We advocate for some regular conversation about your business with your life partner. I know a couple that talks about it every Sunday morning, but if that’s too much taboo for you (!), I recommend doing it at least quarterly. Make them privy to the details of your Profit First strategy. I often see conflict where the partner doesn’t understand the difference between your revenue and your profits. You can show them your Profit First allocations to help them understand that you have a plan in place for when and how often money will be flowing out of the business and into your pockets—and how you’re avoiding the need to invest future household income into the business, because you’re saving in advance for things like taxes.

It gets easier

Take it from a bookkeeper—the more you talk about money, the easier it gets. Don’t let a lack of practice hold you back from making progress. Practice!

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