With Profit First, you can see your budget in real-time when you look at your bank balances! Learn more about why I implemented Profit First.
Profit First is a simple cash management system like Dave Ramsey's envelope system for household budgeting (where your paycheck is intentionally allocated into envelopes) but you use bank accounts to create a simple budget dashboard for your business. Simple, free, and time-tested.
Farms are complicated business models with multiple enterprises, multiple revenue streams and, for direct-sellers, we "manufacture" as well as sell our products. I learned from Profit First that managing our money & budget does not have to be as complicated as managing the rest of our business.
I learned from skilled Profit First Professionals that I should add another account if I needed more clarity or wanted to budget for something special. I also learned simplicity was the key to clarity and clarity brings peace.
The accounts I use for my dashboard are the basic accounts in the book:
- Income - your deposits go here so you can clearly see how much money you have coming in from all sales channels. It is just a serving platter for the other accounts.
- Feed/Inventory (Mats & Subs in the book) - hay, feed, seed, bedding, fertilizer, processing costs, livestock or plants to grow out are paid from here
- Profit - profit is intentionally set aside, not a leftover.
- Owner's Pay - is intentionally set aside, not a leftover.
- Income Taxes - intentionally set aside, not something you have to scramble to find cash to pay.
- Operating Expenses - this is what is left over for you to pay your overhead
Like many of you, I had income from several credit card processors coming it at random times, frankly it was a mess.
So, I set up the Income account first to separate my income from my expenses and to test the system without a huge commitment and while I worked out the plan for my allocations.
All money from sales channels (at that time Square, Shopify, Quickbooks, PayPal, EBT, cash & check) was deposited into the Income account and I allocated all of it to my main checking account every Tuesday.
The relief was immediate.
No more mental math to sort out how much money was coming in from the expenses in my main checkbook. I knew how much money I had coming in to pay my bills for the week and how much money I had left over (or not) from the previous week.
Precious time was saved because I didn't need to manually enter credit card deposits in the check register of my main checking and do the math to know how much money was available - it was just 1 simple deposit into my main checking account every Tuesday.
In a month, I opened an Inventory/Feed account so money was set aside for my core direct expenses like hay, feed and processing and kept my old main checking account as the Operating Expense account to cover debt and my overhead expenses.
Originally, I opened a Profit, Owner’s Compensation and Tax accounts at the same bank, but it made it too tempting to "borrow" the money intentionally set aside so I moved them to an inconvenient bank. Save time and just open them at an inconvenient bank to start.
- Make sure your bank offers free accounts with no minimum balance, no fees and can be linked to Quickbooks Online to automate your banking later. If not, find a bank that will.
- Don't worry about opening a bunch of bank accounts - your banker generally gets some perks for opening accounts
- Consistency is key for your allocation schedule.
- START NOW - open the Income Account and start separating your income from your expenses.
Check in next week to learn how I determined my allocation percentages. Hint: it is intentional and you take baby steps toward your targeted goals.
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