Leap Day Sale!

Get 20% off all Showit Templates & Profit Sheet! Now through March 6th!

use code "leapday"!

see my top biz resources

see my top biz resources

podcast

freebies

template highlight

gabby podcast kit

Oh, you wanna know more?

design

business

marketing

template showcase

personal

listen to the podcast!

I'm Elizabeth, and simply put, I design brands and websites. I mix in marketing strategy, personality galore, and tons of fun to create custom brands, custom websites, and website templates. These designs convert lookers into buyers and take the headache out of the design process. I believe your brand should be a knockout. I'll help you create a captivating + profitable online presence! Join me, won't you?!

Hey there!
of the year

6 Months into Using the Profit First Accounting Method: My Honest Review! (Part One)

Reading Time: 10 minutes

Hey friend, I'm SO excited you're reading this because I've been wanting to share my honest Profit First review for the last six months! When I started using this accounting method in December, I knew I had to share it with my podcast community. In this episode (part one of two), I'm going to share what Profit First is and how I set it up for my business. But listen - if you're new to Profit First, that's okay! I'll explain it all to you. And if you're not a fan of accounting, I get it. But I promise that in this episode I am going to make it practical and share what's working for me financially right now. 

I’m sharing all about setting up Profit First accounts, my different percentages, how I close out my finances each month, and more. There's a lot to cover… so let's get started! And hey, if you love this topic, be sure to tune in next week for part two, where I'll go even more in-depth and walk you through exactly how I manage my finances at the end of each month.

Join breakthrough brand all access group

Before we dive in - are you in the Breakthrough Brand All Access Facebook Group yet? It’s free to join, and it’s where we take conversations like this one about business finances and go even deeper. Pop in and ask questions, share insights, and even peek behind the scenes of my own business and what I’m trying lately. It's a good time!

LISTEN TO THIS EPISODE NOW:

Listen & subscribe on your favorite platform:  Apple Podcasts  |  Stitcher  | Google Play  |  Spotify  | iHeartRadio

Search for episode 219!

What is Profit First?

Profit First is a book by Mike Michalowicz, but honestly, it’s more than a book… it’s an entire money management system for businesses. In fact, many people who do “Profit First”, don’t even read the book. You just figure out how to do it and go for it! I have to be honest with you, even I’ve only read SOME of the book. I think maybe I will come back nd finish it at another time but I personally feel like I took what I needed and was ready to run with it. In my Profit First review I have to say - the book is good but the system is GREAT. 

Here’s what he says on his website:

“I created the Profit First system to eradicate my own financial struggles. And I am honored to say, that as of writing this, over 175,000 companies have implemented the system. The method is simple. Every time you get a deposit from sales, take a predetermined percentage of that money as profit. Of course, there are a few more steps than just that. But even with the simple first step, of taking your profit first, you will become permanently profitable. Profit is not an event. Profit is a habit. This book will show you exactly how to do it.”

Doesn’t that sound good? Another way to explain it is that traditional bookkeeping describes profits as “what's left over” after you pay everything else. As the name suggests, the Profit First accounting method prioritizes profits before dealing with operating expenses. Small business owners take profits out of the cash deposits from sales.

Now if that all sounds complicated, I promise you that it’s way less complex than it seems. Before implementing and writing this Profit First review myself, it felt like this far off thing that I heard other people talking about, and then when you start doing it, it all makes sense and clicks together. 

profit-first-review (2)

Setting up Profit First Bank Account

I’ve always been one to pay myself first, but for me, what really defines Profit First is the way that you use multiple bank accounts and move your money around before it gets spent. It kind of feels a bit like putting your business on a budget!

And listen - before I go any further, please know that I'm not a financial advisor, accountant, or bookkeeper. I'm simply sharing my experience with using the Profit First system in my business in a way that I hope will be helpful to you. While I'm no expert, I have figured out how to make the Profit First system work for me and my online business. And in the interest of full disclosure, I've put my own spin on some elements due to the type of business I have and the specific expenses I incur. If you are running an online business, I’m sure you will be able to relate.

Now - let’s talk about setting up Profit First bank accounts because the different accounts is a KEY part of following Profit First, and it’s personally what I have loved the most.

What my business accounts have looked like over the years

First, let me just say that for the first 6-12 months of my business, I operated everything through my personal accounts. Yes - I was that person! It wasn’t until I had more significant paying clients that I made the leap and opened a business bank account.

When I first opened my business account, it was ONE single account. All money came into and went out of that account. If I needed to set aside any amount of money for emergencies or taxes, I had to manually note it down in a spreadsheet or document. This was the way I did it for years, but I never really loved it. 

Not too long after, I opened another account with a different label - a savings account. However, I was still using only the primary account for all income and expenses. Consequently, my savings account became the place where I would “save” for emergencies and taxes, and it would also have my “profit”. While this did “work”, I always felt like I was missing something and I didn’t love that I could never see my high-level numbers “at a glance”.

Enter: Profit First. And my honest Profit First review is that I LOVE it. I love the way I'm doing it now I feel like I have new money confidence and clarity from this whole experience. I feel like I know what's happening in my business finances way more than I used to because I have this cash flow and I'm telling money where to go, I'm saving more directly and I just see everything really clearly at a glance!

Read More: Wealthy Women Know Their Numbers: Building Long-Term Wealth Through Money Mindset And Money Management With Erinn Bridgman

Choosing a Bank for Profit First Accounts

I chose to use my local bank for my Profit First accounts because I was already using them for my personal finances and for our real estate business. With this one bank, we now have 9-11 separate accounts for all these different aspects of our lives and businesses. So - it’s a lot. I have five bank accounts for this business alone. 

When I initially opened a business account, I was paying a monthly fee to the bank. Reflecting back, I should have noticed it sooner and talked to the bank about removing the fee. As soon as I reached out to the bank, they agreed to switch me to a type of business account that was fee-free. If you're getting hit with a monthly fee just for having the account, I would encourage you to reach out to the bank and ask to have it removed, especially if you're carrying a decent balance in your account. Most will do it (in my experience!).

Right now, I have 5 business accounts, nicknamed with my Profit First names, but they are all checking accounts. 

If you are struggling with managing your finances and want to try the Profit First system without opening separate accounts (which - full disclosure - he does NOT recommend in the book), you can try an app like YNAB (you need a budget). I personally preferred to follow the recommended method of having separate bank accounts. It gave me a clear-cut view of how much money was allocated to each category and made it easier to manage my finances. But I understand that may not work for everyone!

There is also a new bank called Relay which I just head about and I believe is going to be an official Profit First bank. So that would be cool too!

 

Are you ready to start Profit First but are thinking - wait, I need to get more paying clients first? 

Like I said - I waited until I had regular paying clients until I opened up a separate business account so I get it. But lucky for you, I have a very practical and very free resource to share with you. This guide walks you through eight key strategies for finding clients as a designer, including things like: great places to look for clients, creative ways to get new clients that you might have never thought about, practical tips for implementing these strategies and so much more. And it's absolutely free to you! Grab your copy here.

updating my website for 2024

My Profit First Bank Accounts 

When I went to open these new bank accounts it turned out to be a bit of a process, but it was totally worth it. I made an appointment with my local bank and went in to get it all sorted. I figured it would be a bit of a hassle, but I didn't know just how long it would take. I had to get a bunch of different numbers and documents, including my S corp numbers and proof of registration for my business (just as a heads up!). It ended up taking several hours over the course of a morning, but the bank representative who helped me was very lovely.

Despite the time it took, I'm really glad I went through with it. It's kind of like going to the doctor when you're sick or getting your car's oil changed: you dread it, but when it's done, it feels like a huge weight off your shoulders. Now I have five checking accounts set up for my business, which might sound like a lot, but I have good reasons for it. I want to be able to move money freely and without any fees or restrictions, which can sometimes come with other account types like savings or money market accounts.

5 Profit First Accounts:

  1. Income (where your real revenue comes in - this account ONLY receives money)
  2. Expenses (exactly what it sounds like!)
  3. Owner’s Compensation (money I’m setting aside to pay myself)
  4. Taxes (again - exactly as it sounds!)
  5. Profit/Emergency Fund (technically your profit account isn’t supposed to be used for emergencies but that’s what I use it for!)

Which is exactly how he recommends you do it in the book. After I opened these and everything was set up, I also had to switch over things with all the software I pay for and people that I pay. So I had to switch things so that PayPal and Stripe sales would go into my “income” account and because I do most of my purchases on my Spark Capital One card for my business, I had to switch that card to being paid from my “expenses” account. So it took like a month for me to get all of that hooked up right? Again, in the interest of transparency in this Profit First review, it’s a process to set everything up but that’s fine! It’s still totally worth it.

Read More: 8 Money Strategies That Every New Entrepreneur Needs To Know

How the Profit First Accounts Work 

PayPal transfers, Stripe transfers, or other payment methods should be recorded in the income account of your business. The income account should only contain cash inflows, and there should really be nothing coming out of it except for internal transfers. That’s one of the reasons I like it. If you use the Profit First system, you can easily track how much revenue has come into your account so far this month, which is so helpful as a business owner. 

Expenses such as credit card payments, payment processing fees, and payments to team members or contractors are all deducted from the expenses account. At the end of each month, the expenses account will show one significant transfer in (from your “income” and multiple small transactions out, which should add up to the total sum of your expenses for that month. 

At the end of the month, you are transferring everything that came in (into your income account) out to your different accounts based on the percentages you choose. So ideally, this account should start the month and end the month at $0.

giphy (10)

Profit First System (A Profit First Review)

It’s important to note here: Profit First is not like typical bookkeeping; it is more like financial management. Hence, the cash flow situation is monitored closely by the business owner, ensuring that there is always a positive cash flow in the business, regardless of the state of your current bookkeeping.

A Profit First system allows you to transfer money from the income account to the remaining four other accounts at the end of every month. The percentages of these transfers are dependent on the revenue earned by your business, but to give you an idea, he suggests if your annual revenue is below $250,000, your percentages should be:

  • 30% to expenses
  • 50% to owner's comp
  • 15% to tax 
  • 5% to profit

Knowing what the percentages “should be”, gives you such quick clarity and you can look at those numbers and see things like “oh - I’m making under $250K but I’m spending like 60% on operating expenses which is too high for what they recommend.” Of course, all businesses do things differently so you have to think about your unique business, but at least you have a jumping off point!

Here’s the chart from Profit First if you are curious!

chart breakdown of profit first review percentages

What personally works for my business right now is:

I have to be honest - I have made changes to these percentages in the last six months I have been doing this. Not big swings or anything, but I’ve adjusted accounts by 5% here and there based on what is going on in my business.

To give you some tangible numbers though, here’s how I broke my income down last month:

  • 5% to profit
  • 35% to owner's comp
  • 20% to tax
  • 40% to expenses

It seems like the mix I'm working with is really similar to businesses that generate 250K-500K and 500K-1mil but I’m actually taking a lower profit percentage because right now I feel like that account is flush with cash to be honest and I feel like the money I’m making is actually better used elsewhere. 

Read More: 7 Ways To Use Your Money To Get More Time Back In Your Life (Trading Your MONEY For Your TIME!)

Managing your money monthly

As a business owner with multiple sources of revenue, keeping track of my finances can be a bit daunting - especially before  Profit First. I’m sure you guys can relate - I use multiple platforms like Thrive Cart, Stripe, and PayPal to manage my sales, and each one has its respective revenue data so it’s hard to see how much money I’ve made in a month “at a glance”. Add to that the various expenses paid for by credit card or directly from my bank account, and it's a mess. I used to have to wait until the end of the month when I got my Profit and Loss report back from my bookkeeper to truly understand how the month went.

Using my Profit First accounts, I log into my bank accounts usually once a week and take a high-level view of where my finances stand for the month. I also pay off my credit cards a few times throughout the month in order to maintain an accurate representation of my expense account. 

someone holding their credit card after reading profit first book review

An Honest Profit First Review

To sum up my experience - I have to say, it's been a true game changer for me. This tool honestly feels like the missing piece I needed to really analyze and make decisions in the financial side of my business. It's helping me keep track of income and expenses, understand sales, and save up for important investments with more confidence than before. The best part? Setting it up was actually way easier than I thought it would be. I just love how intuitive and useful it is! If you loved this episode, make sure to DM me on Instagram and let me know! And come back next week for part two!

Elizabeth McCravy Showit Website Templates 

Are you looking to revamp your website? Look no further than our Showit website templates, designed strategically and built to be easy-to-use. Are you tired of having a boring or inflexible website? We believe that strategic and intentional design is the key to converting your viewers into loyal customers. That's where our pre-made Showit website templates come in - plug in your content and start making money right away!

Our SEO-friendly templates are more than just pretty; they have a strategic backend that's sure to help you book more clients and customers. As a thank you for reading until the end - use code BBPODCAST for 10% off at checkout! Shop our Showit website templates now!

Links Mentioned:

Buy The Profit First Book

Looking for a better way to know your numbers? Check out my profit sheet

Book Your Next Client ASAP 

Join my FREE Breakthrough Brand All Access Facebook Group

Shop the Elizabeth McCravy Website Templates 

Check out Booked Out Designer

Check Out The Official Profit First Bank

Connect with Elizabeth on her Instagram

June 20, 2023

Explore more categories:  Business, Entrepreneurship, Podcast

share this post:

Affiliate Disclaimer: Some of the links used on this blog are affiliate links, which means I earn a small commission when you purchase after clicking my link or using my coupon code. This does not cost you anything extra, in fact, it usually saves you money! I only recommend brands that I have used myself and believe in. 

Leave a Reply!

brand strategy q's

Get the questions you need to be asking to create a strategic brand!

see my top biz resources

see my top biz resources

podcast

freebies

template highlight

gabby podcast kit

Oh, you wanna know more?

design

business

marketing

template showcase

personal

listen to the podcast!

I'm Elizabeth, and simply put, I design brands and websites. I mix in marketing strategy, personality galore, and tons of fun to create custom brands, custom websites, and website templates. These designs convert lookers into buyers and take the headache out of the design process. I believe your brand should be a knockout. I'll help you create a captivating + profitable online presence! Join me, won't you?!

Hey there!
of the year

@ELIZABETHMCCRAVY

Let's be friends, yo.