Your Profit First Quick Setup Guide

Question of the Week 

Your Profit First Quick Setup Guide

Hey all!

Happy Friday. I had a fun call with a new business owner this week who starts her latest venture on Monday. I love seeing the mix of excitement, fear, and anticipation of taking the leap.

The part of running a business that concerned her the most was setting up her cash flow. And you avid readers know I love talking about the Profit First system. Since it’s fresh on my mind, I figured I would give another overview this week.


1.     Set up the five foundational bank accounts with your current bank as checking accounts. We’ll call this Bank 1.

a.     INCOME (CAP %)

b.      PROFIT (CAP %)

c.     OWNER’S COMP (CAP %)

d.     TAX (CAP %)

e.     OPEX (CAP %)

2.     If you need additional separation so you won’t raid the profit or tax accounts during the quarter, set up two new savings accounts at a different bank: We’ll call this Bank 2. The purpose is to remove the temptation of ‘borrowing” from these accounts.


b.     TAX HOLD

3.     DETERMINE THE TAPS (Target Allocation Percentages) for your business using the Instate Assessment. But start by implementing CAPs (current Allocation Percentages) that your company can reasonably manage for the rest of the quarter.



1.     All receipts from sales or other business-generated revenue go into the INCOME account.

2.     If you use Advanced Profit First accounts, deposit receipts for reimbursements, retainers, etc., into the respective accounts.

3.     Spend a minute daily to review your account balances at Bank 1 to see cash flow trends for critical aspects of your business. That’s all the time you need to see where things stand.



1.     Transfer all funds that have accumulated in the INCOME account to the other accounts at Bank 1 based on the CAPs you’re using

2.     If using the HOLD accounts, transfer all the money in your PROFIT account at Bank 1 to the PROFIT HOLD account at Bank 2. Transfer all money in your TAX account at Bank 1 to the TAX HOLD account at Bank 2. This will leave a $0.00 balance for PROFIT and TAX AT BANK 1

3.     If you’re using Advanced Profit First techniques, transfer employee Payroll or other fixed dollar amounts from OPEX to the respective accounts.

4.     Disburse the salaries for the business owner(s) from the OWNER’S COMP account.

5.     Leave any remaining money, above and beyond the salary distribution, in the OWNER’S COMP account.

6.     Pay your bills from the OPEX account.



1.     On the first day of each new quarter, take 50 percent of the money accumulated in the PROFIT HOLD account as a profit distribution. Remember, this money is for the business owners and not to be used to “reinvest” in or “plow back” to the business. Put the other 50% in your business emergency fund.

2.     Pay your tax liabilities from the TAX HOLD account.

3.     Meet with your accountant and adjust your CAPS for your Profit, Tax, Owner’s Pay, and Operating Expenses to maximize your financial health.



1.     Review your financials with your accountant and financial experts.

2.     Make year-end contributions to your emergency fund, retirement accounts, or appropriate capital purchases as you and your financial expert determine.


Tricks of the Trade

  • For multi-member S-Corps, remember you get paid in three ways: salary, bonuses, and distributions. Salary comes out of owner’s comp . Bonuses come out of profit. Distributions come out of the tax account.
  • If the names on the accounts don’t work for you, feel free to change them! There are your accounts meant for your ease.
  • If you want to change up the allocation or distribution schedule, you can. I like to think of this system as a good recipe. The foundation will be a delicious meal. But you can tweak and season it to your tastes.


Questions of the Week

  • Do you know the ideal percentages to pay yourself for a business of your revenue size?
  • Do you know the difference between cash flow and accounting?
  • How can you improve the process in which you pay yourself?


Reminder of the Week

Tax season is officially open. Start gathering and organizing your documents!