Did you know that having separate accounts for Taxes, Owner’s Compensation, and Profit can all work for the benefit of YOU-the small business owner?
In the Profit First cash flow system, you open 5 separate business accounts, these three among them. Then, on a regular schedule (bi-weekly, monthly, etc.), you allocate a certain percentage of your income into each of these accounts. As the balance in these accounts build up, you begin reaping the benefits of being more prepared with an automated cash flow system. And the Owner’s Compensation, Tax, and Profit accounts directly benefit you as the business owner. Here’s how!
Owner’s Compensation Account: this account provides for the owner’s lifestyle and livelihood. It includes take-home pay and any benefits the owner enjoys like health insurance, cell phone, vehicle, etc., even if those benefits are considered business expenses on the tax return.
Profit Account: Profit is the business owner’s reward for running a profitable company. The quarterly bonus that comes from the Profit Account directly to the owner shouldn’t be thought of as just a way to continue to support their lifestyle, but as a bonus for working hard and taking their profit first!
Tax Account: Paying taxes keeps the business owner out of jail! It covers the business owner’s payroll withholding tax and any taxes the owner owes as a result of running a profitable business.
These accounts have different functions and should be kept separate from each other, but they all have the same purpose-serving you as the business owner. Having them reduces the stress of owning and operating your business.
As Profit First Professionals, we can help you set up these accounts in your business and learn how to allocate money into them and how much to transfer. Half a million business owners have achieved increased profits, less expenses, and less stress surrounding finances after implementing Profit First in their business. Check out how this business owner was able to pay for taxes and pay off her debts, while still taking a profit using Profit First.
