We stumbled across Mike Michalowicz’s Profit First methodology back in 2017 when a friend sent me a sample chapter of the book and I devoured it. We were only a couple of years into our business coaching firm and honestly were looking for a method that would demonstrate a numerical return on the investment our clients were making in themselves by engaging with Business On Purpose.
The premise is basic: subdivide your bank accounts.
Instead lumping all of the money of your business into one, two, or three accounts, begin subdividing each dollar according to where that portion of the dollar is supposed to go.
If your cost of goods sold (COGS) is 30%, then roughly 30 cents of each dollar should be funneled into a COGS account, and so on.
After a year of subdividing our own accounts we realized the massive real and psychological value of subdividing each dollar.
Others started following suit and we even began tracking the weekly balance of our cash into what was a more revealing “cash flow” report than the reports we were pulling from our bookkeeping software.
I am amazed that such a simple method is disdained by so many bourgeois.
Experience has taught us that simple things are often the key to clarity, and in this case, retaining more profit to be used for the things that matter most.
There are four primary reasons we have seen that rob owners of the joy of knowing where their money is going by subdividing their dollars.
First is the barrier of our own mindset. Whether it is the excuse of, “I’ll just do this all on a spreadsheet”, or the abdicating thought of, “it’s too much work”, our minds are the first to put up a fight against simplicity.
Just ask yourself, “am I content and joyful around what I am doing now?”
You might be content, but all of that effort and not much to show for it at the end of the year will leave an owner demoralized and empty.
Subdividing resources is not a novel concept and has worked for thousands of years across thousands of cultural settings.
Barrier number two is the bank who will be happy to add accounts for a fee.
There are plenty of local and remote banks who would love to host your deposits seeing as that money is what allows them to make money.
If your bank insists on charges, then insist on another bank.
Barrier three is a bookkeeper who is emphatic that “all of those transactions are going to take too much time and skyrocket your bookkeeping fees.”
Most of the accounts you add are simple savings accounts that just hold money until it is time to transfer to the government for taxes or to some other account for profit draws. Every quarter your real transactions will only increase by a few and will yield “voodoo”-like results in retained cash in the words of one of my friends who saw a twenty times cash increase in 12 months simply because he was subdividing and watching the money.
Find a bookkeeper who is excited to get you the clarity you need around your finances and retain the profit you have always known you could.
The finally barrier to implementing the subdivision of your bank accounts is your CPA, not all of course, but some. Most CPA’s are tax-first professionals focused on tax returns. There is a growing number of CPA’s who are seeing their role necessarily and beneficial evolve into advising beyond just tax returns.
If your CPA is unwilling to side with you on “all those new accounts”, there are plenty of CPA’s who would love to get you the clarity you need around your finances and retain the profit you have always known you could.
Remember, advisors, coaches, banks and support teams are here to serve you, not the other way around.
Commit to subdivide your bank accounts and begin to track the growth of your actual cash that you can then use for the generosity of your life and those you love and serve.
For more go get Mike’s book “Profit First” and if you are in need of implementing all the systems necessary to grow purpose, people, process, and profit for your business reach out to us at mybusinessonpurpose.com/contact.