Pay Yourself, Pay Your Bills, and Save Money
In a recent video I said that it was easier than you think to save money. I know most of you laughed but your idea of bookkeeping is about the get flip turned upside down. (Pardon the Fresh Prince of Bel Air reference, it just happened). The pay yourself first principle is a game changer. In his book Profit First, Mike Michalowicz, explains that you can “transform your business from a cash eating monster to a money making machine.”
Make yourself a priority
The normal business model requires that we pay our bills first then we get whatever is leftover. Instead, this method has you paying yourself, your taxes, and even your profit BEFORE your bills. Mind blown right! It sounds crazy but if you apply the principles of his system it works. I loosely follow the guidelines and it is the reason my clients and I had money in the bank to ride out this crisis (so far).
Put your money in buckets
In the book, Mike has you create 5 separate bank accounts. One for revenue, expenses, taxes, owner’s compensation, and taxes. You then periodically allocate the money you deposited from customers in the “revenue account” to the other bank accounts based on certain percentages. You now know what you have to spend with a quick glance.
Make it your own
Once you complete the first phase and allocate your income, you can stop there or follow the entire program. My clients and I have realized a significant gain simply by implementing a version of phase one. We use three bank accounts instead of five and distribute funds monthly instead of bi-weekly. However, if you need more defined rules, you may need to embrace the program even further.
Don’t put off today….
Whether you just dip your toes in or you do a cannonball into the deep end, you will quickly see results. You will finally be building your business around your life instead of the other way around. You will be able to build up some savings in preparation for whatever comes next; good or bad. Can you imagine how much easier the last few months would have been going into with a healthy savings account? Pick up the book today and take control of your profits tomorrow.