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Profit First: Bank Balance Accounting

Back in the 90’s, when my business was young, I had a client that called her bank everyday and manually scribbled her bank balance on a piece of paper. She then subtracted the activity that she knew of, and assumed the balance was a good estimation of cash availability. At the same time, she had a perfectly good accounting tool that would do that same exact thing.  She agreed that yes, if she turned on her computer and did the calculations, she would get the same result but her way was “easier”. Jump forward 10+ years and I still work with clients that do something similar, except now they use their phones and an app to check their bank balances EVERY SINGLE DAY.  Even though technology has changed, the mindset and habit around bank balance accounting has not. In fact, bank balance accounting is equivalent to being reactive in your business. When you practice bank balance accounting you are choosing to ride the emotional financial rollercoaster. The inclines and highs are so tranquil and beautiful; then all of a sudden that deep scary drop appears, one which you may unfortunately not have an idea when it will end…if ever.

What if there was an alternate possibility to this reactive obsessive habit?  Would you believe me that a simple process could create a new habit for cash flow tracking that doesn’t require an accounting degree? With a process and new mindset giving you a roller coaster safety net,  would you have less stress and more confidence in planning for short falls? Let’s use a real life situation to dive into this further. In fact, let me tell you more about my bank balance accounting adventure.

Hello, my name is Connie and yes, I am a recovering bank balance addict.  Even an accounting professional can create an obsessive interconnected emotional relationship with the black and white ones and zeros that make-up her bank account.  While I didn’t suffer from this addiction on a daily basis, I did spend at least once a week in reactive-not-enough mentality.  Once a week I would buy a ticket for that same roller coaster ride.  I started out rosey and beautiful at the top when the bank account was happy and then as bills were paid and planned for, and then the ride turned darker and I couldn’t quite see around the curve up ahead on the calendar.  Kick in a little obsessive “lack of” mentality, add in that dash of negative self talk and all of a sudden there just wasn’t enough. The end result was not to pay myself, and the roller coaster drop just plummeted further.  Soon weeks turned into months, and then years. Eventually I reached the breaking point, demanded a change, looked up, and found Profit First.

Rather than putting the priority on spending and paying the bills, Profit First changes the priority to taking your profit out FIRST, followed by paying yourself, making sure there’s some tax buffer, and finally what is left is what the business has available to pay bills.  For the ADI Accounting Team, I had to take a hard look at my expenses and cut some fat.  I also looked at our billing rates and realized there wasn’t any built in profit.  For the first time since we expanded the business, the business also supported me!  It stopped being all about the bills, which ended the obsessive bank balance addiction I had created.  What replaced that (now old and run down) roller coaster was a simple system that includes: weekly gratitude around client payments, twice a month transferring funds into smaller plates, and then using those funds to pay bills.  There is no stealing from one plate to feed another.  Profit is always allocated FIRST followed by a very happy check to myself; to be truthful, the checks were small to start, but at least they were something, and gradually they grow.

Process is simple. The hard part for all of us is the mindset. I know firsthand, as my mindset change included a few rollercoaster spiralanxiety-driven moments. Creating this particular Profit First habit with a “rinse and repeat” methodology will take about 15 months to become stable.  Until the habit becomes natural, however, you may find it helpful to get a little support and accountability around the process. If that sounds like something you may be interested in, we recommend that you seek out a Certified Profit First Bookkeeper, Tax Professional, or Business Coach to work with; someone who has worked the same process, the same mindset, and the same habit changes you will face. Of course, since we resonated so much with this process and the stability it has created for ADI, I became one of those Certified Profit First professionals.

You can drop us a line if you want to ask questions, get more information, or you’re ready to kick your own bank balance addiction.

That roller coaster an endless spiral. To hop off the ride: DEMAND a change, CHOOSE to follow and create the process, take ACTION, and get a little support when you need it.  If I can do it, you can too!


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