I’ve been sharing information about the Core Principles of Profit First for several weeks now. Today the topic I'm sharing about is the principle called, Remove Temptation.
Once an entrepreneur begins to fund the Profit Account and the Tax Account, money will begin to accumulate. Over time as this cash grows, it might be tempting to want to use it all and plow it back into the business. Please don’t do this!
This action of plowing back into the business all your profits will actually cause the overhead to go way up and it totally defeats the purpose of the Profit First method. If you find yourself tempted to use the money in the Profit Account or the Tax Account when the Operating Expense Account gets a bit low, then determine straight up that having the No Temptation Accounts will be your friend.
The No Temptation accounts are established at a bank across town. The No Temptation Accounts hold the money in the Profit and Tax Account in a place that is more difficult for you to access. This is a no frills Savings account without access to online banking or a bank card. Make it as difficult as possible to get to this money. Removing the easy access reduces the temptation to quickly use these funds when your mind starts to wander there.
It might be time to ‘wake up’ to reality if your Operating Expense account is telling you there’s a problem in your business. You’re not alone here. Maybe it’s time for a re-set. Remember the Profit First formula, Sales (cash coming in) – Profit (pay yourself & set aside, no temptation) = expenses (frugal, innovative, and resourceful).
If you follow this formula, an amazing thing happens, with the most perfect timing: the Profit Account releases a profit distribution to you the owner, the entrepreneur. It’s bonus time, baby!! This is what your business is meant to do from the beginning, and now with Profit First, it’s a reality!
Now go have yourself an amazing Profitable Week!