In your business, what do you usually do by the end of each quarter?
If you answered anything other than profit distribution, then now is the time to start considering it – seriously!
The end of each quarter is a good thing because you get to hit that reset button. You get to move into a new quarter, celebrate what worked, figure out what didn't, and experience the tangible fruits of your labor through profit distribution.
Why You Need a Profit Account
Profit accounts are very powerful because they’re used to help build cash reserves in a business. They’re used to expedite the reduction of debt. If you have a team, these accounts are where your incentive-based compensations and profit distributions for that team can be funded from.
Part of the profit first methodology is to set aside money with every deposit which goes to profit, tax, the owner's pay, and operating expenses. At the end of that quarter, you get to decide what to do with that money no matter what the number in the bank account says.
Now, if you're still not putting profit back into your business, then get started right now. Make it simple. Make it small. But definitely make it a habit.
Create a Separate Account
Your profit account is different from the account you create for your payroll and your operating expenses. Therefore, you need to create a separate account for it. Then, when the time comes to do the transfers and distribute at the end of the quarter, at least you’ll know what sits in that account.
The owner's pay and profit are separate things as well.
A lot of people will hold onto their profit because they're afraid of the tax bill coming. Everybody feels that way but you’ve got to make that profit decision if you want to set your business up for success.
What Happens Once It’s Distribution Time
When distribution time comes, you're basically going to transfer this amount of money out of your profit account to yourself.
At this time there's only one rule: don't be practical, just PLAY.
You might be tempted to do something practical, especially if you’re financially conservative, and just decide to put it into your savings or hold on to it. But don't ever feel like you need permission to play.
If you want to learn more about how to do profit distribution in your business, check out 054: Celebrating Y21Q02 Profit Distributions
