top of page
  • Writer's pictureJacob Curtis

The Secret to Cash Management

How many of you know what the cash envelope system is? I know my grandparents used it to manage their money. But I would guess today that many don’t even know what it is. And that is probably one reason why as a nation, we have about $17 trillion in consumer debt.

I’ll be honest I do not use physical cash very often. Most of my transactions are through a debit card. But, unlike most people today, I do not have a credit card, either personally or for my business. You may be wondering, “How is that even possible?” Well, that is what I am going to talk about today.

Cash Envelope System

So we are all on the page. The cash envelope system is designed to help you stay within the amount of money you make. If you don't have the money, you don't spend it. So before debit cards and credit cards and the internet became a thing, envelopes were a method to help people track how much money they had to spend, from the mortgage to bills, to vacation, to groceries or food, to giving back to the community and even an emergency fund. Each of these categories was represented by an envelope.

So when you got paid, you cashed your check, brought it home, and distributed the cash amongst your envelopes. My grandparents used percentages to determine how much went into each envelope. They also knew that their income was not consistent paycheck after paycheck, and so they compensated for this by making the percentages higher for things like the mortgage and bills. Because the mortgage company will always get paid no matter what, even if that means foreclosing on the house. By having higher percentages for those important envelopes, they ensured that when their income was low, they still had enough from the good months to pay their bills. When things were tight, they had rice and beans; when things were good, they had meat and potatoes.

Credit cards didn't even become a thing until the ‘60s and ‘70s when over 100 million credit cards were mass-produced and mailed unsolicited to customers of banks that had deemed them already credit-worthy. Today, we have racked up over $17 trillion in consumer debt in the United States. And it is this debt that is crushing us. In Proverbs (22:7, NIV), we read that “... the borrower is slave to the lender.” And that we should “Give no sleep to your eyes, nor slumber to your eyelids. Deliver yourself like a gazelle from the hand of the hunter, and like a bird from the hand of the fowler” (Proverbs 6:4-5). We should be doing everything we can to escape our debt prisons.

How to use it in your Business

So how does that translate into business? When you first started your business, you probably went to the bank and opened a bank account, and, by default, you probably got a checking account and maybe even a savings account. And since that day, you've been using a single account to run your business. All of the transactions come in and out of that bank account: payroll, rent, utilities, debt payments, credit card payments, everything.

And because everything goes through your bank account your single bank account, it's hard to keep track of what money you owe to who and where it all goes each month. So, you probably use spreadsheets, QuickBooks, other accounting software, or other means to help you manage your money. We did the same thing at Utah Valley Quilting for the first year, but when we realized we were not making any progress in getting out of debt by following the advice of the traditional finance and accounting experts, we knew we had to make a change.

And that change was using a cash management system, specifically, the Profit First system. Profit First is the cash envelope system for business. It has been adapted and modernized a little. Instead of envelopes and physical cash, we use checking accounts and debit cards.

6 New Accounts

The six foundational accounts I recommend for any business selling a physical product, including quilt shops, are the Income, Inventory, Profit, Owner’s Compensation, Income Tax, and Operating Expenses accounts.

The purpose of the Income account is to collect all cash coming into the quilt shop and act as the serving tray to the other accounts.

The Inventory account is to save and buy inventory for the store.

The Profit has three purposes: 1 - To serve as an emergency fund for the business. 2 - For businesses with Bad Debt, this is used to pay off the debt. And 3 - To reward the business owners for their hard work each quarter (think quarterly bonus).

The Owner's Compensation account is to compensate the owners on a regular basis (providing the owners with stability).

The purpose of the Income Tax account is to save and pay for the business and personal income taxes. It is not for sales taxes, payroll taxes, or any other taxes.

The Operating Expenses account pays for everything else not mentioned before, like rent, payroll, and sales taxes.

In addition to these six foundational accounts, I recommend two no-temptation accounts so that you are not tempted to steal from yourself. These accounts are to hold your Profit and Income Taxes money you have saved up through the quarter and years.

In future blogs, we will talk more about the mechanics of using profit First on a daily basis, but today, I will end with a few thoughts on picking a bank for your accounts. You want to pick a bank that does not have a minimum balance and does not charge a monthly fee. Many of the big National Banks do not meet the simple requirement. I recommend looking for smaller local credit unions and Banks to help you set up your accounts.

In March 2023, Profit First Professionals, the organization founded by the author of Profit First and certifies profit first professional consultants, announced that Relay is the official Bank of Profit First Professional. Click the link in the description to see that announcement (

Go open your accounts today. You need to have six checking accounts: Income, Inventory, Profit, Owner’s Compensation, Income Taxes, and Operating Expenses. If you have more questions, please schedule a call by clicking the link below.

21 views0 comments


bottom of page