One of the most common questions I get after explaining the Profit First system is, “Do I really need all of those accounts?” And my answer is “Yes.”
Ironically, another one of the most common questions I get is a variation of this question, “Can I open more accounts?” And the short answer is “Yes.” Once you genuinely do Profit First, you will love its simplicity and clarity to your business. And it is because of this that you will want to open more accounts.
Today, I will review some of the most common additional or advanced accounts that I use and see in quilt and craft shops.
The Core Accounts
To ensure we are all on the same page, I will share what the Profit First system is in a nutshell. Profit First is a cash management system that uses multiple checking accounts to manage the cash flow in your business, making sure that, as business owners, we are spending and saving the right amount at the right time.
The core bank accounts I recommend for quilt and craft shops are INCOME, INVENTORY, PROFIT, OWNER’S PAY, TAXES, and OPERATING EXPENSES or OPEX. If you just stick with these accounts, it will do wonders for your business. But sometimes, we want more clarity, or we have nuances in our business that need special treatment. And today, I’ll talk about a few accounts that you may find helpful.
Sales Tax Account
A SALES TAX account is one of the very first advanced accounts that quilt and craft shops open. Remember, the purpose of the TAXES account is to pay for the income taxes that the business generates, which are usually passed through to the business owner to pay. But we do not have an account to save for sales tax. Hence, the SALES TAX account. This account is especially helpful if you pay sales taxes quarterly or annually.
Payroll Account
Another common account is the PAYROLL account for quilt and craft shops with employees. This account is helpful to ensure that you have enough to cover payroll, including payroll taxes.
New Hire Account
Similar to the PAYROLL account is the NEW HIRE account. The purpose of this account is to set aside what you expect to pay your next hire. Transfer the amount that you would have paid a new hire each allocation time into this account. Do this for at least two months; three is even better. If you can operate without taking money out of this account for those two to three months, then your business can afford another employee. And as a bonus, you have just set aside a 3-month emergency fund to pay that employee in case things go sideways. But you cannot afford to hire if you need to use that money.
Customer Deposit Account
Another helpful account is the CUSTOMER DEPOSIT account. This one is useful if you sell expensive sewing machines, like longarms. When a customer pays their deposit, you put that deposit into the DEPOSIT account to hold on to or buy the longarm. Then, when the machine is delivered, you simply transfer the remaining deposit into the INCOME account and allocate it as normal. This can also be used for classes or other events.
Repairs Account
A REPAIRS account may be useful if you need regular repairs to the building, your in-store longarm machine, or general repairs.
Contractor Account
Setting up a CONTRACTOR account may be useful if you hire outside contractors or teachers for classes.
Event or Classes Accounts
An EVENTS or CLASSES account helps you save throughout the year for those events.
Drip Account
A DRIP account may be needed if you have a very seasonal business or you get large pre-payments for customers. A DRIP account drips a little bit into the INCOME account each month to cover the basic monthly expenses. I see this mostly in farming, Christmas tree stands, and other highly seasonal businesses. You may want to use this account if you collect the majority of your income in only a few months.
Equipment Account
An EQUIPMENT account is helpful to save money when purchasing expensive equipment, like computers and longarm sewing machines. For example, I set aside a small percentage so that I can replace my computers every few years.
Vault Account
Another account may be a VAULT account. This is truly an emergency fund above and beyond the PROFIT account. This is money that you only touch as a very last resort.
Already Spent Account
An ALREADY SPENT account can help you remember that you previously wrote a check or placed an order for inventory. We use this account in our shop to help us get a real picture of what we really have available in our INVENTORY account and how much is on order.
Here’s how it works.
When we place an inventory order, we know how much it will cost, so we transfer that amount to the ALREADY SPENT account to reduce our balance in the INVENTORY account.
Then, when the vendor ships it and charges our debit card, the money comes out of the ALREADY SPENT account.
By looking at these two accounts, we know the amount in the INVENTORY account is the amount we have available to buy new inventory, and the amount in the ALREADY SPENT account tells us how much is still on order. Just make sure you add a little bit for shipping and that your debit card is linked to the ALREADY SPENT account to avoid additional transfers.
Customized for Your Shop
The great thing about Profit First is that you can add an account for almost anything, from saving for charitable donations to employee bonuses to repairs and maintenance to marketing funds. No matter how many accounts you have. Always keep a list of the accounts, the purpose for each account, and the allocation percentage or transfer amount for each account.
Next Steps
What accounts have you thought of? What other accounts do you have already set up that I didn’t mention?
We have gone over many advanced accounts today, and on April 10th, I am hosting a webinar further explaining the what, why, and how of the Profit First system. I would love to see you there, so please go to https://www.curtisaccountingsolutions.com/register to reserve your spot.