In this monologue, the speaker recounts a recent "allocation day" where they transferred income into the distinct Profit First accounts—profit, owner's pay, tax, and operating expenses. They explain that separating money into dedicated accounts creates psychological boundaries that prevent accidental spending, especially of tax and profit funds, and counters Parkinson's Law, which would otherwise cause expenses to expand to match a large single‑account balance. By isolating the operating expense account, the speaker is forced to scrutinize each cost for efficiency and revenue impact, keeping the business lean even when cash flow is strong. The speaker advises using actual separate bank accounts (or a fee‑free bank that allows multiple accounts) rather than merely tracking allocations in a spreadsheet, noting that the tangible separation makes the numbers more actionable. The overall message is that the Profit First system works because it enforces discipline, visibility, and continuous expense optimization.
Chapters
Hey everyone, um, I had a wonderful experience last week when I did my own allocation days, when I sat down to transfer money from my income account to my other Profit First accounts. And I wanted to share with you an epiphany I had as to why this system works. So right now, I'm not going to share the real numbers with you because I don't want you to necessarily feel like I'm bragging, but I'm very happy with the total dollar amounts that I have in my profit account, my owner's pay account, and my tax account. Super stoked. It is a good chunk of change. If I had that money sitting in one bank account, so all this money that I've allocated for owner's pay and to save for my taxes and to give profit distributions, if that was in my same account that's receiving my income deposits, paying out all the bills, paying team members, saving money for equipment. If I had the one account, I probably right now would feel super laid back and like I'm on top of the world, everything's going perfectly because it's a large dollar amount. And when businesses have one bank account with a lot of money in it, That's usually what happens because we're basing those— we generally base our decisions off of the money that we have in the account, right? As a business owner, yeah, my self-worth sometimes can be correlated to the dollar amount in my bank account, or at least my general level of happiness, which again, that's a whole other topic of things, figuring out what actually makes you happy. But anyways, my point being— I would feel really comfortable right now. And it's not that I'm not comfortable, but because of Profit First and because I've separated these accounts, one, I've placed boundaries around it, right? So I'm not going to accidentally spend my tax money. Because if I don't do that, remember Parkinson's Law, the demand for something expands to match its supply. What that means is if I have the one bank account, my expenses will continue to increase until I have no more cash available to spend. So luckily I've separated that, so I'm not going to accidentally spend my tax money. I've separated the money that I want to give for quarterly profit distributions. I have the amount that I'm going to be paid for my lifestyle, for my owner's pay. But they're all separated, and because they're separated, now when I have my operating expense account and I look at it, I'm actually not super happy and comfortable with the dollar amount that's in my operating expense account. So instead of sitting back and looking at one bank account and being like, wow, look at all that money, things are phenomenal, I'm looking back even right now. So collectively there's a lot of money, but because they each have different purposes and none of those other purposes that I've identified are to run the business, I'm looking at and saying, how do I get more efficiency out of my expenses. Are all my expenses productive expenses? Are they leading to more revenue? Are they increasing the possibility of retention? Those are things that I'm looking at right now because of the Profit First system. Because if I didn't have this system and I just had the one giant bank account, the thought wouldn't even be crossing my mind that maybe I'm overspending on stuff. Um, so I wanted to share that with you. That is why the system works. I know there's some people who are attempting to run the system without actually having extra bank accounts. You guys, you're talking about at most maybe 5 or 6 transactions in those Profit First accounts. Find a bank that doesn't charge you extra to have the extra accounts open. They're out there. I promise it works better when you have the different accounts. Look, maybe it could work for you if you are using an Excel file or some other method where you're not separating them, but having an actual distinction so that what the numbers you're looking at helps you see what dollars, what dollars you have to make decisions, man, uh, it It's priceless. Like, so please use the system. It works. It allows you to always stay lean, even in the time when you have good cash flow, because the purpose is to always be an efficient company.
