Susanne Mariga explains the Profit First method, which uses multiple bank accounts to create an illusion of scarcity. By separating profit, owner's pay, taxes, and operating expenses into different accounts, business owners can manage money more effectively and make better financial decisions.
Parkinson's law is kind of like that law of supply and demand, meaning the more that I have of something, the more I'm going to use of it. The less I have of something, the less I'm going to use of it. Kind of like food. If I would go to a buffet, I have never left a buffet proud of myself. However, when I go to order dinner and they have small plates, you know, I still feel full, but I eat a lot less. And that's the same way it is with money. You know, the more we have of it, the more we spend. And so what happens in profit first is we create this illusion of scarcity. And we do that through bank accounts. So all the money may come into one bank account. We call that the income account, which collects all of your money. And one of the first things that we do is we fund our profit accounts. And then the next bank account that we're funding is our owner's pay. Because so many owners and so many entrepreneurs are focused on, hey, I just want to grow this business, I'm going to keep reinvesting in this business. And the problem is it's always a catch up game, except you never win, right? You never pay yourself. Next account, which you're going to love, Terri, is a tax account. Then the last account that we're going to have is our operating expense account. And that's where we're going to make decisions based upon scarcity. We create that illusion of scarcity. Instead of having that big bucket of revenue that's come in, I've got a smaller bucket. And this is where I have to decide how much can I afford that new lease? You know, can I afford to get those computer upgrades? Can I afford to bring in those additional assistance? Right? Because now I'm working with the illusion of scarcity.
