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A Cash Management System That Works

There are 28 million small businesses in the United States. Two out of every three small businesses are either not running profitably or are on the brink of bankruptcy. Surveys conducted by the Small Business Administration (SBA) reveal that:

  • 83% are surviving check to check.  This means that if these businesses do not get paid an invoice, payroll may be missed, and the company could go out of business.

  • 25% of startups fail within two years and that increases to 50% by year 5.

Hearing these alarming statistics, what do you have in place to ensure that you are not one of those unprofitable failing businesses? If you find yourself in these positions, know that there is nothing wrong with you, but you do need to make some changes. The book, Profit First by Mike Michalowicz is an excellent resource for turning your business from a “cash-eating monster to a money-making machine.” I will share with you as a CPA and Profit First Professional working along with Mike and his team to help eradicate small business poverty, how to run a more profitable business and increase your success as a business owner.

Continue to do all the brilliant things you do in and for your business.

Most business owners do what they do because they are brilliant at it and have a passion to serve and I am sure you are no different. With that, I encourage you to continue to be and do just that - serve your customers in excellence, generate new prospects, manage your employees, and yes, collect your money. Those activities are still very much necessary to move your business forward to success.

Reverse engineer the accounting formula as we know it.

Instead of thinking Sales – Expenses = Profit, think Sales – Profit = Expenses. What is the difference, you might be asking? The difference is that profit is no longer placed last. In life, what is placed last is the least desirable and therefore is ignored or is an afterthought. What is placed first gets focused on, gets prioritized, and gets accomplished. So, by moving profit further up in the equation, it is no longer overlooked but is now given priority over expenses.

Here is an example to prove my point. If I tell you I will count to 10 and as I am counting you should find all the things in the room that are orange, your focus will be on counting the orange things in the room. But what if once I am done counting, I ask you how many green items are in the room? Chances are you will not be able to tell me the number of green items in the room because you were looking for orange things not green. The same holds true with the accounting formula. If you are focused on Sales – Expenses, that is what you will see. Expenses will be prioritized. And likewise, if you are focusing on Sales – Profits, that is what you will see. With the latter formula, you are now open to see the countless profit opportunities within your business. Just like in your personal finances you should adopt the pay yourself first methodology, you should be doing the same thing in your business as well. Put profit first.

Establish an “envelope” system for your business.

Personal finance guru, Dave Ramsey talks about creating an envelope system for specific purposes in your personal finances. In this system, you create a budget and allocate a specified amount to various buckets that your money is going towards – some towards rent, some towards groceries, some towards charity, some towards savings, etc. Similarly, you should do this for your business, except that instead of physical envelopes, you use various bank accounts with a specific purpose.

This is what the Profit First system recommends. With Profit First, businesses are encouraged to set up 5 primary bank accounts so instead of having everything in one big pool, the businesses income is allocated into several buckets. Besides the income account, business owners should open the following accounts: profit, owners pay, tax, and operating expenses. When income comes into your business, take the most important thing to the company first, profit. After that, the owners pay, then tax, and then finally operating expenses. The income account is your holding account where all your income is deposited. Your owners pay account is for just that, the owners pay. This is what the business owner is paid from for the sacrifice and hard work that he or she puts into the company. I stress sacrifice because oftentimes owners neglect themselves. However, owners need to be paid for their hard work and sacrifice for their companies.

Your profit account is your reward as an owner for running a healthy company. The tax account is for Uncle Sam. This avoids you as the business owner having to take loans or paying taxes out of personal savings. The operating account is your primary account where bills are paid from. Profit First recommends various target allocation percentages (TAPS) for each account based on your income level. These percentages were derived based on studies conducted on numerous healthy companies in various industries. These TAPS are all outlined in the book Profit First. As you think about implementing this system in your business, just remember, one step at a time and seek the help you need from a Profit First Professional. Now go be profitable.

About Dr. Ranelli

Dr. Ranelli A. Williams is a Certified Public Accountant, financial educator and profit strategist, best-selling author, and award-nominated speaker, empowering service-based entrepreneurs to take control of their money as they work towards building a strong financial legacy.

She co-owns a tax and accounting business, ERJ Services (, along with her husband Eric, helping their clients organize their financial data so they build a strong financial foundation, prioritize cashflow and profits, and strategize to pay only the minimum legal taxes.

She is also the founder of R.A.W. Legacy Solutions ( as well as Profitable Entrepreneurs Network, a community of career professionals turned service-based entrepreneurs who are looking put a solid financial structure in place so they can focus on getting paid for doing what they love and building their business to 6-figures and beyond. Her ultimate goal is to help her tribe experience continued growth and expansion, keep their hard-earned dollars secure, and build a debt-free legacy.

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