If you’re tired of seeing revenue flow into your business only to disappear into expenses, you’re not alone. Many business owners feel like they’re working harder than ever but never really see the profit they deserve.
That’s where the Profit First method comes in. Designed by Mike Michalowicz, this system flips traditional accounting on its head and prioritizes your profit—literally. But to make it work, one key step is crucial: setting up your Profit First bank accounts correctly.
In this blog, we’ll walk you through exactly how to structure your bank accounts, why it matters, and how Xcel Accounting helps businesses implement the system smoothly and effectively.
The Profit First Formula (A Quick Recap)
Traditional accounting says:
Sales – Expenses = Profit
Profit First flips this:
Sales – Profit = Expenses
The goal? Take your profit first, set aside money for taxes and your salary, and then run your business on what’s left.
But to make this work practically, you need separate bank accounts that enforce financial discipline and remove temptation.
Why Bank Account Structure Is Essential
Most businesses operate from a single operating account—which creates the illusion of available cash. Profit First eliminates this by dividing your income intentionally.
Each account has a purpose. By “pre-spending” your revenue into these accounts, you ensure that every dollar has a job—and you never accidentally overspend.
It’s like the envelope system for personal budgeting, but for your business.
The 5 Core Profit First Bank Accounts
Start with these five accounts. Each serves a clear, strategic purpose:
1. Income Account
This is where all your revenue lands. You don’t pay expenses from this account—it’s a holding tank.
Purpose: Temporarily collect deposits until allocations are made.
2. Profit Account
You reward yourself as the business owner for taking the risk. This is not your salary—it’s your return on investment.
Purpose: Build a cash reserve, reward yourself quarterly.
3. Owner’s Pay Account
This is your compensation for working in the business—your actual salary.
Purpose: Pay yourself regularly and consistently.
4. Tax Account
Never stress during tax season again. This account ensures the money for taxes is already set aside.
Purpose: Cover business taxes so you’re never caught off guard.
5. Operating Expenses Account
This is the money you can actually spend to run the business—rent, payroll, subscriptions, etc.
Purpose: Enforce frugality and efficiency.
Optional Advanced Accounts
As you grow, you can add:
- Vault: Long-term savings for emergencies or big investments
- Materials & Subcontractors: If you work with fluctuating project costs
- Debt Snowball: For aggressively paying off loans
Xcel Accounting can help you determine when and how to implement these based on your business model.
How to Set It All Up (Step-by-Step)
Step 1: Talk to Your Bank
Ask your current bank to open the additional accounts. Explain that these are internal controls for cash management. If your bank resists or charges high fees, consider switching to a more small-business-friendly institution.
Step 2: Name Each Account Clearly
Use names like:
- “Profit”
- “Owner’s Pay”
- “Taxes”
- “OpEx (Operating Expenses)”
- “Income”
Clear labels reduce confusion—and help you stick to the plan.
Step 3: Determine Your Target Allocation Percentages
Start with the Current Allocation Percentages (CAPs)—what’s happening now. Then create your Target Allocation Percentages (TAPs)—where you want to be.
A sample for a business under $250k in revenue:
- Profit: 5%
- Owner’s Pay: 50%
- Tax: 15%
- OpEx: 30%
Don’t worry if your numbers look different—Xcel Accounting helps customize these.
Step 4: Allocate on a Schedule
Twice a month (e.g., 10th and 25th), transfer funds from your Income account into the others based on your percentages.
Stick to the schedule to build consistency and discipline.
How Xcel Accounting Helps with Profit First
Implementing Profit First can feel overwhelming at first—but you don’t have to do it alone. Here’s how Xcel Accounting makes it easy:
1. Customized Account Setup
We help you choose the right accounts and percentages based on your business size, industry, and financial goals.
2. Bank Coordination
We assist you in setting up or restructuring your accounts—sometimes even recommending better banking partners.
3. Cash Flow Monitoring
Using tools like Xero, Dext, and Fathom, we track your cash inflow and allocation results in real time.
4. Quarterly Profit Distributions
We remind you when it’s time to pay yourself from your profit account—and celebrate your financial wins.
5. Strategic Adjustments
As your business evolves, so do your percentages. We help recalibrate your TAPs for growth, sustainability, and scalability.
Real Business Results
One of our clients, a boutique consulting firm, used to rely on a single bank account and struggled with surprise tax bills and irregular pay. After setting up Profit First accounts with our help:
- They built a 3-month emergency fund in their Profit account
- The owner started paying herself a regular monthly salary
- Tax season came and went—with no cash stress at all
The result? More confidence, less chaos, and sustainable growth.
Final Thoughts
Setting up your Profit First bank accounts isn’t just about separating money—it’s about taking control of your business finances. You stop guessing. You stop reacting. You start making decisions from a position of clarity and strength.
At Xcel Accounting, we’ve helped countless businesses set up and sustain the Profit First system successfully. Whether you’re just starting or ready to refine your strategy, we’re here to guide you every step of the way.
Ready to take control of your cash flow and put your profit first? Let’s talk. Book your free Profit First consultation with Xcel today.
FAQ
1. Do I need to open five different bank accounts? Isn’t that too much?
It might seem like overkill at first, but the separation is what makes Profit First work. Each account has a job—and keeps you honest with your money. Most clients find it becomes second nature quickly.
2. Can I combine any of the accounts?
We don’t recommend combining accounts unless you absolutely must. However, some micro-businesses may start with just three (Income, Operating, and Tax/Profit combined), then scale up as things grow.
3. How much should I allocate to each account?
There’s no one-size-fits-all. Xcel Accounting helps you find your Current Allocation Percentages (CAPs) and build toward your Target Allocation Percentages (TAPs) based on your revenue and goals.
4. How often should I do allocations?
Most businesses do it twice a month. Some do weekly if cash flow is tight. Consistency is more important than frequency.
