Among all the questions I ask about a business, and the way it works, when I am first approached by a prospective new client, one of the most important for me is: “How many Bank Accounts do you have?”
Honestly, I’m flabbergasted as to how many business owners save so hard for their personal lives to “take the kids to Disneyland for that once in a lifetime trip”, or “whisk the wife away for a nice Spa Weekend” but they don’t save a penny where it counts, in their own business! When I prepare Tax Returns for my clients and see how much they are going to owe the tax man I dread having ‘that chat’ because I know they won’t have it put aside. It really does pain me to break such bad news to them, I feel like the bloke at the garage who lifts your bonnet and does that ‘inhaling through your teeth’ thing…- “Sorry, but it’s gonna cost ya!”
So, how can we avoid this? Simple! Have more than one bank account for your business…better still have a few! For anyone who has read Profit First by Mike Michalowicz you’ll know where I’m going with this. For those who haven’t, hear me out…
You have your basic business bank account for everyday use, money comes in, money goes out…sometimes as quick as it came in!
To slow that process down, we’re going to open another account; either with the bank you are already with (a couple of clicks on your online banking can open a new account in 5 minutes so don’t give me that “I don’t have time” excuse!) or a better option is to open it with another bank, we’ll go into why another time. Once that account is open the magic happens!
To start with once a month (pick a day), I want you to put away 10% of what you have earned that month so far, so if you’ve taken £1000, then put £100 into this new account.
Continue this for the whole year, yes some months will be bad, and some will be awesome, but still put the 10% away, this is a habit we are forming people!
Come the end of the year when your taxes are ready you will have a MINIMUM of £1200 sat in that account ready to pay the tax man! Now that sounds nice doesn’t it? No more scrambling around, or raiding the kids’ piggy banks to find the cash.
And guess what? If your tax bill is only £600, you’ll then be able to use the rest of the money to either reinvest in the business, spend on yourself, or leave well alone until next year!
In a nutshell, what you have started to do is the bare basics of the Profit First system, paying taxes (and later on) yourself, before the business consumes the spare cash you do have. Think of your business as an overweight pet, you don’t want to see them unwell, so you ration the amount of food you feed them until they are lean and fighting fit!
So, do yourself a favour, STOP feeding your business, feed YOURSELF first and have a lean mean fighting machine of a business!