Profit First: Frequently Asked Questions
Multiple Current & Savings Accounts
Which Profit First accounts should be current accounts, and which ones should be savings accounts?
It is important to understand the difference between a current account and a savings account. As a general rule, savings accounts yield interest but can be limited in the number of withdrawals allowed during the statement period. A current account typically offers an unlimited number of withdrawals but does not yield interest. Income, Profit, Owner's Comp, Tax, and OpEx should all be set up as current accounts. The flexibility offered by current accounts far outweighs any miniscule interest you get by using savings accounts. The two "no-temptation" accounts set up at your secondary bank - Profit Hold and Tax Hold - should be set up as savings accounts. This is where you will collect interest because your money will pool for a while.
More bank accounts will result in a lot more bookkeeping work. Is Profit First really worth the effort?
Profit First is absolutely worth the effort! The additional bookkeeping time required to manage and reconcile multiple accounts for Profit First is negligible, and possibly even more efficient than using just one account. With Profit First, you simply need to reconcile the deposits and periodic transfers from the Income account. All expenses and payments come from the OpEx account. All the other accounts are typically a single transfer in on the 10th and another on the 25th, and a single transfer out at those times. The additional accounts are easy to manage and reconcile. More importantly, the Profit First benefits of instantly knowing what money is allocated to what purpose will have profound effects on the financial health of your business.
Which banks are the best and most flexible in terms of creating multiple accounts (e.g. Income, Profit, Tax, etc.) without charging fees?
Online banks such as Tide, Monzo, Revolut, and Starling typically allow for multiple accounts, or “pots” at the very least. Some will have minor transaction charges, some have monthly charges, and some don’t charge at all. I personally use Starling and Monzo, but I’ve used Tide before. You don’t need to change banks if you currently use a high street bank, as long as you use more than bank. The accounts above are just the ones that I know of/ have used personally, and tend to have lower transaction fees overall than typical high street banks.
Why should I allocate money from the Income account to the Profit, Tax, Owner’s Comp, and OpEx accounts on the 10th and 25th instead of daily or as needed?
By doing the allocation process and paying bills according to an established rhythm (i.e., on the 10th and 25th) you benefit in two ways. First, a rhythmic allocation process means you are batching your work, which in turn means you are more efficient. Second, sticking to an established rhythm gives clarity on cash flow trends. You will see the cash flow in and out of your business, like waves in the ocean. When you see trend changes it may indicate an overall change in the business (either problem or opportunity.)
Can I make allocations more frequently or on different days than the 10th and 25th?
Yes. Profit First was designed to be flexible; however, the 10/25 rule is a best practice. The 10th and the 25th are good dates because it achieves a semi-monthly rhythm of accumulating money and then allocating it (the cash flow wave.) For some businesses a weekly rhythm is better, especially during the implementation period. In that case, select a specific day of the week to be the business' "money day." Allocate funds from the Income account to the allocation accounts on this specified day each week. (I do this on a Friday). Avoid doing the allocation process "ad hoc" or more frequently than once a week. A highly frequent rhythm or sporadic rhythm makes it difficult to observe the cash flow waves in the business.
Real Revenue
What is the difference between Total Income and Real Revenue?
Total Income is a business' top line revenue. Real Revenue is Total Income minus the cost of materials and subcontractors (Mats & Subs), or staff in the case of hospitality businesses. A business should only adjust for Mats & Subs for Profit First purposes if Mats & Subs costs amount to 25% or more of the business' Total Income. Service based businesses without significant subcontractor costs make their Profit First allocations based on Total Income, which will be the same as Real Revenue (because Mats & Subs costs will be set to £0.) Manufacturers, retailers, hospitality businesses, and service providers who rely heavily on subcontractors need to base Profit First allocations on Real Revenue after subtracting Mats & Subs costs. Real Revenue is similar to Gross Profit, but is not the same. One final, but very important, note: Total Revenue, is your revenue excluding VAT. You need to calculate your applicable VAT rate, and then deduct this amount from all deposits before working out the allocation percentages. The “applicable VAT rate” is calculated by dividing your VAT bill by your gross revenue for that VAT period- you’ll notice that it isn’t 20%, or 16.67%. It’s usually lower than this. You need to deduct this percentage from your deposits before you make any other allocations.
What does Real Revenue mean?
Real Revenue is a term we use in Profit First to show a business owner the "real" money their business makes. The top line revenue is not truly representative of the revenue size of your business. Your business may make a margin on materials and subcontractor costs, but that margin is not the core driver of profitability in your business. This can be a real wake-up moment. For example, a home builder may have £10M in annual revenue and Mats & Subs costs of £7M per year. This means the company has £3M in Real Revenue and manages another £7M in in materials and subcontractors’ costs. This business needs to operate like a £3M company, not a £10M company. Real Revenue is NOT the same as gross profit. Real Revenue is total revenue minus the cost of materials and subcontractors utilised to create and deliver the service or product. Gross profit can take into account burdened labour, building costs, and other "cost of sales" expenses. We’ll still include labour in Mats & Subs where a business’s labour percentage is 25% or more of total revenue.
Is Real Revenue the same as Gross Profit?
No. Gross Profit is the total revenue minus Cost of Goods Sold (COGS). COGS can include materials, subcontractors, employee labour, project costs, ancillary costs, and a host of other expenses depending on your business' accounting structure. Real Revenue is a simpler calculation and less subjective. It is total revenue minus materials and subcontractors.
My business requires that I run Profit First based on my Real Revenue. How do I manage the deposits from Total Income?
If you are making a Real Revenue calculation, that means you have material costs and/or subcontractors. In this case you need to open an additional bank account. All your deposits from sales go into the Income account. Next, you take out the normal percentage of your Mats & Subs and move the money to the new Materials & Subcontractors account. Then, the remaining money in the Income account is allocated according to your Current Allocation Percentages.
I have 15 part-time employees who do pet sitting for me and are paid on a per-job basis. For the purpose of Profit First, are they considered subcontractors?
Yes. Employees or contractors who are compensated per project and only for income-generating activities are considered subcontractors for the purposes of Profit First. You would subtract the costs of those individuals from your Total Income to find your Real Revenue.
Profit, Owner’s Comp, & Tax Allocations
Since the Profit, Owner’s Comp, and Tax accounts are all for the benefit of me, the owner of the business, can’t they just be one account instead of three?
No. While the money allocated to these accounts does benefit the owner(s), the use of the money in each account is distinct. Owner’s Comp is for the owner’s salary or regular recurring distribution. The Profit account is used as a quarterly bonus (and can also function as a rainy day fund, or be used for a “Death to Debt” quarterly distribution.) The Tax account is used to pay the owner’s taxes and any corporate taxes on profits. So while the money does all benefit the owner, the accounts need to be kept separate so you can instantly tell just by looking at your bank balance what money is allocated for which purpose.
I take a salary from payroll, do I still need an Owner’s Comp account?
Yes. You will transfer the money from Owner’s Comp to the Payroll or OpEx account each pay day. The purpose is to always be able to instantly see what money the company is allocating to Owner’s Comp (and the other accounts) when you look at your bank balances.
I take my compensation in dividends. Do I still need separate Profit and Owner’s Comp accounts, since all the money flows to me?
Yes, you still need both an Owner’s Comp and a Profit account. Owner's Comp will be distributed to you on the 10th and 25th and should be a consistent amount (acting like a payroll.) On a quarterly basis, 50% of the balance in the Profit account will be distributed, acting like a bonus (which it is.)
Why is the Tax allocation 15%? It seems very high.
The Tax account is intended to pay corporate taxes due on the business' profits AND the personal taxes of the business owner(s), even if the business owner has taxes withheld from their payroll. 15% of Real Revenue is typically enough to cover these taxes, but some businesses with low operating expenses and high profits may have to allocate more than 15%.
I am an owner in the business, and my taxes are already deducted from pay. Do I still need to reserve such a high percentage in the Tax account?
Yes. The Tax account will “reimburse” you for the taxes withheld from your salary. While logically you could just increase the Owner’s Comp allocation and reduce the Tax allocation with the same result, reimbursing yourself for taxes withheld from your salary makes a big difference behaviourally. When taxes are deducted from your pay, it can feel like a loss. This triggers the behavioural pain response of “loss aversion.” But if the business pays your taxes directly or reimburses you for the taxes that were “taken” from your pay, the negative association you feel with paying taxes is reduced. If you have taxes deducted from your pay, use the money allocated to the Tax account to reimburse yourself for those taxes on a regular basis. Another benefit of allocating 15% to the Tax account is your tax liabilities can’t be “hidden” from you as part of your salary. This will give you a much better understanding of your real compensation and total tax liabilities.
I want to pay as little in taxes as possible. Shouldn’t I run up expenses to cut taxes?
That is the most damaging myth of money management. Running up expenses to reduce taxes is the same as spending £10 to save £1.90. It is very damaging to the business. The goal is to run the business as profitably as possible (that is the only way to achieve financial freedom.) You should work closely with a Profit First Professional to additionally reduce your tax liabilities as much as you can, but you can’t pay tax without making a profit first.
I’m VAT Registered, which account does this come from?
You would open a separate current account and name it VAT. Every penny of the sales tax you collect is allocated to this account. For example, if you sell something for £100 and VAT is 20%, you will deposit £120 into your Income account. Transfer that £20 in VAT into your VAT account, then do your Profit First allocations with the remaining £100. If you’re on a Flat Rate or Margin Scheme, then you’ll have to work out the Flat Rate or Margin percentage before you allocate anything else. Remember, VAT collected isn't legally your money. You are acting as a collection agent for the government, so never treat that money as income in your Profit First allocations.
I pay all my suppliers on the same day on the month. If I do allocations to Operating Expenses (OpEx) on the 10th and 25th will it be problematic for paying suppliers on time?
No, this will not pose a problem. Let’s say you pay suppliers on the 10th of each month. When you make your allocation to the OpEx account on the 25th, that money will just sit in the OpEx account. When you make your allocations on the 10th, you will add to what is in the OpEx account from the previous allocation. After making your allocation for the 10th of the month, you will pay your suppliers from the balance in the OpEx account just as you did prior to implementing Profit First.
Where do I pull the money from if I don’t have enough money to pay expenses from my Operating Expense account?
This is the "moment of reckoning" when you follow Profit First. The moment will come for every business when there is not enough money in the Operating Expense account to cover all the expenses. You may NOT use other money. Your business is yelling at you and shaking you saying you CAN’T afford to continue to carry all these expenses, and you need to find a better way. Reduce your expenses, and find a way to pay what you owe when the next allocation to OpEx comes in. But no matter what, you must cut your expenses.
Why do I need Profit and Tax accounts at my primary bank if I'm just going to move that money to my Profit Hold and Tax Hold accounts at my secondary bank?
Without Profit and Tax accounts at the primary bank, the money allocated for Profit and Tax would sit in the Income account at the primary bank for a few days. This can become confusing...or tempting.
Should Profit First be implemented retroactively?
No. The allocations start the day you implement Profit First, with your very next deposit. You don't make retroactive allocations apart from the transfers you have to make from your existing bank account to open your Profit First accounts.
Debt
My business has debt. I can’t be profitable until I pay off all my debt.
Wrong. In fact, the only way to pay off debt (which is simply past expenses that you haven’t paid for yet) is to be profitable. You must make more money than you are currently spending in order to have current profits. You then use those profits to pay off your debt (past expenses).
I have multiple loans and forms of debt. How do I pay it all off?
Pay the minimum balances due out of your Operating Expenses account. These should be considered "regular" bill payments. Then, use any money you have left in Operating Expenses after paying your other "regular" bills to make an additional payment to your smallest debt. No matter what, keep allocating to your Profit account on the 10th and 25th. This may sound crazy since you have debt to pay, but you MUST build up that habit of always taking your Profit first. When you do your quarterly profit distribution, take 95% to 99% of that distribution money and use it to make an additional payment to your smallest debt. The goal is to pay off your smallest debt as quickly as possible. The remainder of your quarterly profit distribution (5% to 1%) is used for you to celebrate. This process has you constantly chipping away at debt (from Operating Expenses) and then quarterly hitting that debt really hard. It is kind of like boxing... jab, jab, jab, then a massive right hook.
I have lots of debt, including credit cards, personal loans, and banks loans. Some of this debt has very high interest rates. Shouldn't I pay off the high interest debt first?
While logic dictates you should pay off your highest interest rate debt first, Profit First is all about leveraging human behaviour. One of these behaviours is celebrating “early successes.” When we see early progress in our management of money, we become more committed to the process, even if the progress is very small. In regards to debt, Dave Ramsey, author of The Total Money Makeover, suggests a technique that is in perfect alignment with Profit First. The process is simple. First, sort all your debts from smallest amount due to largest. Then, put all your financial effort into eradicating the smallest debt first, while continuing to pay the minimum balance due on all other debts. Once the smallest debt is paid off, target the next smallest debt on your list, adding the amount you were paying to the first debt to the payment you make on the next debt. Wipe that out, and then hit the next. This will build a series of “early successes” and create a “snowball effect” as more and more money is freed up to target the remaining debts.
Other Applications of Profit First
Can I use Profit First to identify a good business to buy?
Yes! An Instant Assessment will show what needs to be "corrected" in the business. Less correction = a better buy.
Can I implement the Profit First system before my business is profitable?
If your business is not profitable, you need to implement Profit First right away! Implementing Profit First forces profitability rather than waiting for it. Start with low allocation percentages - like 1% to Profit and Tax - but get started NOW!
My business is a brand-new startup. When should I implement Profit First?
Immediately. The sooner you start with Profit First, the sooner you will master financial discipline and force your business to run efficiently. No matter how new or established your business is, you should not wait to implement Profit First.
Does Profit First translate into personal finances?
Yes. This is explained in more detail in "The Profit First Lifestyle" section of Profit First, but the premise is the same. Set up multiple bank accounts: Income (for deposits only,) Vault (savings account to cover the unexpected,) Recurring Payments (for recurring fixed, varying, and short-term bills,) Day to Day (for shopping, school supplies, etc.,) and Debt Destroyer (all money remaining after allocation to the previous four accounts goes into this account.) Then, determine your allocation percentages and your allocation schedule. Most importantly, STICK WITH IT, even when it gets hard.
What is a Certified Profit First Professional?
In the UK, there are hundreds of thousands of professionals and consultants offering business advice (accountants, bookkeepers, financial advisors, business consultants, etc), all delivering similar solutions to achieve standard results. For small businesses or sole traders, this might be all you need. But if you’re a scaling business looking to maximise profitability and growth, you need more than just standard advice—you need a system that works. There are currently only around 20–30 Certified Profit First Professionals in the UK. To become certified, we’ve undergone a rigorous training and coaching programme led by Profit First Professionals HQ. This includes: Passing an exam to demonstrate expertise in the Profit First methodology. Implementing Profit First in our own business, proving its real-world impact. Successfully guiding multiple clients through the process to transform their own businesses. This certification ensures that we don’t just understand Profit First in theory—we know how to implement it in real businesses like yours to create tangible, lasting results.
What if My Accountant Won’t Work with Profit First?
You don’t need to switch accountants to benefit from Profit First. While we’d love to collaborate with your existing accountant, if they’re not familiar with or open to the system, that doesn’t mean you’re stuck. Profit First can be implemented alongside your current accounting setup, giving you the tools to prioritise profit, manage cash flow, and grow sustainably—without needing to change everything about how your finances are handled. That said, if you’re looking for full financial support tailored to hospitality businesses, our team at Evans & Co Hospitality Accountants can provide complete accountancy and bookkeeping services. As a specialised accountancy practice, we handle everything from compliance work to management accounts and advisory services for hospitality businesses, all while integrating Profit First into the process.
Want to Learn More?
Visit Evans & Co Hospitality Accountants to explore how we can work with you to build a profitable, sustainable business—whether through Profit First, accountancy, or both.