Profit First Bank Accounts Help Prepare Your Business for Tax Season

Having just closed the third quarter, most ecommerce sellers are preparing to pay their Q3 sales tax and anticipating what their Q4 tax liability might be. Yes, it’s that time again. Were you prepared with the funds you needed when that tax bill arrived in your mailbox? Will you have the funds there and ready when Q4 or year-end comes around?

Profit First for Ecommerce Sellers

Sales tax liability is a big concern for all businesses; for some, it’s like the proverbial “necessary evil.” You may not like paying sales tax, but if you plan ahead, you don’t have to stress over having the money available when it’s payment time. The systems put into place with Profit First allow you to plan ahead and allocate funds throughout the year, so you’re prepared and stress-free when you get that payment notice.

Does Profit First Work?

First, keep in mind that, 1) If you keep all your money in only one account, it’s easy to forget that you’ve got tax payments coming up each quarter or after year-end. This makes it difficult to allocate funds to ensure you can pay those taxes without taking away from monies saved for other things like inventory, COGS, and even owner pay; and 2) The money you collect as sales tax on your products is not your money. This money belongs to the state agencies, and you are simply guardian of it until it’s time to hand it over. When you spend that money on other things, you are essentially spending the government’s money.  Profit First is a proven cash flow strategy that works well for ecommerce businesses because it teaches you how to separate your revenue into various “buckets” or bank accounts and operate more efficiently, which can lead your business down the short path to permanent profitability.

How to Use Profit First Bank Accounts

Profit first accounting is worth it. You should have a savings account designated for Taxes. This is one of your five basic Profit First accounts and you allocate funds to it just as you do the other four—Inventory, Operating Expense, Profit, and Owner’s Pay. Keeping the funds separate eliminates the temptation to use the money for replenishing inventory and just hope that the products sell before the tax payment is due.

What is Parkinson’s Law?

In case you’re not familiar with the basics of Profit First, it is the brainchild of Mike Michalowicz, author of the book, Profit First. Understanding our existing behavior, it provides a framework for managing finances in a way that builds in profitability. This behavioral “law” is called Parkinson’s Law, which basically says we use what we’ve got, and the more we’ve got, the more we tend to use. This can apply to time, money, products or services.

Addressing the Unique Needs of the Ecommerce Business

In my book, Profit First for Ecommerce Sellers, I customize the Profit First model to address the unique needs of the ecommerce seller. With the 5 basic bank accounts and a calculated allocation percentage for each, you can become profitable with your very next Amazon payout!

 

Interested in Profit First? profit first for ecommerce sellers

If your ecommerce business isn’t where you’d like it to be in terms of profitability, check out my book, Profit First for Ecommerce Sellers. It answers important questions about how to implement Profit First in an ecommerce business. Take control of your money and your business, and put Profit First to work for you! Contact us today to learn more about accounting for Ecommerce.

 

bookskeep

Cyndi Thomason is founder and president of bookskeep, a U.S.-based accounting, bookkeeping, and advisory firm for ecommerce sellers worldwide. She has a passion for data analysis and process development. She uses that passion to educate her clients and help them structure their businesses to maximize profits.

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