In today’s video, I will discuss on how to set up the Profit First for your LLC and how you can use it to see a huge change in the way you run your online business.
Today's question: “Can you discuss the best practices to handle your LLC money? In other words, how much to keep it capitalized? What bank accounts to have for the biz? One for operational, one for taxes, et cetera, that sort of thing.” Thanks, Karina. Thank you because I love your question. I appreciate you reaching out.
This question was really good because it brings in to play some of the things I talked about in the last video. If you haven't checked that out, this is the link. But basically you need to have your LLC adequately capitalized. And the reason you do that is you can't have your LLC in business and then take all the money out. And then if somebody tries to sue you, you say, “Ha-ha, I don't have any money. You can't get anything.” You can't do that. So, you have to keep it adequately capitalized.
The system that I use that I talked about last week is the Profits First system by Michael Michalowicz. Since I've implemented this system in my business, I'm not kidding you, in my law firm about two months ago, my bank account balance has grown by about four times, and without getting into specific numbers. The reason for that is because I'm allocating more money to taxes. I'm allocating more money to operational expenses. Well, actually less money to operational expenses, more money to owner pay and more money to profit.
Me talking about it is really not going to do justice to this system. You really need to check out Mike's book. But basically you have four separate accounts. And you actually could have five, you could have an income account as well. But the money comes in, it goes into either your income account or your operating expense account.
Then what you do from there is on the 10th and 25th of each month, you're going to transfer money in accordance to a preset predefined set of percentages that you need to fund different parts of your business. You're going to have a profit account and you're going to have a tax account. And you're going to have an owner's pay account in addition to the operating expense account that you already have. And so, the way I do this and the reason why I said my bank account balance has grown is I'm talking in aggregate. I'm talking all four of these accounts.
Another way to do it is to use a program called YNAB, or You Need a Budget. You can actually set aside different accounts on the budget column. And that's actually what I do for each one of these subcategories, taxes, owner's pay, operating expenses, and profit. Then, you basically figure out a set percentage that you want to allocate to each of these different accounts.
On the 10th and the 25th, you're going to transfer money from your operating account or your income account into each of those three or four separate sub-accounts. So, what I'm going to do today is I actually have a spreadsheet that I used to calculate these percentages. I'm going to do a video that shows you basically how I use this with YNAB to keep track of all these four accounts. And if you want to sign up for that, here is the link where you can sign up for that.
And the popularity of Mike's book, Profit First is a testament to how powerful this system is and how much money it can save you over the years and as you continue to grow your business. So today, not so much legal advice today or guidance or coaching. I guess coaching is the way to do it, I can't give legal advice here. I don't know anything about your situation and I can't give you legal advice, but practical coaching about how to manage and run your business.
Related Resource: If you need to get a hold of me, you can schedule a call using this link.
That's kind of the topic of today. Hope you enjoyed that. Anyway, that's it for today folks. Hope you have a great day!