How to Implement Profit First: A Step-by-Step Setup Guide

You’ve read the book. You understand the concept. Now you’re ready to actually implement Profit First in your business.

This guide will walk you through every step, from setting up your bank accounts to establishing the rhythm that makes the system work. By the end, you’ll have a complete roadmap to get Profit First running in your business.

Before You Start: The Instant Assessment

Before setting up accounts, you need to know where you currently stand. Grab your last 12 months of financial data and calculate:

Total Revenue: All money that came into the business

Owner’s Pay: What you paid yourself (salary, draws, distributions)

Profit: Any profit distributions taken (not reinvested revenue—actual money you kept)

Taxes: What you paid in taxes or set aside for taxes

Operating Expenses: Everything else (rent, payroll, supplies, contractors, etc.)

Now calculate your current percentages:

Category	Calculation	Your %
Owner’s Pay	Owner’s Pay ÷ Revenue	___%
Profit	Profit ÷ Revenue	___%
Taxes	Taxes ÷ Revenue	___%
Operating Expenses	OpEx ÷ Revenue	___%

Example: Revenue of $300,000, Owner’s Pay of $90,000, Profit of $0, Taxes of $30,000, OpEx of $180,000

Owner’s Pay: 30%
Profit: 0%
Taxes: 10%
Operating Expenses: 60%

Write your numbers down. This is your starting point.

Step 1: Set Up Your Bank Accounts

Profit First requires multiple accounts. Here’s exactly what you need:

Core Accounts (At Your Primary Bank)

Open these accounts at the bank you already use:

1. INCOME Account (Checking)

Where all revenue deposits
You never spend from this account
Money flows out via allocations

2. PROFIT Account (Savings)

Receives your profit allocation
You don’t touch this except for quarterly distributions
Seeing this balance grow is motivating

3. OWNER’S PAY Account (Checking)

Funds your personal compensation
Transfer to personal account on a regular schedule
Keeps owner’s pay separate from operations

4. TAX Account (Savings)

Holds money for quarterly estimates and annual taxes
Only spent on actual tax payments
Removes tax surprises

5. OPERATING EXPENSES Account (Checking)

Funds all business operations
This is the only account you spend from
Creates natural spending constraint

”Temptation-Free” Accounts (At a Different Bank)

Open two additional accounts at a bank that’s less convenient:

6. PROFIT HOLD Account (Savings)

Quarterly, transfer Profit here
Out of sight, out of mind
Hard to access = hard to spend

7. TAX HOLD Account (Savings)

Build up a larger tax reserve here
Especially important for quarterly estimates
The inconvenience is the point

Why a separate bank? When money is one click away, you’ll find reasons to spend it. Making it harder to access makes it harder to rationalize raiding these accounts.

Opening Your Accounts

Most banks let you open multiple accounts easily:

Call or visit your bank
Tell them you’re implementing a cash management system
Ask about any fees for multiple accounts (negotiate or find a bank with fewer fees)
Request no overdraft protection between accounts
Set up online banking access for all accounts

This setup typically takes 1-2 hours.

Step 2: Determine Your Allocation Percentages

You’ll allocate every dollar that comes in according to predetermined percentages. But what percentages should you use?

Target Allocation Percentages (TAPs)

Here are the recommended targets based on your revenue level:

$0-$250K Revenue

Account	Target %
Profit	5%
Owner’s Pay	50%
Tax	15%
Operating Expenses	30%

$250K-$500K Revenue

Account	Target %
Profit	10%
Owner’s Pay	35%
Tax	15%
Operating Expenses	40%

$500K-$1M Revenue

Account	Target %
Profit	15%
Owner’s Pay	20%
Tax	15%
Operating Expenses	50%

$1M-$5M Revenue

Account	Target %
Profit	10-15%
Owner’s Pay	10-15%
Tax	15%
Operating Expenses	55-65%

Your Current Allocation Percentages (CAPs)

Here’s the critical rule: You don’t start at your targets. You start where you actually are.

Look at the assessment you did earlier. Those are your current allocation percentages.

If your current operating expenses are 65% and the target is 40%, you can’t flip a switch. You’ll run out of money.

Your Starting Percentages

Start at your current reality, then gradually move toward targets.

Example: You’re at 0% profit, 30% owner’s pay, 10% tax, 60% operating expenses.

Starting allocation:

Profit: 1% (yes, just 1%)
Owner’s Pay: 30%
Tax: 15% (increase this immediately—you’re probably under-reserving)
Operating Expenses: 54%

Every quarter, adjust your percentages by 1-3 points toward targets. It might take 1-3 years to reach targets. That’s okay.

Step 3: Establish Your Allocation Rhythm

Profit First works on a twice-monthly rhythm. Here’s exactly how it works:

The 10th and 25th

On the 10th and 25th of every month, you allocate.

Why these dates?

Most businesses have payment cycles that cluster around the 1st and 15th
Allocating on the 10th and 25th means you allocate after payments typically arrive
Twice monthly keeps the system manageable

The Allocation Process

Here’s what you do every allocation day:

1. Check Your INCOME Account Balance Look at how much is sitting there since the last allocation.

2. Calculate Allocations Multiply the balance by your percentages.

Example: $12,000 in INCOME account

Profit (5%): $600
Owner’s Pay (35%): $4,200
Tax (15%): $1,800
Operating Expenses (45%): $5,400

3. Transfer the Money Move funds from INCOME to each destination account.

4. Zero Out INCOME After allocation, your INCOME account should be at or near zero.

Setting Up Automatic Transfers

Some people automate the allocations. Here’s how:

Option 1: Percentage-Based Auto Transfers Some banks allow percentage-based recurring transfers. Set them up on the 10th and 25th.

Option 2: Fixed Amount Transfers If your income is consistent, set fixed amounts that approximate your percentages.

Option 3: Manual Transfers Many business owners prefer to do allocations manually. It takes 5 minutes and keeps you engaged with your finances.

I recommend starting manual. Once the habit is established, consider automation.

Step 4: Set Up the Quarterly Rhythm

Beyond twice-monthly allocations, Profit First has quarterly practices:

Quarterly Profit Distribution

Every quarter, you take a profit distribution:

Look at your PROFIT account balance
Transfer 50% to your PROFIT HOLD account at the separate bank
The remaining 50% gets distributed to you

What to do with the distribution: This is your reward for running a profitable business. Take a vacation. Make a special purchase. Invest it. Don’t put it back in the business.

Why only 50%?: The other 50% builds a profit reserve for emergencies or opportunities.

Quarterly Tax Payments

Each quarter:

Calculate estimated tax payment due
Transfer from TAX account to pay the IRS/state
Replenish from TAX HOLD if needed

Quarterly Percentage Review

Each quarter, review your allocation percentages:

Are you consistently short in OPERATING EXPENSES? Your percentages might be too aggressive.
Is PROFIT building up nicely? Maybe you can increase that percentage.
Did you have enough for tax payments? Adjust if needed.

Move percentages 1-3 points toward targets each quarter (if sustainable).

Step 5: Run Your Business from OPEX

Here’s where the discipline kicks in: All business spending comes from the OPERATING EXPENSES account.

Rent, payroll, supplies, contractors, subscriptions, everything. If the money isn’t in OPEX, you can’t spend it.

What This Looks Like

Before Profit First:

Check bank balance: $50,000
Think: “I can afford this $3,000 purchase”
Make purchase
Wonder later where the money went

After Profit First:

Check OPEX account: $8,000
Think: “Is this $3,000 purchase worth 37% of my monthly operating budget?”
Make more intentional decision

Handling Cash Crunches

What happens when OPEX runs low? You have options:

Option 1: Wait Can the expense wait until the next allocation? Often it can.

Option 2: Cut Elsewhere What can you trim to make room for this expense?

Option 3: Borrow from Yourself In emergencies, you can transfer from PROFIT to OPEX. But document it and pay it back.

Never: Raid TAX to cover operating expenses. This creates the tax emergencies Profit First is designed to prevent.

Step 6: Handle the Transition Period

The first 1-3 months of Profit First implementation are bumpy. Here’s how to navigate:

Expect Discomfort

You’ll feel cash-constrained, even if your total cash is the same. That’s because money is now allocated instead of sitting in one big pot.

This feeling is a feature, not a bug. It creates the discipline the system is designed to build.

Start Small

If you’re nervous, start with just these accounts:

INCOME
OPERATING EXPENSES
PROFIT (even at 1%)

Add TAX and OWNER’S PAY as you get comfortable.

Build a Buffer

Before going live, consider building a small buffer in OPEX to smooth the transition. One month of operating expenses gives you breathing room.

Don’t Abandon Ship After Two Weeks

Give the system at least two full allocation cycles (one month) before judging. It takes time to adjust.

Common Implementation Mistakes

Avoid these pitfalls:

Mistake 1: Starting with Target Percentages

If your current profit is 0% and you immediately start allocating 15%, you’ll run out of operating money. Start at current reality.

Mistake 2: Not Actually Moving the Money

Some people calculate allocations but leave money in INCOME. The magic is in the separation. Move the money.

Mistake 3: Raiding TAX for Operations

When OPEX runs low, TAX looks tempting. Resist. You’ll thank yourself at tax time.

Mistake 4: Skipping the Separate Bank

The temptation-free accounts at a different bank are crucial. Don’t skip this step.

Mistake 5: Over-Complicating

Some people add too many accounts or over-think percentages. Keep it simple, especially at first.

Mistake 6: Not Adjusting Percentages

Your percentages should evolve. If you’re stuck at your starting percentages two years later, you’re not progressing toward targets.

Implementation Checklist

Here’s your complete checklist:

Week 1: Assessment

Calculate last 12 months revenue
Calculate current Owner’s Pay percentage
Calculate current Profit percentage
Calculate current Tax percentage
Calculate current Operating Expenses percentage

Week 2: Bank Setup

Open INCOME account (checking)
Open PROFIT account (savings)
Open OWNER’S PAY account (checking)
Open TAX account (savings)
Open OPERATING EXPENSES account (checking)
Open PROFIT HOLD account at separate bank
Open TAX HOLD account at separate bank
Set up online access for all accounts

Week 3: Percentage Setup

Determine starting allocation percentages
Document target allocation percentages
Create plan to move toward targets

Week 4: Go Live

Redirect all revenue deposits to INCOME account
Move existing bank balance to appropriate accounts
Complete first allocation
Set up bill pay from OPERATING EXPENSES
Mark allocation days (10th and 25th) on calendar

Ongoing

Allocate on the 10th and 25th
Pay operating expenses only from OPEX
Quarterly: Take profit distribution
Quarterly: Review and adjust percentages
Quarterly: Make estimated tax payments

Getting Help with Implementation

While Profit First can be DIY, working with a professional can help you:

Customize percentages for your specific industry
Integrate with your existing bookkeeping
Navigate the transition period
Stay accountable to the system
Adjust when challenges arise

A Profit First Professional has been trained to implement this system and has seen what works (and what doesn’t) across many businesses.

Your First Allocation Day

Ready to start? Here’s exactly what to do on your first allocation day:

Move your existing bank balance into the new accounts according to your starting percentages
Going forward, all new revenue deposits into INCOME
On the 10th (or 25th, whichever comes first), check INCOME balance and allocate
Start paying bills from OPERATING EXPENSES only
On your next allocation day, do it again

That’s it. The system is now running.

Want help implementing Profit First in your business? As a certified Profit First Professional, I help Utah small business owners set up and optimize this system. Book a consultation to discuss implementation for your specific situation, or take our assessment to see where your cash flow stands today.