Victim of Success.
Does anything feel better than a big balance in your business’s bank account? It’s not just excitement or happiness. It’s peaceful. It’s knowing that, for the moment, you don’t have to worry about money. You can try something new. Take a risk. Pay off debt. Grow a little bit. But the problem is, our brains react that way whenever we see a big number in our bank accounts. Even if that number is an illusion.
Does anything feel worse than realizing you forgot to pay an important bill? Even if you have the money to pay it, there’s that moment of panic. Especially because we all know that whenever you miss a bill, that bill gets higher. Worst of all is when you realize that you can’t pay a bill. You don’t have the money. You can’t cover it. Even if you can negotiate with whoever you owe money to, which isn’t always an option, your business will always take a hit because of it. A service you need gets shut off. A paycheck gets sent out late. A piece of equipment stops working.
In simple terms, Parkinson’s law states that the more you have, the more the demand increases for what you have. This applies to products, but it also applies to the money in your bank account. If I have one bank account, expenses will increase until there is no more money in that account to spend. (2:07). If it looks like you have the extra money in your account, then running a successful business means expanding that business until you no longer have extra money.
Keeping it Straight
What the Profit First model recommends is that you don’t keep your money all in one account. You break it into smaller accounts each designated for a specific function. You have your tax account, your payroll account, your equipment maintenance fund, and so on. This eliminates the risk of a falsely inflated bank account. Your accounts will show the correct total that is in them because that is the only total that goes in them. You eliminate the risk of accidentally spending your tax money or any other expense. It simplifies the process of handling your finances.
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