Jacksonville CPA | The First Three Percent

Good morning everybody and welcome to the daily Mineva podcast. My name is Brandon Mcelroy and I’m the president of Mineva, a Jacksonville based tax and accounting firm that is passionate about helping small businesses reach their goals. Today we’re going to talk about cash management. That’s a hot topic for all entrepreneurs. Recently I attended an accounting conference and the chief marketing officer of the billion dollar software company who asked me what I thought the major issues we’re facing small businesses today, and I said, number one is cash management. Seems like every business owner I talked to is making money but does not keep any of it. So today we want to talk about how we can help you keep more of your hard earned money. I know in the Jacksonville CPA firm market are not a lot of people talking about this topic, but today we want to add value and teach you how to keep more of your hard earned money. Cash flow management is something that is a bit of a mystery. Cash comes in. Cash always seems to go out

what you have to do is to implement a system to make sure you catch some of that cash. With most business owners, it’s like sticking a net into the ocean and you pull it up and there’s nothing there. The water goes in, water goes out. You have to set up some type of system that will allow you to keep the cash you need. I know in the past, before I set up my cashflow management system, I would see an item, whether it be business or personal expense, and mentally I would think, oh, I have this amount of money in the bank. I can afford that, so I would purchase it. Not realizing that this behavior is very deadly when it comes to cashflow management. So first off, you need to set up system. We call it the [inaudible] method where you set up more than one bank account. I shared this idea with a customer many years ago. He was having trouble affording to pay his sales tax at the end of every month,

I coached him to go to his bank and open up another bank account and every time he made a bank deposit, he would need to put seven percent in one bank account and 93 percent and the other bank account and mentally he would need to tell himself is 93 percent is my money, seven percent is not my money. It is the government’s money. And after that he had no issues at all paying sales tax. Here we are more than 10 years later and he still uses this method and he’s never been late on a sales tax one time. And he also used this as a method to pay other expenses. a Jacksonville CPA that will help you with this is a very, a very valuable asset to have. So first separate bank accounts, there’s a principle called ohms law. It basically says that you will consume whatever is in front of you. And I’m sure you know, if you make $50,000, you spent $50,000, you get a raised 60,000 somehow that tend to 10,000 extra dollars, does not stay in your bank account. Somehow you find a way to spend the extra $10,000. So here what we’re trying to do is to set up a system to make sure that you keep your cash

after when you have your bank account set up, you need to identify a rhythm. For me, it’s every two weeks, sometimes a meg bank deposits multiple times a week, and it’s easier and more efficient for me to allocate to my separate accounts every two weeks rather than every couple of days. So you do whatever works best for you, but enforcing a rhythm of every two weeks, it gives you a good idea of the cash and can help you manage trends in your business. First off, I would recommend that you save at least three percent of your gross revenue. So the way that works is you open up and depending on your business, you need at least for accounts. So account number one would be your operating account account. Number two would be your income account. Count number three would be your tax account account. Number four would be your savings account.

So the way this works is all your deposits should be input into the income account. Okay, so every two weeks you have your money come into your income account. Then you need to work with a Jacksonville CPA or an accountant to figure out what your percentages should be. And for example, if you have $10,000 in your income account, your three percent at least needs to go into your savings account. So that would be your first transfer. Whatever number is in your income account, three percent of that, multiply it times three point zero three would need to go into your savings account.

Then Jacksonville CPA or an accountant can help you figure out what your appropriate tax percentage would be. This number will vary based on your income level and your marital status and your dependent status and so many other factors. It is. It’s hard to pinpoint and and have a one size fits all number. So for example, let’s just say 15 percent, so for taxes, so if you have 10,000, your first three percent or $300 would go into your savings account, your next percentage, which would be 15 or $1,500, would go into your tax account and then the rest of that money would go into your operating account. And I have seen some business owners open up more bank accounts in this and I have seen some open less, but for the majority of businesses I would recommend that you open at least three bank accounts and then every two weeks or whatever your predetermined rhythm is, I wouldn’t recommend that you would need to meet with a CPA, a Jacksonville base CPA or an accountant every two weeks. But you can if you’d like every two weeks, look at this rhythm to find out what is going on in your business.