Bank Balance Accounting: Managing Finances Intuitively

“The safe way to double your money is to fold it over once and put it in your pocket.” – Frank Hubbard

For many entrepreneurs, managing finances can feel daunting. Complex accounting methods, endless spreadsheets, and confusing financial jargon can make it challenging to understand the health of your business. But what if there was a simpler, more intuitive way to manage your business finances?

Let’s take the example of Mark, an fictional owner of a graphic design studio. He was good at his craft, but struggled when it came to managing his finances. He was never quite sure how much he could spend, how much to set aside for taxes, or even how much he was earning. To solve this, Mark adopted the principle of ‘Bank Balance Accounting’.

Mark divided his income into several different bank accounts, each representing a different aspect of his business finance – operational expenses, owner’s pay, taxes, and most importantly, profit. Every time his business received payment, he divided the funds among these accounts based on predetermined percentages.

This method transformed Mark’s approach to his finances. By looking at his bank accounts, he could easily understand the state of his finances. His spending was in control, taxes were set aside, and he always had a clear idea of his profits.

Action Step: Evaluate your current approach to financial management. If it feels overwhelming, consider setting up multiple bank accounts to manage your money more effectively. Start with separating your profit from your operational expenses.

Bank Balance Accounting isn’t about sophisticated financial formulas; it’s about simplicity and clarity. It brings the focus back to the most crucial aspects of your business and ensures you’re always in control of your money.

If you’d like to learn more about this method and discover more about the principles behind it, I recommend checking out our book of the week: “Profit First” by Mike Michalowicz.

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