Like we said before, you probably didn’t start a practice to be an accountant. Like many practice owners, you don’t have the time or gumption to read the different accounting statements necessary to manage the financial aspect of your business.
Theoretically you should review and correlate your Income Statement, Balance Sheet and Cash Flow Statement monthly (or more frequently), but few practice owners do. Most resort to “bank balance accounting,” where you check our bank balance every day and make financial decisions based upon what we see.
However, if we refer to Parkinson’s Law, we consume what we see, so suddenly the money in the bank account becomes spendable. Profit First encourages you to continue “bank balance accounting” by first allocating money to your profit account, and then allocating the reset to various other expense accounts, we will discuss later.
This allows you to see the actual portion of deposits that are available for expenses without tapping into your profits so you can automatically adjust your spending accordingly.