Getting Our Allocations Set Up

Getting Our Allocations Set Up

Day 4 in the implementation of Profit First in your business is about setting up your allocations. When allocating, it is like setting up an envelope system much like Dave Ramsey’s Envelope Methodology for your personal finances. 

On this fourth day, Annette will guide you in setting up allocations to the various accounts in your business like Operating Expenses, Owner’s Pay, Profit, Tax and for your Team through an Allocation Template that she has prepared.  As this is a live session, you may comment or ask Annette questions, but if you are catching this up on a replay, you can still do so, by commenting “replay” and then your questions or your comment.

Here are a few insights you’ll hear in today’s show…

  • The Allocation Set Up that Annette used with her clients. (...What is the recommended schedule when doing allocations?)
  • What are the two things that you need to know and understand when doing allocations to your different buckets?
  • What is Current Allocation Percentage or CAP? (...What is the recommended percentage allocation for the Operating Expense and Owner's Pay?)
  • Annette shared how much to allocate in each of the accounts using the Allocation Sheet or Template.
  • How are you to allocate a chunk of money sitting in your current account?  (... To what account should that chunk of money should have been allocated?) 
  • How are we going to do the recurring weekly allocations moving to monthly when you need to allocate for your Owner's Pay or even a bonus?
  • What happens when you have a negative number in the Profit Account?  (...What percentages are advisable to be tweaked on the profit account, owner's pay and tax?)


  • If you're interested in joining this sprint or catch up with the live sessions, join here.

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Hello, everyone, I hope you are well today. I have started this session by sharing my screen because, as we know last time when I tried to do in the middle of the session, it didn't work. So I'm hoping today that I have found a workaround so that my screen will be shared with you. Now, I'm just looking up in the group, because it looks like my video is stalling and perhaps not actually. Sure. So it says I'm live, but I can't see myself in the Facebook group. So I'm thinking that possibly, it is not showing, there we go. Okay, maybe it is showing, okay, now it's showing and saying I've been on for 24 seconds. So maybe you were seeing me? No idea. But I am glad I am here now. So I'm sharing my screen from the very start here. Because there is I do want to go through what this looks like. I don't think you can see me at the same time, unfortunately. And I'm hoping that I can find a way to stop sharing my screen in the middle of this. But again, I have no idea if I will.


What I want to talk you through today is how to set up doing your allocations. We're going to do our first allocation tomorrow. But we're going to set everything up from today. Now so far, we've got our banking set up, we have looked at money leaks, we have looked at our incident assessments, we know what our business is just now. And the next stage of getting profit first in place is to get our allocations done, that means moving the money around into the relevant parts in our business. So if you're tuning in, by the way, give me a hello. In the comments, let me know that you can hear me okay, because I'm screen sharing here and I don't really know what you can hear. So let me know if you can hear me okay here. Whilst we are doing this screen share.


So we are getting our allocation set up today. And what I'm going to share with you today is the allocations, eight that we use with our clients we use with our accounting clients, we give them this exact setup, so that it makes it nice, straightforward and easy for them to do their allocations. Now why I actually haven't done is I haven't actually shared this template out with you guys. But if you want me to do that, let me know in the comments. Just give me a yes, please share it. And then I can set that up and get that out to you in a later post as well. So when we let's revisit sort of what allocations are how we allocate so part of Profit First is, of course, moving around money in set percentages, to different bank accounts or spaces, pots, depending on which bank you use, and what the terminology is that they have. Now, typically, most people nowadays do their allocations on a weekly basis. The Prophet first book speaks about a 10, 25 rhythms, so doing it on the 10th and the 25th of every month. What we have found doing it personally and doing with clients is that let's face it, sometimes we don't know what the date is, or the date falls on a weekend or a day we're not working. And we end up forgetting to do the allocation causing issues in probably the operating expenses account and, and giving us some headaches. So what we've typically found is that it makes a lot more sense to do allocations on a weekly basis, choosing a day of the week that you're going to do it, directing that as a recurring diary entry with yourself and sticking to that plan. That is exactly what I do. And it's actually what Mike McCalla wits does now as well, he does a weekly allocation as well. So I highly recommend that if you're not yet in the habit of allocating frequently and you've not got this as part of your regular routine that you choose a weekly allocation date. Now some people actually allocate daily, and that's okay as well if you want to and you feel more comfortable and more in control allocating daily, you absolutely can do that, too.


So when you are allocating to your different accounts, you need to know two things, you need to know the percentage that you are allocating. So how much is going to each of your accounts and you need to know the amount of money that you bought allocate. So in terms of understanding the percentage amounts that you're going to allocate in to your different buckets. Of course, we have those target allocation percentages to guide us to where we actually want to end up. However, if you go from being quite far away from those percentages, to suddenly allocating those percentages, the likelihood is, you are going to have the wrong amounts in the wrong place and have to steal back from your accounts again. So what we actually want to do is we want to move towards the target allocation percentages. But as part of that, we really need to understand what our percentages are at this point in time. And you can use the work that you did on the instant assessment to work out what your actual current allocation percentages are. So what you would need to do there is take each of the headings, your profit, owners pay, tax and operating expenses, and work out what they are currently, percentage of your real revenue.


In doing that, you will get what is called your current allocation percentage, or you might have seen this written down as CAP C A P, current allocation percentage, and that will tell you what your business is currently operating on as a percentage. Now, of course, we've done some work on money leaks, so you should be slightly better than you are in that exercise. So what I would encourage you to do as your first load of percentages that you choose is look at your current allocation percentages. Now, in the vast majority of situations, it's going to be your operating expenses that are too high for your business as a percentage, that is what 99.9% of businesses are now very, very occasionally, we see people who's actually owners pays is too high, and their operating expenses are actually too low. But in most instances, it's going to be the operating expenses that are too high, and the owners pay is too low. So get your current allocation percentages. And what I recommend is to tweak that by 1%. So reduce your operating expenses by 1%. and increase your owners pay by 1%. And use those to slot in to your allocations. So let's say at the moment, we have 1% owners pay, let's say we are currently paying ourself 24% as our owners pay, so let's move that up to 25. And we are currently spending 12% on tax. So we put those in to our buckets here, I'm going to assume we are not VAT registered, the VAT percentage you can take by looking at your VAT returns, and working out how much VAT typically pay based on your previous actions.


So what we then do is when it comes to time to allocate, let's say we choose a Friday, let's say we choose it weekly, and we choose a Friday, every week, it comes to then allocate, what we do is we need to look at our bank statement. And we need to separate income account, we take the balance of that income account and put it in here in this in this yellow box so that we can work out how much we put into each bucket. If you don't have a separate income account, and you're working your income and operating expenses through the same bank account, you're going to have to add up all the income that you have received since your last allocation and enter that in here. So let's say we received 2000 pounds in our last allocation. In this setup this allocation sheet, this is how I make it nice and simple, is that you put your 2000 pounds in here and it tells you how much to put into each bucket. You can of course do this just by using a calculator every time that you that you have to allocate, that's no problem at all. You can absolutely get your calculator out, and you can absolutely look up your percentages. But what I found out for myself is that every time I had to allocate it became a little bit of a chore because I had to get my calculato,r I had to look up the bank accounts and I had to work out percentages and find where I'd written those down. And that became a bit of a pain because what I would remake recommend on this allocations template as well is, if you are not using the spaces function or you're not with a bank that you can call your bank account names, you're probably going to put in the last three or four digits of your bank account in here, so you know which account it is that you spare over to, that will make it simple and straightforward for you to allocate when it comes to moving money around. Hey, Eloisa, thank you for saying, Hello, Clive, thank you for saying hello, no need to apologize. Like at all, it is no problem whatsoever for for whatever time, anyone who wants to watch these up, then they are more than welcome to do that. So that is no problem whatsoever, Clive.


So, people will sometimes say to me, okay, what happens if I currently have a large bank balance? What happens if I currently have a chunk of money sitting in my current account? How do I allocate that? Well, the first thing that I would say is, if you do have a chunk of money sitting in your current account, it is most likely that a lot of that is probably going to be due out in tax. So I would recommend speaking to your accountant to see what your personal tax and corporation tax liabilities are, that you have not paid yet. So you might have a year end that's already happened, and you will have tax on that. Or you might be quite far through a year, and actually have a tax bill coming up relatively soon, that you don't know about. Your accountant should be able to estimate for you what this amount is. And so you can put that over into your tax or VAT pots, so that you're not going to leave yourself short come tax time. And once you do that, once you put that tax and VAT money aside, if you still have a decent amount left in your current account, then you can allocate it in the percentages that you are going to be using and the same percentages that you're going to have. If that still seems like you have too much money sloshing around, you can of course, set up an emergency fund for your business or what the prophet first calls a vault. But we're not going to cover that in these sessions this week, because that's kind of going beyond more advanced strategies, Becky, Hello, it is lovely to have you here. So like I mentioned, if you want a copy of this template, let me know. And I will prepare a copy for you. This is the template that we use for our accounting clients. So this is what we use with them, we give them a copy of this so that we can use Profit First in their business. So this is exactly what we do to make it nice and straightforward and simple for our clients to allocate on a weekly basis.


So let's say we've done the allocation on the Friday, we come around to the next Friday. And once again, we have some money that has come in from our clients up this time, we have 3000 times that has come in. So again, we can have we can enter it in we can have a look. And we can see how much we move into each of our spaces or buckets. And we keep doing that. Now when it comes time each month to pay yourself, you then have the amount in the owners pay available to pay yourself. Some people choose to pay themselves the entire amount each. Some people choose to fix the amount they pay themselves each month so that if they have quieter months, they have they can kind of flatten out their income. Um, you know, build up a buffer for quieter months in the owners pay how you do it really is up to you. But when it comes to the profit, the purpose of the profit account is to give you a bonus a bonus for running your business incredible. Demand with the profit account is every quarter, you pay yourself half the balance in the profit account. That way you'll see your profit grow and accumulate. Now if you have debt, it is recommended that 99% of the profit account that you are due to distribute goes to overpayments of debt, it goes to reducing the debt that you have in the business faster 1% of that 50% balance to yourself. It's also recommended that with the profit, profit account amount, you actually put it towards something that you are maybe saving for or or you know, some kind of celebratory spending, because this is profit that you didn't have before. This is money that is a bonus to you. And you know you want to be able to be excited about this coming to you. So let's celebrate having profit in our business, and let's run our lives from our owners pay amount that comes out to us, then, of course, when it comes to tax time, you then should have the money in your tax account to make your tax payments, and your operating expenses account. That will be where direct debits come from where all your, you know, invoicing comes from as well. And if you have a team separate team pot, you can absolutely by all means add that in here as well. So that you are saving for your team spend, then when it comes to paying your payroll or invoices to contractors and you can do your team pot to typically what will happen with those pots is in most instances, you will have to route that money via the operating expenses to pay it out for your profit for your owners pay for your tax and for any other pots or spaces or bank accounts that you may have. That is usually the mechanism that we have for getting that money out there as well. Becky says you'd like a copy. Amazing Becky, I will, I will set it up so that we can get you guys copies of this allocation template. And I'll put a post in the group once that's available, once I've organized that. And that's available for you to use, because it does make it nice and simple and straightforward. So that is my task today is to basically get your system set up so you can start allocating. So you can either build this template yourself, you can get a copy, as I say, I'll put that in the group. Or you might want to do this in a notebook or something like that. And that's completely okay. But get this system set up so that you know what your starting percentages are going to be by looking at what you currently have. And then in most instances, adding 1% owners pay and taking away 1% from operating expenses. That will be for the vast majority of you if you have any questions about how you do this for your individual business, then do post in the group and let me know and I will answer those.


Now if you currently have a negative number in that profit account profit percentage, then what I want you to do set that to zero, I want you to set the profit to zero and and keep your owner's pay and your tax sorry, not zero, I don't want you to set it to zero, I want to set it to point five of a percent. So set the profit 2.5 of a percent and you'll keep your owners paying your taxes same and it will be your operating expenses will adjust. Okay, so if your profit when you work out what your current allocation percentage is, if your profit percentage is negative, I want you to change that in your allocations sheet 2.5 of a percent and keep your owners pay and tax the same. If you're not sure what to do, let me know what your percentages are in either the comments to this video or just in the group in a post. And I will let you know what percentages you want to be putting in here for your business as well. Um, and so I want you to set up this system for yourself so that you know what percentages you're going to be paying. And you can decide on a frequency as well. So get those two things. And when you decide on your frequency, put it in your diary, note it down so that you have this as a to do for yourself. It really shouldn't once you get going with this shouldn't take you more than five minutes to work out the amount that you need to put in the yellow box and work out the amounts that you need to pay to the different pots spaces or bank accounts. And to make the transfers is really not an onerous task every week. So you don't need to set aside you know, an hour to do this or anything like that. This is a quick, easy thing for you to incorporate into your routine on a weekly basis so that you can be more financially healthy with your business. I would love to be able to turn off the screenshare and turn on my video. But yeah, Facebook does not let you toggle between the two, which is a little bit frustrating. But we are where we are with that that is what it is. So we can we just need to go with that. So apologies for you not seeing my face today.


But I hope this all makes sense. As always, if you have any questions, I've been going through some of the comments from the last couple of days this morning, some people doing some great stuff, I'm gonna go and continue going through those after this as well. So it I'm really excited at what people are achieving what people are getting done, and that people are moving forward with getting a profit first implemented set up in their business so that you can get more money home for you and your family to enjoy.


So thank you everyone for tuning in today. As always, I appreciate your time. I hope that this session has been useful for you In getting an understanding how we're going to kind of set up for your allocations and prepping for your allocations and tomorrow is going to be allocation day. So that is a day to celebrate, particularly if you have never done an allocation before or if you've done some before, but you fallen off the wagon, this is going to be a fun day for all of us to, to high five you to celebrate and to to start your journey of making things, making things better in your business. Let's see, Clive would like a copy as well. I will get that out to you Clive, I will get I will. I will pop a link in the group later once I've sorted that out, so that you guys can get this allocation template. So yeah, we'll get that sorted out for you no problem at all. We'll get that fixed. I didn't just didn't have a chance to do it before the session. So I just thought I'd make sure and see if there was interest in doing it. So I will spend some time later today this afternoon and get this this ready for you to use. Thank you so much for tuning in everyone. I appreciate your time today. I hope this has been useful. And any questions you know where I am asking the group, ask in the comments, do all those good things. And I will speak to you all very very soon. Same time, same place remember tomorrow. See you then bye.

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About the Author

Owner of Annette & Co. - Chartered Accountants & Certified Profit First Professionals. Helping online service-based entrepreneurs find clarity in their numbers, increase wealth and have more money in their pockets.

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