Profit First Bank Accounts Help Prepare Your Business for Tax Season

Having just closed the third quarter, most ecommerce sellers are preparing to pay their Q3 sales tax and anticipating what their Q4 tax liability might be. Yes, it’s that time again. Were you prepared with the funds you needed when that tax bill arrived in your mailbox? Will you have the funds there and ready when Q4 or year-end comes around?

Profit First for Ecommerce Sellers

Sales tax liability is a big concern for all businesses; for some, it’s like the proverbial “necessary evil.” You may not like paying sales tax, but if you plan ahead, you don’t have to stress over having the money available when it’s payment time. The systems put into place with Profit First allow you to plan ahead and allocate funds throughout the year, so you’re prepared and stress-free when you get that payment notice.

Does Profit First Work?

Two key points to remember:

1. Keeping all your money in one account makes it challenging to allocate funds for taxes, inventory, and other expenses. Profit First separates revenue into different accounts for efficient operations and permanent profitability.
2. Sales tax belongs to the state, not your business. Profit First’s cash flow strategy helps ecommerce businesses manage funds effectively and avoid spending government money on other expenses.

How to Use Profit First Bank Accounts

Profit first accounting is worth it. You should have a savings account designated for Taxes. This is one of your five basic Profit First accounts and you allocate funds to it just as you do the other four—Inventory, Operating Expense, Profit, and Owner’s Pay. Keeping the funds separate eliminates the temptation to use the money for replenishing inventory and just hope that the products sell before the tax payment is due.

What is Parkinson’s Law?

Profit First, created by Mike Michalowicz, introduces a framework to manage finances and ensure profitability. It addresses Parkinson’s Law, which states that we tend to use more when we have more, whether it’s time, money, or resources.

Addressing the Unique Needs of the Ecommerce Business

In my book, Profit First for Ecommerce Sellers, I customize the Profit First model to address the unique needs of the ecommerce seller. With the 5 basic bank accounts and a calculated allocation percentage for each, you can become profitable with your very next Amazon payout!

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