Managing cash flow is one of the biggest challenges for small business owners. Many businesses operate on thin profit margins, struggling to cover expenses and leaving little room for growth. Thankfully, the Profit First system offers a simple but powerful solution: prioritize profit by structuring your finances with dedicated bank accounts.

By allocating revenue into multiple bank accounts with set percentages for profit, taxes, and operating expenses, business owners can gain better financial control and reduce overspending to build long-term stability. Here’s how it works—and which accounts you’ll need to set up in a Profit First system. 

What Is the Profit First Method?

The Profit First method, created by Mike Michalowicz, is a cash management system designed to help businesses prioritize profit, control expenses, and improve financial stability. Instead of following the traditional accounting formula:

Revenue – Expenses = Profit,

Profit First flips the equation:

Revenue – Profit = Expenses.

This shift ensures that businesses pay themselves first by setting aside profit before covering expenses. By allocating income into dedicated bank accounts with set percentages for different financial needs, business owners can prioritize business stability. The Profit First system is especially useful for small business owners, freelancers, and entrepreneurs who struggle with unpredictable cash flow—or want a more structured approach to financial management. 

The 6 Essential Profit First Bank Accounts

To successfully implement the Profit First system, businesses must use separate bank accounts to allocate income strategically. Each account serves a distinct purpose, ensuring that money is properly distributed for profit, taxes, owner’s pay, and expenses. Below are the essential Profit First bank accounts every business should have.

Income Account

The income account is the primary holding place for all business revenue. Every payment received is deposited into this account, but no expenses are paid directly from it. Instead, funds are transferred from the income account to the other designated accounts based on predetermined percentages. This ensures that money is allocated intentionally rather than spent haphazardly.

Profit Account

A percentage of every dollar earned—typically between 1–10% to start—is immediately transferred into the profit account. This guarantees that profit is prioritized rather than treated as an afterthought. The money in this account is not for operating expenses; instead, it is used for quarterly profit distributions, allowing business owners to reward themselves and build long-term financial security.

Owner’s Pay Account

The owner’s pay account is dedicated to ensuring that business owners receive a consistent salary. Many entrepreneurs underpay themselves or mix personal and business funds, creating financial instability. By transferring a set percentage of revenue into this account, business owners can separate their personal income from business operations while guaranteeing they are compensated fairly.

Tax Account

Setting aside money for taxes can be a challenge, but the tax account ensures that funds are reserved for quarterly or annual tax payments. Allocating 15–30% of income, depending on tax obligations, helps cover income tax, self-employment tax, and payroll taxes without disrupting cash flow. Having a dedicated tax account prevents financial stress and ensures businesses are prepared when tax deadlines arrive.

Operating Expenses Account

The operating expenses account covers all necessary business costs, such as rent, payroll, marketing, software subscriptions, and utilities. Because profit, tax, and owner’s pay are set aside first, this account ensures that businesses operate within a predetermined budget. This approach prevents overspending and forces businesses to evaluate expenses more carefully, leading to better financial decisions.

Additional Specialized Accounts (Optional)

Some businesses choose to create extra Profit First bank accounts for specific financial goals. A payroll account can be set up to manage employee wages separately, while a debt repayment account helps businesses pay off loans in a structured way. Others may establish a large purchases account to save for future investments like equipment upgrades or business expansion. 

While not every business will have these exact accounts, the most important takeaway in a Profit First system is to establish clear accounts for paying yourself first!

How to Set Up Profit First Bank Accounts

Setting up Profit First bank accounts is a straightforward process that helps businesses gain control over cash flow and ensure profitability. By following these steps, you can create a financial structure that prioritizes profit while keeping expenses in check:

Step 1: Open Separate Business Bank Accounts

Start by opening five primary bank accounts: Income, Profit, Owner’s Pay, Taxes, and Operating Expenses. Keeping funds separate prevents commingling and provides better financial clarity. Some businesses may also choose to create additional accounts for payroll, debt repayment, or large future purchases.

Step 2: Determine Your Allocation Percentages

Decide how much of each deposit should be allocated to each account. A common starting point is:

  • 1–10% to Profit (ensuring profitability)
  • 30% to Taxes (for estimated tax payments)
  • 50% to Owner’s Pay (for solo business owners)
  • Remaining funds to Operating Expenses (for rent, payroll, and overhead)

These percentages can be adjusted based on business size, expenses, and revenue growth. If you’re struggling to nail down the right percentages, be sure to check out our guide to calculating Profit First percentages.

Step 3: Automate Transfers for Consistency

Set up automatic transfers to distribute funds into each account based on the predetermined percentages. Automating this process ensures that profit, taxes, and business expenses are handled consistently without the temptation to overspend.

Step 4: Monitor and Adjust Allocations Regularly

Review account balances and cash flow trends every two to three months to determine whether allocation percentages need adjusting. As revenue increases, businesses may shift more funds to profit or reinvestment while keeping expenses controlled.

North One Makes Profit First Banking Easier

Managing multiple bank accounts can feel overwhelming, but North One simplifies the Profit First system with digital banking tools that make cash flow management effortless. Instead of opening multiple physical bank accounts, North One allows business owners to create digital “envelopes” to mimic Profit First bank accounts—helping you keep funds organized while avoiding unnecessary banking fees.

With automated transfers and budgeting tools, North One also makes it easy to allocate income into separate categories to ensure profit, taxes, and expenses are always accounted for. Business owners can track their cash flow in real time, integrate with accounting software, and set aside funds for quarterly tax payments without the hassle of juggling multiple accounts. This allows you to fully implement the Profit First method while maintaining a streamlined financial accounting system.

Implementing Profit First for Financial Success

The Profit First system is a powerful way to gain control over business finances, ensure consistent profitability, and prevent overspending. And while managing multiple accounts manually can seem time-consuming, North One simplifies the process with digital “envelopes,” automated transfers, and seamless expense tracking. 

Whether you’re new to Profit First or looking to improve your cash flow management, having the right banking tools in place makes all the difference. Open a North One account today and start implementing the Profit First system with ease—because managing your money should be as simple as making a profit.