How to use Profit First and YNAB

Have you been dreaming of using Profit First and You Need a Budget (YNAB) with your business finances?
You loved the book “Profit First” but…..implementing all those accounts seemed a bit overwhelming? Check out how to mash up YNAB (You Need a Budget) with Profit First to help you manage your business cash flow. That’s right….1 checking account + YNAB + Profit First!
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This is definitely a more advanced video and assumes you already know YNAB. Be sure to check out my other videos on learning YNAB before you implement this system.
Be sure to note that in addition to using YNAB for my business cash flow, I also used a true bookkeeping system (mine is QuickBooks Online) as recommended by my CPA. You should definitely talk to your CPA about Profit First in your business and discuss with your CPA on what accounting software best fits your business.
Green Bites Project is not a tax pro, just sharing something that works for planning and managing the business cashflow.
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I have been personally using YNAB since February 2011 (when I finally figured it out!). This ad is *not* sponsored by YNAB and in fact, I have no referral links to it. This is of my personal opinion and what my financial coaching clients love too to help them sustainably stick to their financial goals.
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[@wisethirtyseven]

Super helpful video. Thank you!

[@greenbitesproject]

Heyyyyy there! I am so glad it was helpful! Thank you for commenting!

[@sandyg4888]

I've been a ynab user since Nov, 2017 & I love this "get to the point" video. New to Profit First; haven't even read the book but I started a side gig April 1st. I have an excellent tax guy, ynab & now I'll start the Profit First way! Thank you so much!

[@greenbitesproject]

Hey Sandy! I am so glad to hear that. I hope this is so helpful! I recorded this in December, but still going strong on YNAB and it helps me think about my cash flow SO much. I definitely still run Quickbooks Online for my CPA/IRS too. But YNAB + Profit First helps me plan. Good luck! Let me know if any questions!

[@gregbarbosa0]

This was the BEST video I've seen on managing YNAB, Profit First, and a business. Thank you thank you thank you! I was so confused on how to organize it all, but this helped tremendously. My question is: how do you manage personal and business expenses? Do I create two separate budgets within YNAB, and then use the salary and break it out from there? Like I don't want to add my personal health insurance under the business budget unless that's the only way to do it.

[@greenbitesproject]

Hey Greg! I am so glad to hear it. It's been a process so helpful for not only my business, but my client's businesses as well. Yes, I have a separate personal budget within YNAB (as do my clients)....when I pay myself from my business budget, this is an expense on my business budget and then becomes "to be budgeted" income on the personal side. My transactions automatically import, so YNAB recognizes the business side is an outflow on the business budget and then its an inflow on my personal budget. They operate completely separate. Hope that helps! Let me know if any other questions!

[@gregbarbosa0]

@@greenbitesproject That helps tremendously! Thank you! I'm going to deep dive in and get all my things properly sorted. Thanks again 🙂

[@greenbitesproject]

@@gregbarbosa0 Awesome! You're gonna love it. I can't imagine running my business any other way...makes it very clear to know exactly what I need to invest, hire, ad spend, pay myself, plus set aside $$$ for taxes. Al the things! Good luck!

[@lydiamalone4378]

Thank you for talking about gross vs. net income, as I've struggled to organize that in my YNAB/Profit First system. Love the split category solution!

[@greenbitesproject]

I am so glad that this was helpful for you! YNAB + Profit First is just a dream together, isn't it?!?!? Good luck. Let me know if any questions!

[@depthmedicine2054]

Hi Darcie! Thank you SO much for this!! I just joined YNAB and have 2 questions: 1) what is the difference between Profit and Owner's Salary? and 2) How do you manage separating your 4 categories in real time with only 1 checking account?

[@greenbitesproject]

Hey Shonna! Depending on how you are set up, technically there might not be a difference in taxation. But it is awesome to know that you ARE a profitable company and you can use that silver of money for reinvestment, paying off business debt, treating yourself....it's like a quarterly bonus of FUN! There's something that puts a spring in your step to say "Gosh darnnit, I RUN a profitable business!!!!" You know what I mean?!!?! 🥰💖💥 For your 2nd question, I keep it all straight by using YNAB, even after all these months since I first recorded this video. I tend to use YNAB for managing where the cash goes and then Quickbooks Online (which takes most of my "bookkeeping/finance" time for my CPA/IRS. YNAB has been a lifesaver for me and clients. Hope that helps!!!

[@greenbitesproject]

I do a lot of rough percentages nowadays and tried to get myself into a monthly income format. So, if you brought in 10k for the month (in cash), I know 20% minimum needs to be swept away for taxes. I think the biggest lesson is setting pricing + having consistent marketing that brings in cash flow, so you don't have to feel like you're so strict with the %'s, you know? Taxes are a non-negotiable, not overspending in my business is a non-negotiable. If my income isn't enough, then I really double down on marketing, booking calls, etc to fix their financial equation to work. HTH! Oh and for your question on profit + owner salary, it totally depends on your business tax structure. If you're single member LLC/sole prop, it's the same for you. Just kind of a fun distinction that yeah, you've got profit! If you're a S-corp, then yes, some of it may be pay paid through payroll and some may be a owners/shareholder distribution. Definitely speak with your fav tax preparer on those for your situation. I call this "good problems to have" :) Have a great day!

[@timblandford5088]

Thanks for the video. I just happened to come upon it and found it very helpful! Quick question. If you have a variable income YoY, how would you start budgeting with profit first at the beginning of the year to come up with percentages for operating expenses, etc?

[@greenbitesproject]

Hey there! Virtually every single client of mine has irregular income - so you're totally not alone! If you can't lower your expenses much more, maybe set your expense % to be set at the minimum to cover that (or use a fixed # to ensure the bills are covered). It will take time to maybe hit your target allocations. So don't fret it it doesn't happen right away. Yes, that might throw off your %'s and cuts into profit or your take home pay. But you likely already feel that anyway. Over time, usually my %'s are way higher than what I need for expenses, so keeping the discipline of adding money to the operating expenses ensures there's money when it's lower. As a business owner, when %'s aren't enough to cover my bills, I take a hard look at my marketing and sales, pipelines, etc to make sure I am spending my time there so the sales are at the minimum level. Hope that makes sense!

[@pcfradkin]

I’ve tried YNAB and I feel like I can’t justify $12/month just for this software. Does anyone know of anything else I can use that’s cheaper/free, for business?

[@greenbitesproject]

Use a google sheet and keep track of your percentages there. It could be a napkin. It also depends on how complex your business is. I think a lot of people that like YNAB also use it on the personal side, so it doesn't feel like "another" expense - I hope you found a good solution!

[@debbiebaumoel4009]

This was very helpful! Thank you so much.

[@greenbitesproject]

So glad this was helpful, Debbie! It's one of my favorite business tools, merging YNAB + PF. Have a great day!

[@pnowak2]

Piotr Nowak I got a question regarding quarterly profit distribution. In reality the profit distribution is paid in the form of a dividend? If so a dividend is taxed both on the company site and on private site

[@greenbitesproject]

Hey there! Yes, taxes are usually inevitable. :) But profit is awesome! This would totally be something to bring up with your CPA on the best way to manage this....from a cash flow perspective, this money is set aside. Your CPA will best able to direct you based on how your company is structured + what makes sense for your taxes. Hope that helps!

[@pnowak2]

I was thinking that dividend taxes are already included in taxes plate so I just transfer half of the profit as is to my private account, no ? In other case profit distribution would be smaller

[@martinfarrow2825]

hi are you still doing this today 2023 ?

[@greenbitesproject]

Hi there! Yes, a lot of my bigger bookkeeping clients do a rough estimate with different accounts, including using Relay. We're not so precise, but it totally makes it easy to sweep away money for taxes, set pricing high enough to cover costs/pay/profit/taxes and then feel like there's good cash flow coming in. Hope that helps! But nevertheless, rough percentages work. I might do an update video!

[@martinfarrow2825]

@@greenbitesproject please do an update video thanks

[@greenbitesproject]

@@martinfarrow2825 will do! stand by! :)

[@tanyapetersen9478]

Thanks for this video! I was wondering do you do accrual based accounting? Or Cash based? If accrual how does it affect how you do profit first?

[@greenbitesproject]

Hey there Tanya! I do cash-based because of the work I do and how I get paid (recurring revenue from students). My accountant didn't care and it saves me time. So I went with cash. Since the true Profit First formula is very much based on cash (how much is your bank account on the 10th and 25th), it seems like accrual is not factored in IMO because you can't pay yourself with monies not yet received, you know? That could be a recipe for disaster. For PF, I would kind of ignore if you have accounts receivable on the books until it is moved to cash from a journal perspective. But I would check with someone that knows your situation best. HTH!

[@tanyapetersen9478]

@@greenbitesproject thank you so much! I noticed it seemed good for cash based. I should find out from my CPA which accrual method is best. I have been trying to figure out how PF would work with accrual and your comment at least gives me an idea if I do need to go accrual. Thank you!

[@belessbutbetter]

Could the same process work with Wave instead of YNAB?

[@greenbitesproject]

Hey there! I am not sure. I've only had a little exposure to Wave, but from what little I know, it is very similar to Quickbooks. I can't imagine using this with QB because it is past-looking instead of future-looking. I generally need to know how to use the cash that I have on hand and most traditional accounting systems don't allow for that planning. Definitely try it out though to see if you can't figure this out!

[@pnowak2]

In my company i have fixed salary which i pay to myself, but my monthly income varies. At the end of the year my owner's compensation profit first plate has some money which i have not yet paid to myself, so what do i do with it according to profit first system ? Should i put it in quarterly distribution and pay myself as dividend ? I guess there is one issue with that approach, cause company will have less costs (money not spent, not a cost then) when this money is not paid as salary, thus taxes will be increased. any thoughts about that ? Thank you

[@greenbitesproject]

Hey there! I think this would be an awesome thing to ask your favorite CPA for your specific situation. This was strictly a video on planning out your cash in YNAB. I'd love for your question to be answered strategically for tax purposes and your favorite tax pro can totally do that for you!

[@Supremelyme]

HI Darcie! Do you only use 1 bank account with YNAB? I am currently using quickbooks and I have 5 accounts for the profit first system. I am not liking the process. Please let me know. Thank you!

[@greenbitesproject]

That's right @Kizzy Cooke! I do Quickbooks Online too - it's a pain to get that stuff JUST RIGHT for the CPA, right? But, yes, I do just 1 checking for my business account. If you are well versed in YNAB on the personal side, you're gonna love the trifecta of Profit First, YNAB, and 1 business checking account. Hope that helps!

[@greenbitesproject]

Hi! Did you ever get this sorted? Yes, only 1 bank account! I use QBO now and just kind of keeps sorted in my head though and look at it on a monthly basis.