When collecting retainers from customers, it’s essential to handle those funds wisely to ensure financial stability and growth for your business. In the Profit First methodology, retainers are housed in a separate Retainers, or Drip, account until you have earned that revenue. Once the revenue has been earned, follow this sequence to allocate the funds appropriately: Income account: Transfer the amount of the retainer that has been earned from your Retainer or Drip account into the Income account. Profit account: Allocate a percentage of the retainer to the Profit account. This ensures that you prioritize profit and set it aside before covering expenses. Owner’s Compensation account: Set aside a portion of the retainer for the Owner’s Compensation account. This is your salary as the business owner. Taxes account: Allocate a percentage of the retainer to the Taxes account. This helps you save for tax obligations so that you don’t face a hefty tax bill later. Operating Expenses account: The remaining amount after allocating for Income, Profit, Owner’s Compensation, and Taxes goes into the Operating Expenses account. This is used to cover the day-to-day expenses of running your business. By allocating the retainer accordingly, you ensure that you’re effectively managing the funds, prioritizing profit, and securing the financial health of your business.
