Allocate the Money: Why Profit First Works When Willpower Doesn’t
Allocate the Money: Why Profit First Works When Willpower Doesn’t
Last week we talked about visibility. The first part of any healthy financial system is being able to see what’s actually happening in your practice. We covered the two diagnostic moves that surface most of the leaks: separating clinical from optical on your P&L, and tracking five specific KPIs every month.
If you didn’t catch Part 1, you can read it here.
Now we get to the part that protects what you can finally see.
Because here’s what tends to happen when practice owners get clear visibility for the first time. They look at the numbers, they spot the leaks, they make a plan to fix them, and then nothing changes. Not because they’re lazy. Not because they don’t care. Because the structure of how their money flows is working against them.
That’s what we’re fixing this week.
Parkinson’s Law and your operating account
There’s a principle called Parkinson’s Law. It says the demand for a resource expands to consume the supply of it.
Give a project two weeks, it takes two weeks. Give it eight, it takes eight. Same project, same scope, different outcome based purely on how much resources were available.
The same is true with money. When all of your collections sit in one operating account, your operating expenses will expand to consume them. Not because you’re undisciplined. Not because you’re bad with money. Because that’s what happens when there’s no structure separating the money.
The math isn’t the magic. The structure is.
This is the entire reason Profit First works. Instead of trying to use willpower to be more disciplined with one big account, you change the structure. You allocate every deposit across separate accounts, each with a specific purpose. The money you’re saving for taxes lives in the tax account. Your owner's pay lives in the owner's pay account. Your operating budget has its own ceiling and has to live within it.
The five accounts
With Profit First, money gets allocated across five accounts as cash collections come into your optometry practice:
Cost of Goods Sold (around 28% of collections)
Operating Expenses (around 37%)
Owner’s Pay (around 15%)
Tax Savings (around 10%)
Profit (around 10%)
The exact percentages vary by practice maturity, debt load, and revenue model. But the structure is the point. By moving money into separate accounts on a regular schedule - every 10th and 25th of the month works well - you remove the daily temptation to “borrow” (aka steal) from your own future.
When operating expenses live in their own account with a real ceiling, you stop overspending without trying. You start asking better questions. Do we actually need this software? Is this lab the most efficient option, or just the most familiar one? Does this staffing model match our actual exam volume? You stop renegotiating from a position of panic. You start renegotiating from a position of structure.
If full implementation feels like too much, start with the 1% rule
If those percentages feel overwhelming on day one, here’s the entry point I recommend most often.
Open one separate savings account. On every deposit, transfer 1% off the top before you pay anything else. That’s it.
If your practice can run on a thousand dollars, it can run on nine hundred and ninety. Once you prove that to yourself, you raise the percentage. Most practices can work up to ten or fifteen percent profit allocation within a year, just by following this single habit.
The hardest part isn’t the math. It’s trusting that the money you don’t see is the money that saves you.
Why allocation has to come second
Visibility without structure leads to better-informed panic. You can see exactly where the cash is going, but you don’t have a system to redirect it. Allocation gives you the system.
And once allocation is in place, something interesting happens. The third part of the operating system, which we’ll cover next week, becomes possible. Because once your owner's pay is automatically funded every deposit cycle, you stop being the part of the practice that gets cut first when things tighten.
That’s a different kind of practice to own.
Coming next week
Part 3: Protect Owner Pay. The order most practice owners cut costs when margins tighten is backwards. We’ll talk about why and how to flip it.
Want help setting up your allocations?
If you’d like a calm conversation about where your cash is actually going and what your practice’s allocation percentages should be, you can book a Financial Clarity Call. Thirty minutes, no sales pitch.
➤ Schedule Your Financial Clarity Call
Byline:
Eric Levenhagen, CPA is the only financial consultant who helps private practice optometrists improve the financial health of their practice with a simple process called Financial Harmony, which will reduce their taxes and increase their after-tax profits so they can reach their personal goals faster.
