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How to Set Up a Cashflow Waterfall for Your Business

Financial clarity starts with a plan. The cashflow waterfall system ensures that every dollar you earn is directed toward specific priorities, leaving no room for waste or confusion. Setting up your cashflow waterfall may feel overwhelming at first, but it’s easier than you think. In this blog, we’ll walk you through the process step by step.


Step 1: Understand the Accounts You Need


The first step in creating a cashflow waterfall is setting up the right accounts. Each account serves a specific purpose, ensuring that your funds are used strategically.

  1. Main Operations Account:

    • This account collects all revenue before funds are distributed.

    • Think of it as your financial headquarters.

  2. Profit Account:

    • A percentage of revenue is allocated here first, ensuring your business is always profitable.

    • Prioritizing profit upfront reinforces a sustainable financial model.

  3. Expense Account:

    • This account covers operational costs like rent, utilities, and salaries.

    • It ensures you stay on top of recurring expenses without overspending.

  4. Emergency Fund Account:

    • Builds a reserve of at least three months’ operating expenses to safeguard against unexpected challenges.

    • This is your financial safety net.

  5. Taxes Account:

    • Reserves funds for quarterly or annual tax payments, ensuring you’re always prepared for tax obligations.

  6. Investment Account:

    • Funds growth initiatives like marketing campaigns, hiring, or technology upgrades.

    • Use this account to fuel your business’s future.

  7. Owner Distribution Account:

    • Ensures the business owner is compensated fairly without jeopardizing the company’s finances.


Step 2: Decide on Percentages


Once your accounts are set up, decide how much revenue to allocate to each one. Here’s a recommended starting point:

  • Profit: 10–15%

  • Expenses: 40–50%

  • Emergency Fund: 5–10%

  • Taxes: 15–20%

  • Investments: 5–10%

  • Owner Distribution: 5–10%

These percentages can be adjusted based on your business’s unique needs and goals.


Step 3: Automate Transfers

Consistency is key to a successful cashflow waterfall. Automate weekly or biweekly transfers from your Main Operations Account to the other accounts. Most banks and financial tools like QuickBooks can help you set this up easily.


Step 4: Monitor and Adjust

Your cashflow needs may change over time. That’s why it’s essential to review your account balances monthly. Ask yourself:

  • Are expenses exceeding the allocated percentage?

  • Is the emergency fund growing steadily?

  • Are you setting aside enough for taxes?

Adjust percentages as needed to reflect your business’s growth and changing priorities.


Final Thoughts

Setting up a cashflow waterfall may require some initial effort, but the clarity and control it provides are invaluable. Once your accounts are in place and your percentages are set, you’ll gain the peace of mind that comes with knowing every dollar is working for you.

In the next post, we’ll explore the transformative benefits of a cashflow waterfall system and how it can help your business thrive.


Stay tuned, and let’s take your financial management to the next level.


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