Profit First by Mike Michalowicz
Mark encouraged me to read Profit First by Mike Michalowicz when I had just started my business. I’ll be honest, it was a bit discouraging when I read it, largely because I was reading a book by a millionaire about making profit when I had a business that wasn’t bringing anything in…yet. Even though I was initially discouraged, I’m so glad that I continued reading and finished the book. From day one, I have implemented the practice of setting money aside into specific accounts the moment that I receive income.
Put your profit first.
No matter how much (or how little) money that comes in, I distribute specific percentages into separate accounts: profit, taxes, expenses, and owner’s draw. Notice how profit is first on my list. Mike talks about the equation that most accountants and business owners use, which is the following: Sales - Expenses = Profit. Using the first equation puts profit as the last priority, keeping a profit only if you haven’t spent it all on expenses of running your business. He challenges us to flip the equation to the following: Sales - Profit = Expenses. If using this model, you always set aside money for profit first, even if it’s as little as 1%.
Make your business work for you.
Building on that idea, Mike encourages business owners to not only take a percentage of every check for profit, but he also encourages us to spend some of that money every quarter. It’s a tangible reminder that your business is working for you rather than the other way around – you working for your business. If you consistently spend your profit money, you will be reminded that you are the owner of a profitable business, and that’s exciting!
A practical example
A practical example of this idea is my most recent purchase using my profit account – my new Bosch dishwasher! Anyone who knows me knows that I can’t stop talking about this amazing dishwasher. Originally I had been planning on using my profit account for a fun trip – Disneyland or Universal Studios with my family, but then the pandemic happened. So when the dishwasher died on me, I decided to splurge on a new dishwasher that would bring me joy. [Enter Bosch 500 series!!]
Yes, what could otherwise be a mundane kitchen appliance purchase has transformed into a tangible reminder of how my business is working for me. And it’s an added bonus for the kids since I prefer to empty and fill the new dishwasher myself. :)
Whether you are a business owner, or if you are looking to manage your finances more effectively and efficiently, I highly recommend Mike Michalowicz’s Profit First. After reading it, please let me know what you thought of the book. Are there habits that you will change as a result of what you read?